Final Results

RNS Number : 7638T

Animalcare Group PLC

04 October 2010

 



Animalcare Group plc

("Animalcare" or "the Company")

Full Year Results

Animalcare, the supplier of pharmaceutical and other premium products and services to the veterinary industry, announces results for the year ended 30 June 2010.

Financial Highlights

·      Revenue up 12.9% to £19.92m (2009: £17.64m)

·      Companion animal revenue up 15.7% to £11.22m (2009: £9.70m)

·      Underlying operating profit* up 31.9% to £3.14m (2009: £2.38m)

·      Underlying profit before tax* up 50.2% to £3.02m (2009: £2.01m)

·      Underlying earnings per share up 56% to 11.2p (2009: 7.2p)

·      Proposed dividend of 3p (2009: 2.5p)

·      Borrowings reduced to £4.46m (2009: £5.45m)

·      Cash & cash equivalents of £1.56m (2009: £1.53m)

* Underlying measures exclude, where applicable, amortisation of acquired intangibles, impairment of goodwill, fair value movements on interest hedging, impairments to current and non-current assets and other charges relating to Group reorganisation.

Operational Highlights

·      Focus of the business now on rapidly growing, Companion Animal Division

·      Sale of marginally profitable agricultural focused business for £3.25m

·      Closure of chemical formulation plant, Travik Chemicals

·      Several new licensed veterinary products launched during the year

James Lambert, Chairman of Animalcare said:

"2010 has been a transformational year for your Company whilst still achieving all our financial targets. Your Company has achieved record sales, margins and underlying profits during the last financial year. Since the year end it has also become virtually debt free, after the proceeds from the sale of the agricultural business have been realised. With a simpler and more focused business, I believe your Board has put in place a strategy for optimising the growth in earnings per share of your Company for several years to come."

For further information, please contact:

Animalcare Group plc
James Lambert (Chairman)	07850 702 042
Stephen Wildridge (Chief Executive)	01904 487 601
Brewin Dolphin (NOMAD)
Neil Baldwin	0845 213 4726
Walbrook PR Ltd	020 7933 8787
Paul McManus	07980 541 893
	[e-mail]

CHAIRMAN'S STATEMENT

FOR THE YEAR ENDED 30 JUNE 2010

Introduction

2010 has been a transformational year for your Company whilst still achieving all our financial targets. With over 80% of your Company's earnings now coming from the recently acquired, and rapidly growing, Companion Animal Division your Board decided to conduct a full strategic review of the entire Company. The purpose of this exercise was to allow your Company to optimise its resources for shareholder value creation over the medium term, and to deliver a strong path of earnings growth for the future. Since the financial year end the result of this review has now been implemented, with the sale of the marginally profitable agricultural focused business for £3.25m, which completed towards the end of September 2010, and the closure announcement on 4 October 2010 of its small chemical formulation plant Travik Chemicals.

The agricultural market has seen a decline of both animal numbers and margins over many years which have slowly eroded the profitability of Ritchey and Fearing, along with many other similar agricultural based companies. It was felt by the Board that a better use of shareholders' funds would be to invest all our available resources in speeding up the growth of our veterinary medicines business in the companion animal market in the UK and other major European markets which are exhibiting long term growth. Your Company has grown market share in 2010 with several new licensed veterinary products launched during the last financial year, and will do so again this year. 

Financial Highlights

Your Company has achieved record sales, margins and underlying profits during the last financial year. Since the year end it has also become virtually debt free, after the proceeds from the sale of the agricultural business have been realised. Sales during the year increased from £17.68m to £19.92m, a 12.7%increase, and underlying EPS increased from 7.2p to 11.2p, a 55.6% increase. The exceptional items in the accounts are substantial this year, being £3.42m, of which £0.31m represents cash costs. Going forward your company has a strong and stable balance sheet capable of creating the resources for rapid growth.

Dividend

In line with our progressive dividend policy and underlying earnings per share, the Board is recommending a dividend of 3 pence per share, an increase of 20% over the previous year. The dividend is subject to shareholders' approval at our Annual General meeting to be held on 25 November 2010 and is proposed to be paid on 6 December 2010 to shareholders on the register on 12 November 2010.

The Board

The Board, in line with the implementation of the strategic review, has seen several changes. Stephen Wildridge, who has successfully built up the Animalcare company over the past 7 years, became Group Chief Executive Officer taking over from Simon Riddell who left the Group on 1 April 2010. I would like to thank Simon who, through the acquisition of Animalcare Ltd from Genus plc in Jan 2008, helped transform the prospects of the old Ritchey business. John Tobin, previously Group CFO, who helped both integrate Animalcare into the old Ritchey  Group and then recently sell off the non-core agriculture business, retires from the Group in December 2010 after all the transactions have been completed. His contribution during his time with the business has been important and very much appreciated by me and his colleagues. I am delighted that Peter Warner, our Group Financial Controller has been appointed as Chief Financial Officer. Peter joined the Group through the acquisition of Animalcare Ltd veterinary business, having previously been the Financial Controller for that business.

On behalf of the Board and the shareholders I would like to thank all our colleagues for their dedication and hard work that has delivered this successful year.

Prospects

With a simpler and more focused business, I believe your Board has put in place a strategy for optimising the growth in earnings per share of your Company for several years to come. The current year has started in line with your Board's expectation.

James Lambert

Chairman

CHIEF EXECUTIVE'S REVIEW

FOR THE YEAR ENDED 30 JUNE 2010

Introduction

Animalcare Group plc continued to operate as two divisions, Companion Animal (Veterinary Products) and Livestock. The Companion Animal (Veterinary Products) Division is focussed on the supply of licensed veterinary medicines, animal identification microchips and other professional goods and services to veterinary practices in the UK and through development and distribution partners to key markets in the EU. Although the focus of the Division remains on companion animals (dogs, cats, horses and other small pets) it also supplies a small number of licensed livestock medicines. The Livestock Division is focussed on the supply of livestock identification ear tags and animal husbandry sundries to agricultural merchants, retailers and farmers in the UK and Ireland.

The table below illustrates the relative significance of the Divisions:

	Revenue	Underlying operating profit*
Companion Animal Division	56%	84%
Livestock Division	44%	16%

* excludes unallocated group costs

Market overview

Companion Animal Division

The UK animal health manufacturers association, the National Office of Animal Health (NOAH), reported the overall UK market veterinary medicines as showing less than 0.5% growth in calendar year 2009. The companion animal segment however continued to show its resilience and posted an 8.2% year on year growth demonstrating both the commitment of the UK public to their pets and the increasing range of treatments and products available to veterinary surgeons to treat companion animals. In the financial year the Companion Animal Division grew its revenue by 16% year on year to £11.22m (2009 : £9.70m) comfortably ahead of market rates. Notable in the year were the launch of the flavoured version of Animalcare's canine heart treatment Benazecare now sold as Benazecare Flavour and as planned, the launch in the final quarter of the year of two new products Enrocare Injectable Solution, a later generation antibiotic and Phenoleptil, a treatment for epilepsy in dogs. It was also encouraging that the range of older products saw revenue growth of over 7% as they benefited, we believe, from wider buying across parts of our range by veterinary surgeons stimulated by the interest in the new products. Underlying operating profit grew by 25% to £2.87m (2009 : £2.30m).

Livestock Division

Although annual revenue for the Division grew by 9% over the previous year to £8.77m (2009 : £8.04m) underlying operating profit remained static at £0.54m (2009 : £0.54m). One of the main factors affecting the performance of the Division related to the introduction of new regulations for the electronic tagging (EID tagging) of sheep on 1 January 2010. Uncertainty surrounding the EID regulations resulted in many farmers deferring normal purchases until spring 2010 which depressed tag sales in the first half of the year. As compliance requirements became better understood by farmers, we benefited from a surge in demand in the latter months of the financial year.

The component costs of EID tags are substantially higher and the production process is more complex and lengthy than the simple plastic tags which they supersede. Although EID tag prices, and therefore revenue, are much greater than the simple plastic tags, the market did not reach a level where the same percentage margin or in some cases the same cash margin was achieved. The effect of these developments in the main product category of the Division reflects in the improved revenue but relatively poor profit performance.

Other difficulties affecting the Livestock Division were: the continuing strength of the New Zealand dollar in which a number of key products are purchased; commodity price fluctuation in relation to iodine; and the loss of important non agriculture customer contracts at Travik Chemicals. The Division was however successful in completing the launch of a revolutionary automatic sheep tag applicator, the Autotagger, in further developing its industrial tagging business and in increasing sales of electronic weighing equipment.

Exceptional Costs

From the time of the Animalcare Limited acquisition in January 2008 until early 2010 the directors' intention was that the Group's businesses should be brought together in a single location. This objective was to be addressed by launching Project Copper, whereby target premises were identified and expenditure committed in respect of building design, planning applications and detailed relocation planning.

However, early in 2010 Project Copper was terminated for strategic and financial reasons, which led to senior management changes and the instigation of a strategic review of Livestock Division activities. The ongoing challenges in the market faced by the Livestock Division, combined with the financial performance of the Division, resulted in the directors forming the view that the recoverable value to the Group of the assets of the Livestock Division was much lower than their carrying value, and that an impairment charge was necessary.

These considerations resulted in an exceptional charge for the year of £3.42m, principally relating to the impairment of goodwill and non-current assets.  The associated cash costs amount to £0.31m.  Further details are given in the Financial Review.

Future Developments

The strategic review of the Group was completed in summer 2010 with the recommendation that the Livestock Division be sold to allow concentration on the faster growing and more profitable Companion Animal Division. The sale of the Ritchey and Fearing businesses was completed on 17 September 2010 by way of a trade and asset sale for Ritchey and a share sale for Fearing International (Stock Aids) Ltd. The combined gross consideration payable for the two businesses is £3.25 million subject to confirmation in completion accounting. I am satisfied that the divestiture of Ritchey and Fearing was achieved on favourable terms.

On 4 October 2010 the Group's withdrawal from Livestock Division activities was completed by the announcement of the closure of its loss making subsidiary Travik Chemicals Ltd.

The retained Companion Animal Division has a full new product development pipeline with at least four in-house or distribution new products scheduled for launch in the coming year. This rate of new product introduction is capable of being sustained into the medium term at approximately the same levels of investment we have seen historically. The investment in new sales staff in the last year is complete and is working well. Emphasis in the coming year will be on strengthening the management team to control and deliver the potential available to the Division.

I am confident of the strategy and proven strength of the core elements of the new shaped Animalcare Group and that we are building a very strong sustainable business which is capable of continuing to deliver exceptional rates of growth. The key elements are already in place.

Stephen Wildridge

Chief Executive Officer

FINANCIAL REVIEW

FOR THE YEAR ENDED 30 JUNE 2010

Group Overview - Revenue and Profit

The structure of the Group at 30 June 2010 continued to comprise two operating segments, Companion Animal (the Animalcare Ltd business) and Livestock (the Ritchey, Fearing and Travik Chemicals businesses).

Group revenue for the year ended 30 June 2010 was £19.92m (2009 : £17.64m). Underlying (*) operating profit was £3.14m (2009 : £2.38 m) and underlying(*) profit before tax was £3.02 m (2009 : £2.01 m). Total losses before tax for the year ended 30 June 2010 were £0.56m (2009 - profit £1.53 m).  After income tax expenses of £0.47 m (2009: £0.49 m) total comprehensive losses for the year were £1.03m (2009 - income £1.04 m).

Total Group revenue was 13% higher than the previous year with each of the operating segments contributing positive growth. Underlying (*) grossprofit for the year was £10.51m (52.8 per cent of Group revenue) versus £9.89m (56.1 per cent of Group revenue) in 2009. The reduction in gross margin percentage is attributable entirely to the Livestock segment.

Distribution costs at £0.66m compare favourably with the 2009 cost of £0.69m particularly given the activity growth reflected in the revenue performance. Underlying administrative expenses for the year were £6.89 m against £6.82 m in 2009 with increased costs relating to headcount growth balanced by firm restraint on all areas of discretionary spending.

Net underlying (*) financing costs for the year ended 30 June 2010 were £0.12 m (2009: £0.37 m). This reflects the reduction in Group borrowings and the fall in UK interest rates.

(*) Underlying results are before the effect of exceptional costs and other items as noted below.

Exceptional costs and other items

The Chief Executive's Review outlines the events giving rise to the exceptional costs which, along with a number of other items, have been identified separately from the underlying earnings of the Group. Together these exceptional and other costs amounted to £3.58m, full details of which are shown in note 4 to the financial statements.

The main elements of the exceptional costs were:

-     abortive costs of Project Copper (a project to consolidate all business activities on one site) and senior management changes totalling £0.28m

-     impairments and other costs related to the Ritchey and Fearing businesses totalling £2.56m (including goodwill impairment totalling £2.16m)

-     impairments and other costs related to Travik Chemicals totalling £0.58m.

Other items which have been excluded from underlying results are amortisation of acquired intangibles £0.12m (2009: £0.12m) and fair value movements on interest rate hedging £0.04m (2009 : £0.23m).

Cash Flow

Operating profit plus depreciation, amortisation and impairment ("EBITDA") for the year ended 30 June 2010 was £3.13m (2009 :  £2.75m). This comparison is affected by cash costs of £0.22m relating to the exceptional items referred to above and in note 4 to the financial statements. Net cash flow from operating activities fell to £1.94m from £2.45 m in 2009, with a working capital increase of £0.54m (2009 : £0.31m decrease) resulting primarily from an increase in trade receivables and tax and interest payments totalling £0.80m (2009 : £0.80m).

Capital expenditure in the year ended 30 June 2010 totalled £0.61m (2009 : £0.65m) with developed intangible capital expenditure totalling £0.41m (2009 : £0.31m) and expenditure on property, plant and equipment amounting to £0.20m (2009 : £0.34m).

After dividend payments of £0.49m (2009 : £0.45m) and loan repayments of £1.00m (2009 : £1.23m), net positive cash flow for the year ended 30 June 2010 was £0.03m (2009 : £0.15m).

The Group's net debt at 30 June 2010 (comprising bank loans less cash and cash equivalents) was £2.89m (2009 : £3.92m) which comprised total bank debt at 30 June 2010 of £4.46m (2009 : £5.45m) and cash balances of £1.56m (2009 : £1.53 m).

Segmental Analysis - Companion Animal

Revenue from the Companion Animal segment in the year ended 30 June 2010 before eliminations was £11.22m against £9.70m for 2009 representing 16 per cent year on year growth. Strong growth in licensed veterinary medicines was supplemented by notable growth in sales of electronic pet identification microchips, infusion accessories and hygiene products. 

Gross profit for the segment increased marginally at 53.1 per cent of revenue against 52.9 per cent in 2009. Overhead costs in the segment increased by 9 per cent ahead of 2009 mainly through head count increases in the sales function which were required to maintain the pace of business development in the segment.

EBITDA for the segment for the year ended 30 June 2010 was £3.05m (2009 : £2.43m).

Segmental Analysis - Livestock

The Livestock segment contributed £8.77 m of Group revenue before eliminations (2009 : £8.04m) representing 9 per cent year on year growth. Revenue growth was almost entirely attributable to electronic identification (EID) tags for sheep, with progress in industrial tags and electronic weighing equipment but level or negative performance in other product groups.

Gross profit for the segment was 54.0 per cent (2009 - 59.2 per cent) of revenue. This reduction results overwhelmingly from the higher manufacturing cost of EID tags although there was secondary margin erosion through the continuing strength of the New Zealand dollar, commodity price fluctuation in relation to iodine and the loss of important customer contracts at Travik Chemicals.

There was no significant year on year change in the level of Livestock segment overheads.

EBITDA for the segment for the year ended 30 June 2010 was £0.64m (2009 : £0.79m).

P Warner

Chief Financial Officer

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 30 June 2010
		Underlying results before exceptional and other items	Exceptional and other items(*)	Total	Underlying results before exceptional and other items	Exceptional and other items(*)	Total
		2010	2010	2010	2009	2009	2009
	Note	£'000	£'000	£'000	£'000	£'000	£'000
Revenue	4	19,921	-	19,921	17,638	-	17,638
Cost of sales		(9,231)	(181)	(9,412)	(7,749)	-	(7,749)
Gross profit		10,690	(181)	10,509	9,889	-	9,889
Distribution costs		(631)	-	(631)	(693)	-	(693)
Administrative expenses		(6,918)	(3,359)	(10,277)	(6,819)	(252)	(7,071)
Operating profit/(loss)	4	3,141	(3,540)	(399)	2,377	(252)	2,125
Finance costs		(137)	(38)	(175)	(387)	(227)	(614)
Finance income		16	-	16	16	-	16
Profit/(loss) before tax	4	3,020	(3,578)	(558)	2,006	(479)	1,527
Income tax (expense)/credit	5	(799)	326	(473)	(585)	97	(488)
Total comprehensive income/(loss) for the year		2,221	(3,252)	(1,031)	1,421	(382)	1,039
Basic (loss)/earnings per share	6			(5.2p)			5.3p
Fully diluted (loss)/earnings per share	6			(5.2p)			5.0p
Total comprehensive income/(loss) for the year is attributable to the equity holders of the parent.
* In order to aid understanding of underlying business performance, the directors have presented underlying results before the effect of exceptional and other items.  These exceptional and other items are analysed in detail in note 2.

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Year ended 30 June 2010
	Share Capital	Share Premium Account	Retained Earnings	Total
GROUP	£'000	£'000	£'000	£'000
Balance at 1 July 2008	3,951	5,824	4,870	14,645
Total comprehensive income for the year	-	-	1,039	1,039
Transactions with owners of the Company, recognised in equity:
Dividends paid	-	-	(445)	(445)
Share based payments	-	-	143	143
Balance at 1 July 2009	3,951	5,824	5,607	15,382
Total comprehensive loss for the year	-	-	(1,031)	(1,031)
Transactions with owners of the Company, recognised in equity:
Dividends paid	-	-	(494)	(494)
Issue of share capital	59	107	-	166
Share based payments	-	-	58	58
Balance at 30 June 2010	4,010	5,931	4,140	14,081

BALANCE SHEET

30 June 2010

	Group
	2010	Restated 2009
	£'000	£'000
Non-current assets
Goodwill	13,027	15,254
Other intangible assets	2,105	2,139
Property, plant and equipment	1,153	1,817
Investments in subsidiary companies	-	-
Deferred tax asset	-	-
	16,285	19,210
Current assets
Inventories	1,815	2,032
Trade and other receivables	3,418	2,589
Cash and cash equivalents	1,564	1,532
	6,797	6,153
Total assets	23,082	25,363
Current liabilities
Trade and other payables	(2,770)	(2,603)
Current tax liabilities	(479)	(339)
Bank overdraft and loans	(883)	(883)
Deferred income	(154)	(123)
Contingent consideration	-	(91)
Derivative financial instruments	(55)	(145)
Current liabilities	(4,341)	(4,184)
Net current assets/(liabilities)	2,456	1,969
Non-current liabilities
Bank loans	(3,573)	(4,573)
Deferred income	(837)	(760)
Deferred tax liabilities	(250)	(464)
	(4,660)	(5,797)
Total liabilities	(9,001)	(9,981)
Net assets	14,081	15,382
Capital and reserves
Called up share capital	4,010	3,951
Share premium account	5,931	5,824
Retained earnings	4,140	5,607
Equity attributable to equity holders of the parent	14,081	15,382

CONSOLIDATED CASH FLOW STATEMENTS
Year ended 30 June 2010
	Group
	2010		2009
	£'000		£'000
(Loss)/Profit before tax	(558)		1,527
Adjustments for:
Depreciation of property, plant and equipment	287		251
Amortisation of intangible assets	308		237
Impairment of intangible assets	115		-
Impairment of property, plant and equipment	596		-
Impairment of investments	-		-
Goodwill impairment charge	2,227		134
Finance costs	175		614
Finance income	(16)		(16)
Share-based payment award	58		94
Release of deferred income	108		108
(Profit)/loss on disposal of property, plant and equipment	(16)		(7)
Operating cash flows before movements in working capital	3,284		2,942
(Increase)/decrease in inventories	217		(214)
(Increase)/decrease in receivables	(829)		(151)
Increase in payables	76		671
Cash generated by operations	2,748		3,248
Income taxes (paid)/received	(547)		(405)
Interest paid	(265)		(410)
Net cash flow from operating activities	1,936		2,433
Investing activities:
Payments to acquire intangible assets	(407)		(311)
Payments to acquire property, plant and equipment	(205)		(336)
Interest received	16		16
Dividends received	-		-
Receipts from sale of property, plant and equipment	20		18
Net cash (used in)/generated by investing activities	(576)		(613)
Financing:
Receipts from issue of share capital	166		-
Equity dividends paid	(494)		(445)
Repayment of bank loans	(1,000)		(1,227)
Net cash used in financing activities	(1,328)		(1,672)
Net increase/(decrease) in cash and cash equivalents	32		148
Cash and cash equivalents at start of year	1,532		1,384
Cash and cash equivalents at end of year	1,564		1,532
Comprising:
Cash and cash equivalents	1,564		1,532
	1,564		1,532

1.   BASIS OF PREPARATION AND GOING CONCERN

The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU ("IFRSs"). 

This announcement has been prepared based on accounting policies which are consistent with those described in the Annual Report and Accounts for the year ended 30 June 2009, except as noted below. Whilst the financial information included in this preliminary announcement has been computed in accordance with IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs.'

Adoption of new and revised standards

The following new standards and amendments to standards were adopted by the Group for the first time for the financial year beginning 1 July 2009.

IFRS 8 - Operating Segments. The Group adopted IFRS 8 which replaces IAS 14 - Segment Reporting ("IAS 14"), during the year ended 30 June 2010. IFRS 8 requires a "management approach" under which segment information is presented on the same basis as that used for internal reporting purposes.

IAS 14 required identification of two sets of segments - one based on business units and the other on geographical areas. IFRS 8 requires additional disclosures around identifying segments and their products and services. Since the change in accounting policy only impacts the presentation and disclosure aspects, there is no impact on reported results or earnings per share.

IAS 1 (revised) - Presentation of Financial Statements. The revised standard prohibits the presentation of items of income and expense within the statement of changes in shareholders' equity, therefore requiring "non owner changes in equity" to be presented separately from owner changes in equity.

All "non owner changes in equity" are required to be shown in a performance statement. Entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and the statement of comprehensive income). The Group has elected to present one statement.  Also, the revised standard includes the statement of changes in shareholders' equity as a primary statement, rather than as a note to the financial statements. Since the change in accounting policy only impacts the presentation and disclosure aspects, there is no impact on reported results or earnings per share.

IFRS 3 (Revised) - Accounting for business combinations and IAS 27 (Revised) Consolidated and separate financial statements.  The group has adopted the revised versions of IFRS 3 Business combinations and IAS 27 Consolidated and separate financial statements with effect from 1 July 2009. The standards apply prospectively to all business combinations executed from that date.

Business combinations executed prior to that date, and the resolution of related issues, are dealt with under the preceding version of the standards as previously applied by the group.  The revised standards introduce changes in a number of areas, including the requirement to recognise changes in contingent consideration in the income statement rather than as an adjustment to goodwill; the requirement to recognise contingent liabilities at fair value; and the requirement to expense acquisition costs as incurred rather than treating them as part of the cost of acquisition.  The group did not complete any business combinations year ended 30 June 2010, and therefore the application of these revised standards has no material impact on the 30 June 2010 group and company financial statements Amendments to IFRS 7 Improving Disclosures about Financial Instruments. The relevant aspects of the amendment have been included in these financial statements.

The Group's principal committed financing facilities are not due for renewal within the next four years. Additionally, the Group had an undrawn overdraft facility at 30 June 2010 to the value of £700,000 which is available for general corporate and working capital requirements.  Reflecting the Group's healthy cash position, this overdraft facility was reduced by agreement with the bank to £100,000 with effect from 20 September 2010.  At 30 June 2010 the Group had cash on hand of £1.56 million (2009 - £1.53 million).  The Group received £2.16m in cash in September 2010 as the first instalment of the consideration following the sales of its Ritchey and Fearing businesses and is due to receive the balance between 31 October and 31 December 2010.  At that point the Group should be substantially debt free.

Overall, the directors believe the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current committed facilities.

After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

2. EXCEPTIONAL AND OTHER ITEMS

From the time of the Animalcare Limited acquisition in January 2008 until early 2010 it was believed that there may have been significant benefits from bringing  the Group's businesses  together in a single location. This objective was to be addressed by launching Project Copper, whereby target premises were identified and expenditure committed in respect of building design, planning applications and detailed relocation planning.

However, early in 2010 Project Copper was terminated for strategic and financial reasons this in turn led to senior management changes and the instigation of a strategic review of Livestock Division activities.

The ongoing challenges in the market faced by the Livestock Division are referred to in the Chairman's Statement and the Chief Executive's review.  These circumstances, combined with the financial performance of the division, resulted in the directors forming the view that the fair value less costs to sell of the Livestock division exceeded the value in use.

The estimate of fair value to the Group in respect of the Ritchey and Fearing businesses has been substantiated by reference to the subsequently agreed disposal proceeds (see note 3).

	2010	2009
	£'000	£'000
Charges relating to the reorganisation of the Group
Aborted group relocation costs	69	-
Executive severance payments	212	-
	281	-
Impairments and other charges relating to the Ritchey and Fearing businesses
Impairment of goodwill	2,165	-
Impairment of other intangible assets	115	-
Impairment of property, plant and equipment	225	-
Other charges	59	-
	2,564	-
Impairments and restructuring charges relating to the Travik Chemicals business
Impairment of goodwill	62	-
Impairment of property, plant and equipment	371	-
Inventory provisions	181	-
Release of contingent consideration	(39)	-
	575	-
Total exceptional items	3,420	-
Impairment of goodwill	-	134
Amortisation of acquired intangible assets	120	118
Fair value movements on interest rate hedging	38	227
Other items	158	479
Total exceptional and other items	3,578	479

3. POST BALANCE SHEET EVENTS

On 17 September 2010 the Company disposed of the business and assets of its trading division, Ritchey, and of the shares of its wholly owned subsidiary, Fearing International (Stock Aids) Limited.  The disposals were for a combined gross consideration of £3.25m in cash subject to confirmation in completion accounting.  Following the impairments described in note 4 and subject to the completion accounting process, the directors do not anticipate that these transactions will result in a significant profit or loss to the Group.

On 4 October 2010 the Group announced the closure of its loss making subsidiary, Travik Chemicals Limited.

A review of these events is provided in the Chairman's Statement, Chief Executive's Review and Financial Review.

4. REVENUE AND OPERATING SEGMENTS

The Group has adopted IFRS 8 'Operating Segments' for the current period. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operating Decision Maker to allocate resources to the segments and to assess their performance. The Chief Operating Decision Maker is considered to be the Chief Executive Officer of Animalcare Group Plc.

In prior years, segment information reported externally was analysed on the basis of the categories Companion Animal and Livestock which is also the information reported to the Chief Operating Decision Maker.  No restatement of prior year comparatives has been necessary as a consequence of the adoption of IFRS 8.

The Chief Operating Decision Maker receives and reviews segmental operating profit.

Intersegment transactions are undertaken in the ordinary course of business.

The Board considers that certain items are cross divisional in nature and cannot be allocated between the segments on a meaningful basis.  The administrative costs of central group management is presented as unallocated in the following tables, as this entity has trading relationships with companies in both the segments.

Net funding costs and taxation are treated as unallocated reflecting the nature of the Group's borrowing facilities and its tax group.

Each segment is shown net of intercompany transactions and balances within that segment. The eliminations remove intercompany transactions and balances between the segments.

Principal activities are as follows:

The Companion Animal Division supplies and distributes veterinary medicines, identification and other welfare products to veterinary markets; and

The Livestock Division manufactures and distributes livestock identification and welfare products to agricultural merchants, retailers and farmers.

		Companion Animal	Livestock	Eliminations	Segment Total	Unallocated	Total
		2010	2010	2010	2010	2010	2010
2010	Note	£'000	£'000	£'000	£'000	£'000	£'000
Revenue
External sales		11,156	8,765	-	19,921	-	19,921
Inter-segment sales		67	4	(71)	-		-
Total revenue		11,223	8,769	(71)	19,921	-	19,921
Gross Profit		5,957	4,733	-	10,690	-	10,690
Underlying Operating Profit/(Loss)		2,872	545	-	3,417	(276)	3,141
Other Items	2	(120)	-	-	(120)	-	(120)
Exceptional items	2	-	(3,139)	-	(3,139)	(281)	(3,420)
Operating Profit/(Loss)		2,752	(2,594)	-	158	(557)	(399)
Finance Income							16
Finance Costs							(175)
Profit/(Loss) before tax							(558)
Income tax (expense)/credit	11						(473)
Total comprehensive income/(loss) for the year							(1,031)
		Companion Animal	Livestock	Eliminations	Segment Total	Unallocated	Total
		2009	2009	2009	2009	2009	2009
2009	Note	£'000	£'000	£'000	£'000	£'000	£'000
Revenue
External sales		9,606	8,032	-	17,638	-	17,638
Inter-segment sales		89	9	(98)	-		-
Total revenue		9,695	8,041	(98)	17,638	-	17,638
Gross Profit		5,125	4,764	-	9,889	-	9,889
Underlying Operating Profit/(Loss)		2,304	542	-	2,846	(469)	2,377
Other Items	2	(118)	(134)	-	(252)	-	(252)
Exceptional items	2	-	-	-	-	-	-
Operating Profit/(Loss)		2,186	408	-	2,594	(469)	2,125
Finance Income							16
Finance Costs							(614)
Profit/(Loss) before tax							1,527
Income tax (expense)/credit	11						(488)
Total comprehensive income/(loss) for the year							1,039

		Companion Animal	Livestock	Eliminations		Segment Total		Unallocated		Total
		2010	2010	2010		2010		2010		2010
2010	Note	£'000	£'000	£'000		£'000		£'000		£'000
Products and Services
Licensed veterinary		5,373	-	-		5,373		-		5,373
Animal identification		2,980	3,903	(67)		6,816		-		6,816
Animal welfare		2,870	3,943	(4)		6,809		-		6,809
Other		-	923	-		923		-		923
		11,223	8,769	(71)		19,921		-		19,921
Other information
Intangible asset additions		338	69	-		407		-		407
Property, plant and equipment additions		8	197	-		205				205
Depreciation and amortisation		296	299	-		595		-		595
Impairment of intangible assets		-	115	-		115		-		115
Impairment of property, plant and equipment		-	596	-		596		-		596
Goodwill impairment charge	2	-	2,227	-		2,227		-		2,227
Consolidated assets		19,439	4,731	(1,088)		23,082		-		23,082
Consolidated liabilities		(3,119)	(2,514)	1,088		(4,545)		(4,456)		(9,001)
Consolidated net assets		16,320	2,217	-		18,537		(4,456)		14,081
		Companion Animal	Livestock	Eliminations		Segment Total		Unallocated		Total
		2010	2010	2010		2010		2010		2010
2009	Note	£'000	£'000	£'000		£'000		£'000		£'000
Products and Services
Licensed veterinary		4,365	-	-		4,365		-		4,365
Animal identification		2,516	2,899	(89)		5,326		-		5,326
Animal welfare		2,814	3,650	(9)		6,455		-		6,455
Other		-	1,492	-		1,492		-		1,492
		9,695	8,041	(98)		17,638		-		17,638
Other information
Intangible asset additions		235	76	-		311		-		311
Property, plant and equipment additions		16	320	-		336		-		336
Depreciation and amortisation		246	242	-		488		-		488
Goodwill impairment charge	2	-	134	-		134		-		134
Consolidated assets		18,539	7,096	(272)		25,363		-		25,363
Consolidated liabilities		(2,703)	(2,094)	272		(4,525)		(5,456)		(9,981)
Consolidated net assets		15,836	5,002	-		20,838		(5,456)		15,382

Geographical analysis
The analysis by geographical area of the Group's revenue by destination is set out below:
		2010	2009
		£'000	£'000
Geographical market
United Kingdom		18,061	15,872
Other European Countries		1,706	1,695
Americas		41	20
Australasia		2	1
Rest of the World		111	47
		19,921	17,635
Other income		-	3
		19,921	17,638
The Group's assets are wholly located in the United Kingdom and accordingly no geographical analysis of assets and liabilities is presented.
An analysis of total Group revenue is as follows:
		2010	2009
		£'000	£'000
Revenue from sale of goods		19,045	16,710
Revenue from provision of services		876	928
		19,921	17,638
Finance income		16	16
		19,937	17,654

5. INCOME TAX EXPENSE
	2010	2009
	£'000	£'000
The income tax expense/(credit) comprises:
Current tax expense	712	550
Adjustment in the current year in relation to prior years	(25)	5
	687	555
The deferred tax credit comprises:
Origination and reversal of temporary differences	(214)	(67)
Adjustment in the current year in relation to prior years	-	-
	(214)	(67)
Total tax expense in the statement of comprehensive income	473	488
The total tax charge can be reconciled to the accounting profit as follows:
(Loss)/Profit before tax	(558)	1,527
Income tax calculated at 28%	(156)	428
Effect of expenses not deductible	26	89
Effect of share-based deductions	(51)	(35)
Effect of  goodwill impairments not deductible	623	-
Effect of certain companies taxed at a rate lower than 28%	(5)	(2)
Effect of unprovided temporary differences	61	-
Effect of adjustments to the income tax expense of earlier years	(25)	8
	473	488

6. EARNINGS PER SHARE
Basic earnings per share amounts are calculated by dividing the total comprehensive income for the year attributable to ordinary equity holders of the Company by the weighted average number of fully paid ordinary shares outstanding during the year.
The following income and share data was used in the basic earnings per share computations:
	Underlying earnings before exceptional and other items		Underlying earnings before exceptional and other items			Total earnings			Total earnings
	2010		2009			2010			2009
	£'000		£'000			£'000			£'000
Total comprehensive income attributable to equity holders of the Company	2,221		1,421			(1,031)			1,039
	2010		2009			2010			2009
	No.		No.			No.			No.
Basic weighted average number of shares	19,870,419		19,756,225			19,870,419			19,756,225
Basic earnings per share	11.2p		7.2p			(5.2p)			5.3p
The potential ordinary shares in the current year do not increase the loss per share.  In the prior year the inclusion of 1,153,176 dilutive potential ordinary shares in respect of share options resulted in diluted earnings per share of 5.0p. The underlying earnings per share is calculated by adding back the post tax effect of the exceptional and other items of £3,252,000 as shown in the consolidated statement of comprehensive income.

7. ANNUAL REPORT

The Group's Annual Report and Financial Statements for the year ended 30 June 2010 were approved on 4 October 2010 and are expected to be posted to shareholders on 18 October 2010 and will be available to download at its website at: www.animalcaregroup.co.uk and will also be available from the Company's head office at Common Road, Dunnington, York, YO19 5RU.

The financial information set out above does not constitute the Company's accounts for the years ended 30 June 2009 or 2010, but is derived from those accounts.  Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 will be delivered following the Company's Annual General Meeting.  The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters of emphasis without qualifying their report and did not contain statements under s498(2) or  (3) of the Companies Act 2006.

 

END

 

 

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