Half-year Report

Half-year Report

ECO Animal Health Group plc

6 December 2017

ECO Animal Health Group plc (‘’ECO”)
(AIM: EAH)

Results for the six months ended 30 September 2017

ECO ANIMAL HEALTH REPORTS ANOTHER STRONG PERFORMANCE

HIGHLIGHTS

Financials

  • 35% increase in adjusted EBITDA to £8.5m (2016: £6.3m).
  • 10% increase in pre-tax profit to £5.9m (2016: £5.3m)
  • 8% increase in sales to £29.2m (2016: £26.9)
  • 11% increase in gross profit to £14.2m (2016: £12.8m) on improved margin
  • 13% increase in earnings per share to 6.39p (2016: 5.68p)
  • 28% increase interim dividend to 3.2p (2016: 2.5p)
  • 36% increase in cash generation from operations to £7.2m (2016: £5.4m) leaving net cash of over £20 million at the period end.

Operations

  • Demand for Aivlosin® continues to grow strongly
  • Strong performances in all major geographic areas, bar Latin America excluding Mexico
  • New marketing authorisations gained in America and Malaysia – further authorisations are expected in Canada and South East Asia.
  • Continued investment in new routes to market, product development and people to support future growth.

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

“The second half of the year has started well with a strong and growing order book. ECO has a sound balance sheet with good and reliable cash generation. The Company continues to invest in research and product development programmes to obtain further marketing authorisations and efficiencies in production. I look forward with confidence to reporting another set of impressive results in 2018”.

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)
Mark Taylor 020 7496 3069

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

I am pleased to report that ECO Animal Health Group has delivered another set of record results for the six months to 30 September 2017. ECO provides essential medications to the ever growing global animal protein production industry. The success of the Company reflects its investment over many years in obtaining marketing authorisations, which are a legal requirement in all of the countries it serves. Currently it holds several hundred marketing authorisations and its products are prescribed and sold in more than sixty countries.

The Company’s consistent strategic focus is to concentrate on offering its medications into the key global food production markets. The standards imposed by the regulatory bodies that licence the use of pharmaceuticals for veterinary use are becoming ever more stringent. Consequently, the regulatory authorities require more in depth evaluation of drugs than ever before. ECO already satisfies these enhanced requirements, which means that it has a competitive advantage and is well placed to capitalise on further commercial opportunities.

Financial performance

Profit before tax in the period under review increased by over 10 per cent to almost £5.9m (2016: £5.3m) while sales advanced by over 8 per cent to £29.2m (2016: £26.9m). Earnings before interest, tax, depreciation, amortisation, share based payments, non-controlling (minority) interest and foreign exchange movements were almost £8.5m (2017: £6.3m) an increase of over 35 per cent. Gross profit advanced by 11 per cent to £14.2m (2016: £12.8m) and earnings per share rose 12.5 per cent to 6.39 pence per share (2016: 5.68 pence). Cash generated from operations remained robust advancing to £7.2m (2016: £5.4m).

Margins continued to improve compared to the same period last year, reflecting the success of our strategy to concentrate our sales effort on high value products, which offer the best long term returns for the Company.

Over recent months sterling has strengthened a little against major currencies. ECO continues to invoice more than 97 per cent of its sales in foreign currencies but the effect of the slightly stronger pound since our March 2017 year end has meant that the currency gains the Company benefitted from last year have not been repeated. Nevertheless, control of overheads meant that profit from operating activities was up over 30 per cent at £5.9m.

The board is pleased to declare an interim dividend of 3.2 pence per share (2016: 2.5 pence) to be paid on 12 April 2018 to shareholders on the register on 23 March 2018. This increase of 28 per cent reflects the board’s continued confidence in the sustainable growth of our international business and the consequent implementation of a progressive dividend policy.

Operations:

Sales of Aivlosin®, our patented molecule for the treatment of economically important diseases in pigs and poultry, increased by almost 18 per cent in sterling during the period under review. Aivlosin® is prescribed under strict veterinary control at low, yet efficacious, dose rates for short duration treatments of specified diseases. It meets all current guidelines for the responsible use of antimicrobials, which when used appropriately, help to promote animal welfare and food safety.

Sales in the USA rose 33 per cent in sterling, compared with the same period last year, reflecting strong growth of the Aivlosin® water soluble granule formulation for use in swine suffering from enteric (gut) diseases. In late July, the Center for Veterinary Medicine (CVM) of the US Food and Drug Administration (FDA) approved this formulation for a new label indication. The approval applied to the control of swine respiratory disease (SRD) associated with Bordetella bronchiseptica, Haemophilus parasuis, Pasteurella multocida, and Streptococcus suis, which are important bacterial respiratory pathogens. Early sales of the Aivlosin® medicated feed additive formulation, which was approved at the end of March 2016, also contributed to revenue in the period. In Canada, sales were also significantly ahead. The SRD application is still under review by the Veterinary Drugs Directorate of Health Canada, which when approved, will add to sales in North America.

Revenue growth in South East Asia was buoyant. The regulatory files supporting the marketing authorisation granted by the European Medicines Agency in June 2016 for the use of Aivlosin® water soluble granules in chickens laying eggs for human consumption, with a zero day drug withdrawal period for eggs, were submitted to a number of countries in the region. Approvals were obtained in Thailand, prior to this period, and in Malaysia during the period; further approvals are expected. The granting of a zero withdrawal period is a significant advantage to egg producers, who as a result are not required to destroy eggs laid while birds are being treated. These new licenses underpin our development of closer relationships with major poultry producers, particularly those in the key egg producing markets of South East Asia.

Both Europe and Japan posted strong sales growth across the portfolio, reflecting our development of closer ties with key customers in these more mature markets.

Last year in China our subsidiary, Zhejiang ECO Biok Animal Health Products, delivered exceptional sales growth. The current year’s sales reflect the organisation’s consolidation of its strong position during a period of softer pork prices and in advance of strategic initiatives to target poultry producers. Sales of Aivlosin® continued to grow and the net profit in China increased by more than 20 per cent over the same period last year, once again reflecting the effectiveness of our overall strategy.

The excellent performance of Aivlosin® across the majority of geographies was tempered by continuing weakness in some Latin American markets including Brazil, mainly due to slow regulatory responses and a generally weak economic environment. Sales in Mexico, on the other hand, were very strong. This performance was boosted by our first Aivlosin® approval for the medication of drinking water for the treatment of infections caused by Mycoplasma in poultry laying eggs for human consumption with a zero day drug withdrawal period for eggs in Latin America, received in January 2017.

People

David Danson, who completed nine years as a non executive director, will retire on 1 December from the board in accordance with corporate governance guidelines. I would like to thank David for his wise counsel, which has been invaluable and reflects his extensive business experience and Council membership of the Royal College of Veterinary Surgeons. Andrew Jones joined us as a non executive director on 1 December. Andrew brings a wealth of board experience gained across large listed, private equity backed and small to medium sized enterprises. Andrew’s particular focus is on the life sciences sector and importantly, the animal health industry.

While I have been executive chairman of the Company since its formation, the time is right for my role to become non executive. This change will take effect from 1 January 2018 and conforms to best practice corporate governance.

Outlook:

The second half of the year has started well with a strong and growing order book. ECO has a sound balance sheet with good and reliable cash generation. The Company continues to invest in research and product development programmes to obtain further marketing authorisations and efficiencies in production. I look forward with confidence to reporting another set of impressive results in 2018.

Peter A Lawrence

05 December 2017

CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS TO 30 SEPTEMBER 2017

    Six months   Six months   Year
to to ended
30.09.17 30.09.16 31.03.17
Notes (unaudited) (unaudited) (audited)
£000 £000 £000
Revenue 3 29,204 26,939 61,422
 
Cost of sales (14,970)   (14,153)   (31,103)
 
Gross Profit 14,234 12,786 30,319
 
Other operating income 138 98 379
Administrative expenses (6,050) (6,774) (14,232)
Currency (losses)/profits (300) 277 (55)
Amortisation of intangible assets (1,700) (1,593) (3,088)
Share based payments (380)   (240)   (678)
Profit from operating activities: 5,942 4,554 12,645
 
Net finance (costs)/income (102) 724 784
 
Share of profit of associate 24   31   23
 
Profit before income tax 5,864 5,309 13,452
 
Income tax charge (641)   (806)   (1,453)
 

Profit for the period from continuing
operations

5,223   4,503   11,999
 
Attributable to:
Owners 4,188 3,632 10,565
Minority interest 1,035   871   1,434
5,223   4,503   11,999
 
BASIC EARNINGS PER SHARE 5 6.39p 5.68p 16.35p
 
FULLY DILUTED EARNINGS PER SHARE 5 6.37p 5.65p 16.17p
 
Earnings from continuing activities before
interest, taxation, depreciation, amortisation
and share based payments 8,185 6,552 17,009
Exclude foreign exchange differences 300   (277)   55
EBITDA 8,485   6,275   17,064
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS TO 30 SEPTEMBER 2017
     
Six months Six months Year
to to ended
30.09.17 30.09.16 31.03.17
(unaudited) (unaudited) (audited)
£000 £000 £000
 
Profit for the period 5,223 4,503 11,999
 
Foreign currency translation differences (482) 998 1,030
Defined benefit pension plan - actuarial losses - - (483)
Deferred tax on revaluations - - 10
         
Other comprehensive income for the period (482)   998   557
 
Total comprehensive income for the period 4,741 5,501 12,556
 
Attributable to:
Owners 3,858 4,341 10,829
Minority interest 883   1,160   1,727
4,741   5,501   12,556
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS TO 30 SEPTEMBER 2017
                 
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 2016 3,205 55,590 2,028 654 (1,144) 21,824 82,157 3,202 85,359
 
Profit for the year - - - - - 10,565 10,565 1,434 11,999

Other comprehensive
income:

Foreign currency
differences

 - - - - - 737 737 293 1,030

Actuarial (losses) on
pension scheme assets

 - - - - - (483) (483) - (483)

Deferred taxation change in
rate

 -   -   -   10   -   -   10   -   10

Total comprehensive
income for the year

-   -   -   10   -   10,819   10,829   1,727   12,556

Transactions with owners
recorded directly in equity

Contributions by and
distributions to owners

Movement in Treasury
Reserve arising from
disposal of jointly owned
shares

 - - - - 1,144 - 1,144 - 1,144
Issue of shares in the year 66 2,517 - - - - 2,583 - 2,583
Sale of treasury shares - 47 - - - 60 107 - 107
Share-based payments - - 678 - - - 678 - 678
Transfers on expiry of options - - (257) - - 257 - - -
Dividends relating to 2016 -   -   -   -   -   (3,667)   (3,667)   (587)   (4,254)

Transactions with owners

66   2,564   421   -   1,144   (3,350)   845   (587)   258
Balance as at 31 March 2017 3,271   58,154   2,449   664   -   29,293   93,831   4,342   98,173
 

Total comprehensive income
for the period:

Profit for the period - - - - - 4,188 4,188 1,035 5,223

Other comprehensive
income

Foreign currency translation
differences

 -   -   -   -   -   (330)   (330)   (152)   (482)

Total comprehensive
income for the period

-   -   -   -   -   3,858   3,858   883   4,741

Transactions with owners

Issue of shares in the year 17 568 - - - - 585 - 585
Share based payments - - 380 - - - 380 - 380
Transfer to retained earnings on option expiry - - (294) - - 294 - - -
Dividends -   -   -   -   -   (1,635)   (1,635)   (1,389)   (3,024)

Total transactions with
owners

17   568   86   -   -   (1,341)   (670)   (1,389)   (2,059)
At 30 September 2017 3,288   58,722   2,535   664   -   31,810   97,019   3,836   100,855
 
Prior interim period
At 1 April 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
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
       
As at As at As at
30.09.17 30.09.16 31.03.17
(unaudited) (unaudited) (audited)
 
Notes £000 £000 £000
ASSETS
Non current assets
Goodwill and other intangibles

7

55,956 51,975 53,883
Property,plant and equipment

8

1,888 1,851 1,865
Investment property

9

185 185 185
Investments 113   98   97
58,142 54,109 56,030
 
Current assets
Inventories 18,830 16,636 19,675
Trade and other receivables 14,583 15,393 16,158
Income tax recoverable 470 163 395
Other taxes and social security 961 565 897
Cash and cash equivalents 20,304   18,525   20,602
55,148 51,282 57,727
         
Total assets 113,290   105,391   113,757
 
Current liabilities
Trade and other payables (10,260) (11,617) (13,733)
Income tax (244) (377) (238)
Other taxes and social security (702) (770) (447)
Dividends (40)   (37)   (39)
(11,246) (12,801) (14,457)
 
Total assets less current liabilities 102,044 92,590 99,300
 
Non current liabilities
Deferred tax (1,189) (750) (1,027)
Dilapidations on property leases -   (100)   (100)
100,855   91,740   98,173
Equity
Capital and reserves
Called up share capital 3,288 3,235 3,271
Share premium 58,722 56,802 58,154
Treasury Reserve - (10) -
Revaluation reserve 664 654 664
Other reserves 2,535 2,024 2,449
Retained earnings 31,810   25,259   29,293
97,019 87,964 93,831
Minority interest 3,836   3,776   4,342
Total equity 100,855   91,740   98,173
CONSOLIDATED STATEMENT OF CASH FLOWS      
Six months to Six months to Year ended
30.09.17 30.09.16 31.03.17
(unaudited) (unaudited) (audited)
 
£000 £000 £000
Cashflows from operating activities
Profit before tax 5864 5309 13452
 
Adjustment for:
Net finance costs 102 (724) (784)
Depreciation of property plant and equipment 139 134 264
Losses/(gains) on disposal of non-current assets - 1 37
Amortisation of intangible assets 1,700 1,593 3,088
Impairment of intangible assets - - 297
Pension payments - - (76)
Share of associate's results (24) (31) (23)
Share based payments 380   240   678

Operating cash flow before movement in
working capital

8,161 6,522 16,933
 
Change in inventories 845 (1,043) (4,082)
Change in receivables 1,511 (1,812) (3,195)
Change in payables (3,318)   1,774   3,445
Cash generated from operations 7,199 5,441 13,101
 
Income tax (paid) (548)   (555)   (1,286)
Net cash inflow from operating activities 6,651 4,886 11,815
 
 
Cash flows from investing activities
Purchase of property plant and equipment (194) (86) (265)
 
Costs of acquiring drug registrations (3,773) (4,231) (7,931)
Finance income 61   84   103
Net cash (used in) investing activities (3,906)   (4,233)   (8,093)
 
Cash flows from financing activities

Proceeds from issue of share capital and sale of
jointly owned and treasury shares

585 2,435 3,834
Dividends paid (3,024)   (1,795)   (4,252)
Net cash from financing activities (2,439)   640   (418)
 
Net increase in cash and cash equivalents 306 1,293 3,304
Foreign exchange movements (604) 1,567 1,633

Cash and cash equivalents at the beginning of the
period

 20,602 15,665 15,665
         

Cash and cash equivalents at the end of the
period

20,304   18,525   20,602

NOTES TO THE PRELIMINARY RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2017

1. Basis of preparation
The financial information for the period to 30 September 2017 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 2017.

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 2017.

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

4. Principal risks and uncertainties
These were set out on pages 63-66 of the notes to the consolidated financial statements for the year ended 31 March 2017. 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
30.09.17 30.09.16 31.03.17
(unaudited) (unaudited) (audited)
 
 
Weighted average number of shares in issue (000's) 65,517 63,992 64,638

Fully diluted weighted average number of shares in issue
(000's)

 65,787 64,301 65,356
 
Profit attributable to equity holders of the company (£'s) 4,188 3,632 10,565
 
Basic earnings per share (pence) 6.39 5.68 16.35
Fully diluted earnings per share (pence) 6.37 5.65 16.17

6. Dividends

  Six months to   Six months to   Year ended
30.09.17 30.09.16 31.03.17
(unaudited) (unaudited) (audited)
 
£000 £000 £000
Dividend in respect of the year ended 31 March 2016
at 1.9p/5.7p per ordinary share - 1,209 3,675
Dividend in respect of the year ended 31 March 2017
at 2.5p per ordinary share 1,635 - -
Dividend waived by employee benefit trust -   -   (8)
1,635 1,209 3,667
 
Dividend paid by subsidiary to non-controlling interests
(minorities) 1,389 586 -
         
3,024   1,795   3,667

The company paid a further dividend of 4.6p per share on 6 October 2017, after the period end. The total paid was £3.02 million.

7. Intangible non-current assets

    Distribution   Development  
Goodwill Rights Costs Total
Cost £000 £000 £000 £000
Cost at 1 April 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
Additions - - 4,007 4,007
Contributions from third parties -   -   (307)   (307)
Cost at 31 March 2017 17,930 1,442 67,643 87,015
Additions -   -   3,773   3,773
Cost at 30 September 2017 17,930   1,442   71,416   90,788
 
Amortisation
Amortisation at 1 April 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
Charge for the period - 36 1,459 1,495
Impairment charge -   -   297   297
Amortisation at 31 March 2017 - 759 32,373 33,132
Charge for the period -   39   1,661   1,700
Amortisation at 30 September 2017 -   798   34,034   34,832
 

Net book value at 30 September
2017

 17,930   644   37,382   55,956
 
Net book value at 1 April 2017 17,930   683   35,270   53,883
 

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

8. 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 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
Additions - 17 131 31 179
Disposals - (267) - (47) (314)
Foreign exchange movements -   32   (1)   (2)   29
Cost at 1 April 2017 730 1,541 865 75 3,211
Additions - 51 143 - 194
Foreign exchange movements -   (30)   -   (5)   (35)
Cost at 30 September 2017 730   1,562   1,008   70   3,370
 
Depreciation
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
Charge for the period 8 82 35 5 130
Disposals - (240) - (37) (277)
Foreign exchange movements -   27   2   (2)   27
Depreciation at 1 April 2017 13 737 587 9 1,346
Charge for the period 6 76 52 5 139
Foreign exchange movements -   (3)   -   -   (3)
Depreciation at 30 September 2017 19   810   639   14   1,482
 
Net book value
Net book value at 30 September 2017 711   752   369   56   1,888
 
Net book value at 1 April 2017 717   804   278   66   1,865
 
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

9. Investment property

  Freehold  
Property Total
Valuation £000 £000
 

Valuation at 1 April 2016, 30 September 2016, 31
March 2017 and 30 September 2017

189   189
 
Depreciation

Depreciation at 1 April 2016, 30 September 2016,
31 March 2017 and 30 September 2017

4   4
 
Net Book Value

Net Book Value at 1 April 2016, 30 September
2016, 31 March 2017 and 30 September 2017

185   185

This financial information was approved by the board on 05 December 2017.

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.

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)
Andrew Jones (Non-Executive Director, appointed 1st December 2017)
Anthony Rawlinson (Non-Executive Director)
 
REGISTERED OFFICE 78 Coombe Road, New Malden, Surrey. KT3 4QS
Tel: 020-8336-2900 Fax: 020-8336-0909
 
COMPANY NUMBER 01818170
INFORMATION AT

www.ecoanimalhealthgroupplc.com

LEI: 2138009XN9DJ3YP70B55

Classification: 1.2. Half yearly financial reports and audit reports/limited reviews

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ECO Animal Health Group (EAH)
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