Half-yearly report

26 November 2009 ECO Animal Health Group plc Interim Results for the six months ended 30 September 2009 Key features · Turnover on continuing operations rises 11 per cent to £8.9 million (2008: £8.0 million). · EBITDA and before share based payments increases 32 per cent to £1.94 million (2008: £1.47 million) · Aivlosin® sales 10 per cent ahead of same period last year · Further Aivlosin® marketing authorisations granted in Europe · Strong performances in China and Latin America · Net cash at period end of £3.2 million Peter Lawrence, Chairman of ECO Animal Health Group plc, commented: "The progress made in the first half of the year should continue, helped by the recent new marketing authorisations that we have gained. Our balance sheet remains debt free and although market conditions will undoubtedly remain challenging, we look forward with continued confidence and optimism to delivering further value to our shareholders" Contacts: ECO Animal Health Group plc Peter Lawrence 020 8336 6190 Spiro Financial Anthony Spiro 020 8336 6196 Cenkos Securities plc (Nominated Adviser) Stephen Keys 020 7397 8926 Elizabeth Bowman 020 7397 8928 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. Eco Animal Health Group plc Chairman's statement I am pleased to report that we have maintained the good progress reported in my statement last July and delivered a strong performance for the six months to 30 September 2009. Turnover on continuing operations increased close to 11 per cent reaching £ 8.9 million (2008: £8.0 million) and EBITDAS (earnings before interest, tax, depreciation, amortisation and share based payments) rose some 31 per cent to £1.93 million (2008: £1.47 million) In July I referred to the impact of IAS 21 on our results. This accounting standard requires companies to revalue all foreign currency trade receivables at the appropriate year-end exchange rate. I pointed out at the time that should the value of sterling strengthen against the dollar in the current year then the profit generated last year would be eroded and that is what has happened. In the period under review the IAS 21 adjustment has reduced the Company's profit by almost £400,000. It should be noted that these movements occur on paper only and do not affect the actual trading of the company since it purchases most of its raw materials in US dollars. Should sterling weaken again before the year- end, the currency difference may diminish, but since the end of September it has actually strengthened further against the US dollar. On 9 November, following shareholder approval at the Annual General Meeting in September, the Company paid a final dividend for the year to 31 March 2009 of 5.45 pence. A scrip dividend alternative was again available and I am delighted that around half the total dividend was taken in shares, which is very positive for the Company as it allows management to use the cash saved in the business. Since the scheme was introduced in 2008, well over £4 million of cash has been conserved and invested in the business. As mentioned last July, the Board was considering combining the Interim and Final dividends into a single payment. We have now decided to do this and therefore will declare a single dividend next July with the results for the year to 31 March 2010. The Board believes that in view of the administration costs a single payment is appropriate for a company of our size. Operations While the overall global business climate remains extremely challenging, it is encouraging that ECO's sales to the international veterinary pharmaceutical market were 11 per cent ahead of the level achieved during the first six months of last year. Overall margins continue to improve reflecting both the higher weighting of sales of Aivlosin®, ECO's patented macrolide antibiotic, within the product portfolio and the early benefits obtained from the aggressive supply chain cost reduction programme. Trading in our major markets, including China, Latin America and South Africa continues to develop very positively with further advances in sales and margin. ECO Brazil's sales, in local currency, were around 38 per cent above the level of last year whilst in China, sales from our subsidiary, Zhejiang ECO Biok Animal Health Products Limited, were up over 12 per cent in local currency. China remains the largest market opportunity for our products and we are currently examining the feasibility of another joint venture in that country. In Japan, as previously reported, ECO holds a minority shareholding in ECOPHARMA Inc., a profitable distribution company. ECO's negotiations with the majority shareholders about the sale of their stake in the business are progressing steadily. The global sales value of Aivlosin® was up 10 per cent in sterling compared with the same period last year. During the first half of the year we continued to expand our Aivlosin® product range. A Europe wide marketing authorisation for a water-soluble granule formulation for the treatment and prevention of ileitis (porcine proliferative enteropathy), an enteric disease of pigs, was obtained. This addition to our European Aivlosin® product range provides a simple solution to the accurate and simultaneous treatment of large numbers of pigs. In Europe, we have recently concluded the appointment of a number of Aivlosin® distributors, selected for their local knowledge of the poultry and pig industries. These new partners will focus on a number of EU national and regional markets while ECO itself will be responsible for selling Aivlosin® for both pigs and poultry in the UK . Since the summer, we have been training our new distributors in readiness for the Autumn sales campaigns which are important for the seasonal treatment of respiratory diseases. These major improvements to the distribution channels in Europe, together with the additional new marketing authorisations and regional product launch activities, are expected to yield dividends during the latter half of this year. In addition, we have recently received positive opinions from the Committee for Medicinal Products for Veterinary Use of the European Medicines Agency for two new Aivlosin® formulations. The first is for a concentrated oral powder for pigs, which will help improve our market penetration in key markets such as Germany and Denmark where oral powders are used in preference to premix products. The second positive opinion is for a new presentation of Aivlosin® water soluble granules for pheasants. This will open up a new market sector for game birds in which ECO will have the first licensed product for the treatment of the most important respiratory disease of farmed pheasants, Mycolasma gallisepticum. In the United States, the granting by the Food and Drug Administration of the first marketing authorisations for Aivlosin® are expected in 2010. We have already started work on launch and distribution plans for this very important market. The research being carried out in The Virology Division of the Department of Pathology at the University of Cambridge is continuing, boosted by the award of a grant of £500,000 by the UK Medical Research Council. The work is focussing on investigating the inhibition of influenza viruses by macrolide antibiotics; ECO and the University continue to explore the potential of Aivlosin® as an anti- viral agent in various systems. Despite the extremely difficult trading conditions in Europe during the period, sales of the Ecomectin® range of antiparasitic products have been broadly in- line with management expectations. Strong sales in Spain, up 7 per cent over the same period as last year, were offset by weaker sales in the UK and Ireland. The launch of new formulations in Europe has benefited margins. Sales of Ecomectin® are traditionally stronger in the second half of the fiscal year, associated with the increased prevalence of parasites in the spring. Together, sales of Ecomectin® and our other treatments also increased by over 11 per cent. There remains solid potential within this group of products with further launches expected in the near future. Board membership On 11 November, we announced the appointment of Brett Clemo as an executive director and Julia Henderson as a non-executive director of the Company. Brett joined ECO in 2006 and is its Director of Global Operations. Prior to joining the Company, Brett was with Syngenta Chemicals BV where he became Operations Director and previously he held senior management roles for 15 years within AstraZeneca. Julia has spent the majority of her career in the City and in 1989 became a founder shareholder and later a director of Beeson Gregory (now Evolution Securities) where she was involved for many years with entrepreneurial growth companies and has acquired a wealth of City experience. I warmly welcome them both to our Board. Outlook The progress made in the first half of the year should continue, helped by the recent new marketing authorisations that we have gained. Our balance sheet remains debt free and although market conditions will undoubtedly remain challenging, we look forward with continued confidence and optimism to delivering further value to our shareholders. Peter A Lawrence Executive Chairman 26 November 2009 ECO ANIMAL HEALTH GROUP PLC DIRECTORS AND OFFICERS Peter Lawrence (Chairman) Marc Loomes (Chief Executive) Kevin Stockdale (Finance Director) Julia Trouse (Executive Director and Company Secretary) Brett Clemo (Executive Director) (with effect from 1 December 2009) David Danson (Non-executive Director) Julia Henderson (Non-executive Director) (with effect from 1 December 2009) REGISTERED OFFICE 78, Coombe Road, New Malden, Surrey, KT3 4QS Tel: 020-8336 2900 Fax: 020-8336 0909 COMPANY NUMBER 01818170 ECO ANIMAL HEALTH GROUP PLC CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS TO 30 SEPTEMBER 2009 Six months Six months Year to to ended 30.09.09 30.09.08 31.03.09 Notes (unaudited) (unaudited) (audited) £000 £000 £000 Revenue 3 Continuing operations 8,877 8,027 18,898 Discontinued operations - 395 447 __________ __________ __________ 8,877 8,422 19,345 Cost of sales (5,233) (5,376) (11,571) __________ __________ __________ Gross Profit 3,644 3,046 7,774 Other operating income 60 80 186 Administrative expenses (1,430) (2,005) (4,756) Currency (losses)/gains (390) 73 595 Amortisation of intangible assets (1,352) (1,210) (2,526) Share based payments (72) (59) (133) Results from operating activities: Continuing operations 460 159 1,421 Discontinued operations - (234) (281) __________ __________ __________ 460 (75) 1,140 Loss on sale of a division - (591) (676) Net finance (costs)/income (47) 43 40 __________ __________ __________ Profit/(loss) before tax: Continuing operations 413 202 1,461 Discontinued operations - (825) (957) __________ __________ __________ 413 (623) 504 Taxation (45) 190 181 __________ __________ __________ Profit/(loss) for the period: Continuing operations 368 392 1,642 Discontinued operations - (825) (957) __________ __________ __________ Profit/(loss) for the period 368 (433) 685 Other comprehensive income: Foreign currency translation differences on foreign operations: (179) 28 562 Actuarial losses on pension scheme - - (99) __________ __________ __________ Total comprehensive income 189 (405) 1,148 __________ __________ __________ __________ __________ __________ Profit/(loss) attributable to: Owners 194 (564) 447 Minority interest 174 131 238 __________ __________ __________ 368 (433) 685 __________ __________ __________ Total comprehensive income/(loss) for the period: Attributable to: Owners 104 (590) 696 Minority interest 85 185 452 __________ __________ __________ Total comprehensive income/(loss) for the period 189 (405) 1,148 __________ __________ __________ __________ __________ __________ BASIC EARNINGS PER SHARE 4 Continuing operations 0.42p 0.57p 3.06p Discontinued operations (1.81)p (2.08)p - __________ __________ __________ 0.42p (1.24)p 0.98p __________ __________ __________ __________ __________ __________ FULLY DILUTED EARNINGS PER SHARE 4 0.42p (1.24)p 0.98p Earnings from continuing activities before interest, taxation, depreciation, amortisation and share based payments. 1,941 1,471 3,979 __________ __________ __________ __________ __________ __________ ECO ANIMAL HEALTH GROUP PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS TO 30 SEPTEMBER 2009 Share Share Other Revaluation Retained Total Minority Total Capital Premium Reserves Reserves Earnings Interest Equity Account Account £000 £000 £000 £000 £000 £000 £000 £000 At 1 April 2008 2,256 37,095 806 253 8,686 49,096 647 49,743 Total comprehensive income for the period: Profit for the period - - - - 447 447 238 685 Other comprehensive income Foreign currency translation differences - - - - 348 348 214 562 Depreciation written back - - - (3) - (3) - (3) Actuarial losses on pension scheme - - - - (99) (99) - (99) ________ ________ ________ ________ ________ ________ ________ ________ Total comprehensive income for the period - - - (3) 696 693 452 1,145 ________ ________ ________ ________ ________ ________ ________ ________ Transactions with owners Arising on issue of shares in the period 64 1,192 - - - 1,256 - 1,256 Dividends - - - - (3,269) (3,269) - (3,269) Share based payments - - 132 - - 132 - 132 ________ ________ ________ ________ ________ ________ ________ ________ Total transactions with owners 64 1,192 132 - (3,269) (1,881) - (1,881) ________ ________ ________ ________ ________ ________ ________ ________ At 31 March 2009 2,320 38,287 938 250 6,113 47,908 1,099 49,007 Total comprehensive income for the period: Profit for the period - - - - 194 194 174 368 Other comprehensive income Foreign currency translation differences - - - - (90) (90) (89) (179) ________ ________ ________ ________ ________ ________ ________ ________ Total comprehensive income for the period - - - - 104 104 85 189 ________ ________ ________ ________ ________ ________ ________ ________ Transactions with owners Arising on issue of shares in the period 12 358 - - - 370 - 370 Dividends - - - - (2,542) (2,542) - (2,542) Share based payments - - 72 - - 72 - 72 ________ ________ ________ ________ ________ ________ ________ ________ Total transactions with owners 12 358 72 - (2,542) (2,100) - (2,100) ________ ________ ________ ________ ________ ________ ________ ________ At 30 September 2009 2,332 38,645 1,010 250 3,675 45,912 1,184 47,096 ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ Prior interim period At 1 April 2008 2,256 37,095 806 253 8,686 49,096 647 49,743 Total comprehensive (losses) for the period: (Loss) for the period - - - - (564) (564) 131 (433) Other comprehensive (losses)/income Foreign currency translation differences - - - - (26) (26) 54 28 ________ ________ ________ ________ ________ ________ ________ ________ Total comprehensive (losses) for the period - - - - (590) (590) 185 (405) ________ ________ ________ ________ ________ ________ ________ ________ Transactions with owners Arising on issue of shares in the period 19 362 - - - 381 - 381 Dividends - - - - (2,480) (2,480) - (2,480) Share based payments - - 59 - - 59 - 59 ________ ________ ________ ________ ________ ________ ________ ________ Total transactions with owners 19 362 59 - (2,480) (2,040) - (2,040) ________ ________ ________ ________ ________ ________ ________ ________ At 30 September 2008 2,275 37,457 865 253 5,616 46,466 832 47,298 ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ECO ANIMAL HEALTH GROUP PLC CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at As at As at 30.09.09 30.09.08 31.03.09 (unaudited) (unaudited) (audited) Notes £000 £000 £000 ASSETS Non current assets Property,plant & equipment 7 1,152 1,224 1,158 Goodwill & other intangibles 6 36,064 34,862 35,729 Investments 287 284 286 _________ _________ _________ 37,503 36,370 37,173 Current assets Inventories 5,388 3,893 4,921 Trade and other receivables 6,608 8,021 8,354 Deferred tax 213 228 228 Other taxes and social security 151 225 24 Cash and cash equivalents 3,952 4,640 3,718 _________ _________ _________ 16,312 17,007 17,245 _________ _________ _________ Total assets 53,815 53,377 54,418 _________ _________ _________ Current liabilities Trade and other payables (3,193) (2,522) (3,532) Short term borrowings (776) (650) (909) Current portion of long term borrowings - (201) - Corporation tax (20) (33) (10) Other taxes and social security (164) (179) (149) Dividends (2,563) (2,494) (808) _________ _________ _________ (6,716) (6,079) (5,408) Total assets less current liabilities 47,099 47,298 49,010 Non current liabilities Long term provisions (3) - (3) _________ _________ _________ 47,096 47,298 49,007 _________ _________ _________ _________ _________ _________ Equity Capital and reserves Called up share capital 2,332 2,275 2,320 Share premium 38,645 37,457 38,287 Revaluation reserve 250 253 250 Other reserves 1,010 865 938 Retained earnings 3,675 5,616 6,113 _________ _________ _________ 45,912 46,466 47,908 Minority interest 1,184 832 1,099 _________ _________ _________ Total equity 47,096 47,298 49,007 _________ _________ _________ _________ _________ _________ ECO ANIMAL HEALTH GROUP PLC CONSOLIDATED STATEMENT OF CASH FLOWS Six Six Year months months ended to 30.09.09 to 30.09.08 31.03.09 (unaudited) (unaudited) (audited) £000 £000 £000 Profit/(loss) from operations 460 (75) 1,140 Adjustment for: Depreciation of plant and equipment 57 61 177 Amortisation of intangible assets 1,352 1,206 2,526 Actuarial pension losses - - (99) Increase in pension provision - - 3 Share based payments 72 59 133 Foreign exchange differences (180) 28 604 __________ __________ __________ Operating cash flow before movement in working capital 1,761 1,279 4,484 (Increase) in inventories (466) (67) (1,650) Decrease in receivables 1,618 234 330 (Decrease)/increase in payables (324) (880) 110 __________ __________ __________ Cash generated from operations 2,589 566 3,274 Interest paid (56) (76) (138) Taxation (20) (134) (167) __________ __________ __________ Net cash inflow from operating activities 2,513 356 2,969 Cash flows from investing activities Proceeds from disposal of a division - - 291 Purchase of property plant and equipment (51) (25) (53) Disposal of property plant and equipment - 85 - Purchase of investments (1) - (5) Purchase of goodwill - - (215) Costs of acquiring drug registrations (1,686) (1,860) (3,872) Interest received 9 119 178 __________ __________ __________ Net cash (used in) investing activities (1,729) (1,681) (3,676) __________ __________ __________ Cash flows from financing activities Issue of shares 369 380 1,256 (Repayment of) bank borrowings - (186) (186) Dividends paid (786) (586) (3,060) __________ __________ __________ Net cash (used in) financing activities (417) (392) (1,990) __________ __________ __________ Net increase/(decrease) in cash and cash equivalents 367 (1,717) (2,697) Cash and cash equivalents at the beginning of the period 2,809 5,506 5,506 __________ __________ __________ Cash and cash equivalents at the end of the period 3,176 3,789 2,809 __________ __________ __________ __________ __________ __________ NOTES TO THE PRELIMINARY RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2009 1. Basis of preparation The financial information for the period to 30 September 2009 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 2009. The Group applies revised IAS 1 'Presentation of Financial Statements (2007), which became effective as of 1 January 2009. 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 the consolidated statements of changes in equity. This presentation has been applied in these interim financial statements for the period ended 30 September 2009. Comparative information has been re-presented to conform to the revised IAS 1. Since the change in accounting policy only impacts presentation of the statements there is no impact on earnings per share. 2. Statement of compliance These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting'. They do not contain all the information required for the full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 March 2009. 3. Revenue is derived from the Group's animal pharmaceutical businesses. 4. Earnings per share Six Six Year months to months to ended 30.09.09 30.09.08 31.03.09 (unaudited) (unaudited) (audited) Weighted average number of shares in issue (000)'s 46,571 45,424 45,818 Fully diluted weighted average number of shares in issue (000)'s 46,593 45,425 45,818 Profit attributable to equity holders of the company (£'s) 194,554 (563,556) 447,081 Basic earnings per share (pence) 0.42 (1.24) 0.98 Fully diluted earnings per share (pence) 0.42 (1.24) 0.98 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE PRELIMINARY RESULTS 5. Dividends Six Six months months Year to to ended 30.09.09 30.09.08 31.03.09 (unaudited) (unaudited) (audited) Final dividend in respect of the year ended 31 March 2008 £000 £000 £000 45,502,772 shares at 5.45p per share - 2,480 2,480 Interim dividend in respect of the year ended 31 March 2009 46,402,407 shares at 1.70p per share - - 789 Final dividend in respect of the year ended 31 March 2009 46,633,189 shares at 5.45p per share 2,542 - - (Approved 24 September 2009 in General Meeting) _________________________________________ 2,542 2,480 3,269 _________________________________________ _________________________________________ 6. Intangible non current assets Development Goodwill Costs Total £000 £000 £000 Cost at 1 April 2009 19,892 26,723 46,615 Additions - 1,686 1,686 _________________________________________ Cost at 30 September 2009 19,892 28,409 48,301 _________________________________________ _________________________________________ Amortisation at 1 April 2009 1,466 9,419 10,885 Charge for the period - 1,352 1,352 _________________________________________ Amortisation at 30 September 2009 1,466 10,771 12,237 _________________________________________ _________________________________________ Net book value at 30 September 2009 18,426 17,638 36,064 _________________________________________ _________________________________________ Net book value at 1 April 2009 18,426 17,304 35,730 _________________________________________ _________________________________________ 7. Property, plant and equipment Plant Fixtures, Freehold and fittings & Property Machinery equipment Total £000 £000 £000 £000 Cost at 1 April 2009 650 703 520 1,873 Additions - 47 4 51 _______________________________________________________ Cost at 30 September 2009 650 750 524 1,924 _______________________________________________________ _______________________________________________________ Amortisation at 1 April 2009 39 278 398 715 Charge for the period 6 24 27 57 _______________________________________________________ Amortisation at 30 September 2009 45 302 425 772 _______________________________________________________ _______________________________________________________ Net book value at 30 September 2009 605 448 99 1,152 _______________________________________________________ _______________________________________________________ Net book value at 1 April 2009 611 425 122 1,158 _______________________________________________________ _______________________________________________________ 8. 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 £402,489 (30 September 2008: £542,493). This amount represents dividends reinvested into the Company. During the period the Group provided management services to Kiotech International plc, a company in which P A Lawrence is a director and holds share options. Fees charged were £20,484 (Six months to 30 September 2008: £20,484). During the period the Group made sales to Zhejiang Eco Biok Animal Health Products Limited on an arm's length basis to the value of £562,834(Six months to 30 September 2008: £426,429). At the end of the period there was an inter company balance owing from this company of £545,137 (30 September 2008: £426,429). The Group also made sales on an arm's length basis to Eco Animal Health do Brasil Comercio de Productos Veterinarios Ltda to the value of £542,834 (Six months to 30 September 2008: £624,218). At the end of the period there was an inter company balance of £761,166 (30 September 2008: £563,664). Since both companies are subsidiaries of Eco Animal Health Group plc these transactions and balances have been eliminated on consolidation. 9. This financial information was approved by the board on 26 November, 2009. 10. Copies of this interim report are being sent to all of the Company's shareholders. Further copies can be obtained from the Company's registered office at 78 Coombe Road, New Malden, Surrey KT3 4QS.

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