Final Results

Final Results

Eco Animal Health Group Plc

ECO ANIMAL HEALTH GROUP PLC

ECO Animal Health Group plc

(AIM: EAH)

Results for the year ended 31 March 2011

HIGHLIGHTS

  • Over 16 per cent increase to £6.4 million (2010: £5.5 million) in profit attributable to shareholders before interest, tax, depreciation, amortisation, share based payments, impairment, foreign exchange and minorities.
  • 24.4 per cent advance in turnover on continuing activities to £27.1 million (2010: £21.7 million)
  • 30 per cent uplift in dividend to 3.0 pence per share (2010: 2.3 pence)
  • £8.5 million of cash generated from operating activities during year (2010: £3.3 million)
  • Aivlosin® sales advance over 30 per cent.
  • Over 30 per cent total sales growth in key emerging markets – China, India and Latin America
  • Aivlosin® manufacturing facility approved by US Federal Drug Administration
  • Sales of antiparasitic drugs (Ecomectin®, Ecotraz and others) benefit from increased demand in China, Japan and South Africa and the launch of the Ecomectin® range in Mexico.

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

“ECO Animal Health Group has delivered another strong set of results for the year ended 31 March 2011 and the current year has started well. Demand from China, our largest market, is strong and we continue to build our presence there and in our other important territories. We remain optimistic that we shall soon receive FDA clearance to commence sales of Aivlosin® in the US, a step which will have a very significant and exciting impact on the development of the company.

Overall, Eco is well positioned with an excellent product range, exciting growth opportunities and potentially very important new products in the development phase. The company is poised to accelerate its growth and continue to deliver value to its shareholders.”

CHAIRMAN’S STATEMENT

FOR THE YEAR ENDED 31 MARCH 2011

I am pleased to report that ECO Animal Health Group has delivered another strong set of results for the year ended 31 March 2011. The Group has again enjoyed excellent overall growth from its global markets. The demand for medication used to maintain optimum health in meat farming industries has continued to grow, reflecting larger protein consumption and generally more prosperous populations. This growth is expected to continue, boosted by economic recovery in the world where many nations receive subsidies to improve the nutrition and therefore the health of their population – these factors combine to provide increasing demand for our products.

FINANCIAL

Group turnover for the year advanced by 24.4 per cent to £27.1 million (2010: £21.7 million) and profit, before the non cash charges of tax, depreciation and amortisation, share based payments, impairment, foreign exchange and minorities, rose by more than 16 per cent to £6.4 million (2010: £5.5 million). On the same basis, the return on shareholders’ funds rose to 10.4 per cent. Earnings per share increased by almost 19 per cent to 3.1 pence (2010: 2.6 pence).

It is a characteristic of our business that the majority of sales are in US dollars and Euros and therefore exchange rate movements are a normal part of our business. We have a powerful natural hedge against the US dollar as a significant proportion of our purchase costs and administration expenses are in that currency. There has not been a need to crystallise currency gains or losses in US dollars for some years. However, the board recently took advantage of the strengthening of the US dollar and the euro against sterling to sell those currencies and thereby reduce the group’s foreign exchange exposure. When sales begin in earnest in the USA, we shall have to hedge further and continue to manage the currency risks effectively.

Cash generation from operating activities has again been strong with an increase of more than £5.1 million over the previous year to £8.5 million. This has been achieved through the ongoing implementation of our aggressive stock and debtor management policies. The majority of the growth in sales has been converted into cash without further overhead spending, although we continue to finance our essential regulatory development programme.

The Board is pleased to declare a dividend of 3.0 pence per share, an increase of over 30 per cent on last year (2010: 2.3 pence). The dividend will be paid on 23 September 2011 to shareholders on the register on 19 August 2011. Once again, we are offering shareholders a scrip alternative to the cash dividend and remain grateful to those who support us in this way. Over £3.5 million of cash has been conserved by this alternative and reinvested in the business since the scheme started in 2008.

INVESTORS

In order to improve liquidity in our shares, we have engaged the services of a company specialising in marketing to private client fund managers. Initial indications are encouraging and following investor presentations around the country, there has been a discernable increase in demand for smaller parcels of shares, which are below the size attractive to institutional investors. This work will continue and together with the support of our institutional broker, we shall endeavour to stabilise the day to day volatility of our AIM traded share price.

OPERATIONS

Sales across ECO’s global business grew by almost 25 per cent over the previous year with regional demand for our products reflecting levels of economic activity. On average, margins were slightly lower, restrained by currency movements, principally last year’s strength of sterling against the US dollar, the regional mix of Aivlosin® sales and an aggressive local pricing policy to secure large tender business in Brazil, in particular.

Sales growth in key markets was strong and China, India and Japan posted growth in excess of 40 per cent whilst in Latin America and South East Asia, growth exceeded 25 per cent. Sales from our subsidiary, Zhejiang ECO Biok Animal Health Products Limited, in China, were once again up nearly 30 per cent in local currency (and close to 35 per cent in sterling). We believe that currently, China remains the market with the greatest potential for our products and we continue to seek further opportunities in that country to expand our already significant presence. Thereafter the USA, which represents about one third of global demand for animal health drugs, will be the next market into which we expect to launch soon.

In Japan, our subsidiary ECOpharma, acquired in January 2009, exceeded expectations in its first full year of trading. Following the earthquake in March 2011 we were pleased to be able to report that our staff in Tokyo and our customers were safe from danger and that business returned to normal very rapidly. The most affected element was transport, but roads were quickly repaired and goods were moving again in a very short time.

Europe was broadly flat reflecting the challenging economic conditions. The UK was a notable exception, where ECO’s new direct to market strategy together with the launch of Aivlosin® for “bulgy eye”, a respiratory disease of pheasants caused by mycoplasma, was particularly well received, delivering sales growth of more than 40 per cent. As part of our promotional programme, the Company has sponsored two point - to - point horses for a very modest fee, to help raise awareness of Eco’s products among the farming and country sports community.

Aivlosin®

Sales of Aivlosin® grew over 30 per cent and continued to command a higher weighting within the product portfolio.

During the year the FDA approved ECO's Aivlosin® Active Pharmaceutical Ingredient manufacturing facility in China, a very important milestone in the development and registration programme for Aivlosin® in the USA.

In Canada the first Aivlosin® marketing authorisation is expected imminently, having progressed through the regulatory review approval process remarkably swiftly.

The Food and Drug Administration (FDA) in America is still studying our most recent dossier submission to allow ECO to obtain its first Aivlosin® marketing authorisation for a pig claim. Concurrently, more work is being carried out so that further claims for Aivlosin® in the USA can be added in the near future. Timelines continue to be extended and, as ever, this is completely out of our control. However, we do expect that our patience will be rewarded generously in the coming months. Meanwhile, our joint venture in America with Pharmgate Animal Health to launch Aivlosin® is gathering momentum, albeit a little more conservatively than we had hoped last year, reflecting the delays in response times from the FDA.

Antiparasitics including the ECOMECTIN® range

Sales of our range of antiparasitic drugs (Ecomectin®, Ecotraz and others) were up over 29 per cent over the same period last year, a reflection of increased demand in China, Japan and South Africa and the launch of the Ecomectin® range in Mexico.

Product Development

ECO continues to reduce the level of expenditure on product development, registrations and associated costs, which is consistent with our long term plans, highlighted in previous shareholder reports. However, we continue to focus resource on exploring new Aivlosin® indications across a variety of different species.

Project work on the formulation and development of selected, differentiated generic pet medications of potential major importance to ECO continues. The first regulatory submission to the US authorities was made during the year. We believe that these new products will generate significant profits once marketing authorisations in Europe, the US and international markets have been granted.

Building on the basic research, conducted by the Virology Division of the Department of Pathology at the University of Cambridge, into the inhibition of viruses by Aivlosin®, ECO has commissioned further research with other European institutions and the results will be reported in due course.

PEOPLE

We currently employ 144 people in our 13 offices worldwide and we are, as always, grateful to our team of highly qualified, motivated and trained specialists who are helping to make our company a leading, trusted, respected and ever stronger force in the global animal health industry.

OUTLOOK

The year has started well with positive trends in many of our key markets. Demand from China, our largest market, is strong and we continue to build our presence there and in our other important territories. We remain optimistic that we shall soon receive FDA clearance to commence sales of Aivlosin® in the US, a step which will have a very significant and exciting impact on the development of the company.

Overall, Eco is well positioned with an excellent product range, exciting growth opportunities and potentially very important new products in the development phase. The company is poised to accelerate its growth and continue to deliver value to its shareholders.

Peter Lawrence
Executive Chairman
21 July 2011

CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH 2011

            2011               2010    
Continuing operations Notes £ £
 
Revenue 2,3,4 27,078,262 21,768,164
Cost of sales (16,365,337) (12,743,194)
 
Gross profit 10,712,925 9,024,970
 
Other income 178,961 185,074
Administrative expenses (8,422,529) (7,117,125)
 
Profit from operating activities 5 2,469,357 2,092,919
 
Finance income 6 73,116 16,108
Finance costs 6 (250,857) (104,495)
 
Net finance (expense) (177,741) (88,387)
   
 
Profit before income tax 2,291,616 2,004,532
Income tax (charge) 8 (297,813) (336,527)
 
Profit for the year from continuing operations 1,993,803 1,668,005
 
Discontinued operation

(Loss) for the year from discontinued operation
(net of income tax)

4 - (100,885)
 
Profit for the year 1,993,803 1,567,120
   
 
Profit attributable to:
Owners of the parent company 1,590,781 1,239,068
Minority interest 403,022 328,052
 
Profit for the year 1,993,803 1,567,120
   
 
Basic earnings per share (pence) 7 2011 2010
 
-Continuing operations 3.07 2.79
-Discontinued operations - (0.21)
 
Post tax earnings per share 3.07 2.58
   
 

Diluted earnings per share (pence) on
continuing operations

2.96 2.58

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2011

            2011               2010    
Notes £ £
 
Profit for the year 1,993,803 1,567,120
 
Other comprehensive income:
Foreign currency translation differences 203,229 (40,758)
Defined benefit plan actuarial gains/(losses) 20 14,000 (25,000)

Revaluation of investment in Ecopharma Inc.
prior to acquisition

- 268,862
Revaluation of other investments 61,594 -
Revaluation of freehold property 52,000 -
Deferred tax on revaluations (87,373) -
 
Other comprehensive income for the year 243,450 203,104
   
 
Total comprehensive income for the year 2,237,253 1,770,224
   
 
Attributable to:
Owners of the parent company 1,754,161 1,468,204
Minority interest 23 483,092 302,020
 
2,237,253 1,770,224

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

STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2011

CONSOLIDATED   Attributable to the owners of the Parent
             
Share Share Revaluation Other Retained Total Minority Total
Capital premium Reserve Reserves Earnings Interest Equity
Account
£ £ £ £ £ £ £ £
 
Balance as at 31 March 2009 2,320,120 38,287,204 250,457 938,306 6,703,304 48,499,391 1,098,276 49,597,667
 
Profit for the year - - - - 1,239,068 1,239,068 328,052 1,567,120
Other comprehensive income:
Foreign currency differences - - - - (14,726) (14,726) (26,032) (40,758)
Actuarial losses on pension scheme assets - - - - (25,000) (25,000) - (25,000)
Revaluation of investment -   -   268,862   -   -   268,862   -   268,862
 
Total comprehensive income for the year -   -   268,862   -   1,199,342   1,468,204   302,020   1,770,224
 

Transactions with owners
recorded directly in equity

Contributions by and
distributions to owners
Issue of shares in the year 260,517 7,200,693 - - - 7,461,210 - 7,461,210
Share-based payments - - - 203,285 - 203,285 - 203,285
Dividends relating to 2009 -   -   -   -   (3,332,802)   (3,332,802)   -   (3,332,802)
 
Transactions with owners 260,517   7,200,693   -   203,285   (3,332,802)   4,331,693   -   4,331,693
 
Balance as at 31 March 2010 2,580,637 45,487,897 519,319 1,141,591 4,569,844 54,299,288 1,400,296 55,699,584
 
Profit for the year - - - - 1,590,781 1,590,781 403,022 1,993,803
Other comprehensive income:
Foreign currency differences - - - - 123,159 123,159 80,070 203,229
Actuarial gains on pension scheme assets - - - - 14,000 14,000 - 14,000
Revaluation of investment - - 61,594 - - 61,594 - 61,594
Revaluation of freehold property - - 52,000 - - 52,000 - 52,000
Deferred taxation -   -   (87,373)   -   -   (87,373)   -   (87,373)
 
Total comprehensive income for the year -   -   26,221   -   1,727,940   1,754,161   483,092   2,237,253

Transactions with owners
recorded directly in equity

Contributions by and
distributions to owners
Issue of shares in the year 29,121 781,203 - - - 810,324 - 810,324
Share-based payments - - - 303,504 - 303,504 - 303,504
Transfers on expiry of options - - - (114,865) 114,865 - - -
Dividends relating to 2010 -   -   -   -   (1,190,888)   (1,190,888)   (92,801)   (1,283,689)
 
Transactions with owners 29,121   781,203   -   188,639   (1,076,023)   (77,060)   (92,801)   (169,861)
 
Balance as at 31 March 2011 2,609,758   46,269,100   545,540   1,330,230   5,221,761   55,976,389   1,790,587   57,766,976

STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2011

COMPANY            
 
Share Share Revaluation Other Retained Total
Capital premium Reserve Reserves Earnings
Account
£ £ £ £ £ £
 
Balance as at 31 March 2009 2,320,120 38,287,204 250,457 938,306 1,292,907 43,088,994
 
Profit for the year - - - - 6,967,288 6,967,288
Other comprehensive income:

Actuarial losses on pension
scheme assets

 - - - - (25,000) (25,000)
 

Total comprehensive income
for the year

 -   -   -   -   6,942,288   6,942,288
 

Transactions with owners
recorded directly in equity

Contributions by and
distributions to owners
Issue of shares in the year 260,517 7,200,693 - - - 7,461,210
Share-based payments - - - 203,285 - 203,285
Dividends relating to 2009 -   -   -   -   (3,332,802)   (3,332,802)
 
Transactions with owners 260,517   7,200,693   -   203,285   (3,332,802)   4,331,693
 
Balance as at 31 March 2010 2,580,637 45,487,897 250,457 1,141,591 4,902,393 54,362,975
 
Profit for the year - - - - 1,353,391 1,353,391
Other comprehensive income:
Actuarial gains on pension scheme assets - - - - 14,000 14,000
Revaluation of investment - - 61,594 - - 61,594
Revaluation of freehold property - - 52,000 - - 52,000
Deferred taxation - - (87,372) - - (87,372)
 

Total comprehensive income
for the year

 -   -   26,222   -   1,367,391   1,393,613
 

Transactions with owners
recorded directly in equity

Contributions by and
distributions to owners
Issue of shares in the year 29,121 781,203 - - - 810,324
Share-based payments - - - 303,504 - 303,504

Transfer to retained earnings re
expired options

 - - - (114,865) 114,865 0
Dividends relating to 2010 -   -   -   -   (1,190,888)   (1,190,888)
 
Transactions with owners 29,121   781,203   -   188,639   (1,076,023)   (77,060)
 
Balance as at 31 March 2011 2,609,758   46,269,100   276,679   1,330,230   5,193,761   55,679,528

STATEMENTS OF FINANCIAL POSITION
AS AT 31 MARCH 2011

    Group   Company
2011   2010 2011   2010
Notes £ £ £ £
Non-current assets
Intangible assets 11 38,636,816 37,543,567 - -
Property, plant and equipment 12 1,277,586 1,088,134 655,611 620,704
Investments 13 350,888   289,294   20,393,834   20,332,240
 
40,265,290 38,920,995 21,049,445 20,952,944
Current assets
Inventories 14 4,803,929 5,697,309 - -
Trade and other receivables 15 9,642,817 8,984,287 28,625,161 29,253,380
Income tax recoverable 355,667 339,817 213,622 213,622
Other taxes and social security 94,712 261,165 3,588 76,670
Cash and cash equivalents 17 9,471,537   9,881,722   6,243,597   7,917,774
 
Total current assets 24,368,662 25,164,300 35,085,968 37,461,446
 
Liabilities
Trade and other payables 18 (5,795,322) (3,611,666) (226,588) (79,641)
Short -term borrowings 19 (53,196) (3,978,873) (53,196) (3,884,184)
Income tax (77,529) (42,495) - -
Other taxes and social security (76,699) (101,804) (54,628) (55,168)
Dividends (32,369)   (29,154)   (32,369)   (29,154)
 
Current liabilities (6,035,115)   (7,763,992)   (366,781)   (4,048,147)
 
Net current assets 18,333,547   17,400,308   34,719,187   33,413,299
 
Total assets less current liabilities 58,598,837 56,321,303 55,768,632 54,366,243
Non current liabilities
Deferred tax 16 (831,861)   (621,719)   (89,104)   (3,268)
 
TOTAL ASSETS LESS TOTAL LIABILTIES 57,766,976   55,699,584   55,679,528   54,362,975
 
EQUITY
Issued share capital 22 2,609,758 2,580,637 2,609,758 2,580,637
Share premium account 46,269,100 45,487,897 46,269,100 45,487,897
Revaluation reserve 545,540 519,319 276,679 250,457
Other reserves 24 1,330,230 1,141,591 1,330,230 1,141,591
Retained earnings 5,221,761   4,569,844   5,193,761   4,902,393
 
55,976,389 54,299,288 55,679,528 54,362,975
Minority interests 23 1,790,587   1,400,296   -   -
 
TOTAL EQUITY 57,766,976   55,699,584   55,679,528   54,362,975

Approved by the Board and authorised for issue on 21 July 2011
Peter Lawrence
Director

The notes on pages 18 to 58 form part of these financial statements.

STATEMENT OF CASHFLOWS
FOR THE YEAR ENDED 31 MARCH 2011

    Group   Group   Company   Company
2011 2010 2011 2010
Notes £ £ £ £
Cashflows from operating activities
Profit before income tax 2,291,616 1,903,647 1,352,597 6,740,466
Adjustment for:
Net finance costs/(income) 177,741 88,387 (406,817) (241,651)
Depreciation 12 88,543 144,553 20,859 22,177
Amortisation of intangible assets 11 3,239,948 2,869,270 - -
Pension payments 20 (59,000) (54,000) (59,000) (54,000)
Pension operating costs 20 2,000 5,000 2,000 5,000
Share based payments 21 303,504   203,285   303,504   203,285
 

Operating cash flows before movements
in working capital

6,044,352 5,160,142 1,213,143 6,675,277
Change in inventories 893,380 (264,532) - -
Change in receivables (421,077) (566,751) 772,301 (9,027,071)
Change in payables 2,158,550   (831,340)   146,407   (63,082)
 
Cash generated from operations 8,675,205 3,497,519 2,131,851 (2,414,876)
Finance costs (54,169) (100,495) (52,866) (5,836)
Income tax (155,860)   (61,641)   (742)   16,468
 
Net cash from/(used in) operating activities 8,465,176 3,335,383 2,078,243 (2,404,244)
 
Cash flows from investing activities
Acquisition of undertaking, net of cash included - (800,932) - -
Acquisition of property, plant and equipment 12 (151,257) (72,133) (3,766) (1,624)
Acquisition of other investments - (3,368) - -
Purchase of drug registrations 11 (4,269,988) (3,478,515) - -
Finance income 73,116   16,108   459,683   251,487
 

Net cash (used in)/generated from
investing activities

(4,348,129) (4,338,840) 455,917 249,863
             
 
Cash flows from financing activities
Proceeds from issue of share capital 305,995 5,715,792 305,995 5,715,792
Dividends paid (776,145)   (1,577,658)   (683,344)   (1,577,658)
 
Net cash (used in)/from financing activities (470,150) 4,138,134 (377,349) 4,138,134
             
Net increase in cash and cash equivalents 3,646,897 3,134,677 2,156,811 1,983,753
Foreign exchange movements (131,405) (40,758) - -
Balance at 1 April 2010 5,902,849   2,808,930   4,033,590   2,049,837
 
Balance at 31 March 2011 17 9,418,341 5,902,849 6,190,401 4,033,590

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2011

1. General information

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

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

2. Summary of significant accounting policies

2.1 Basis of preparation

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

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

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

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

2.2 Adoption of new and revised standards

At the date of authorisation of these financial statements, the following standards and interpretations to existing standards are mandatory for the first time for the accounting period ended 31 March 2011.

            Effective from    
IFRIC 16 Hedges of a Net Investment in a Foreign Operation 1 July 2009
IAS 17 (amended) Leases 1 January 2010
IAS 27 (revised) Consolidated and Separate Financial Statements 1 July 2009
IAS 32 (amended) Classification of Rights Issues 1 February 2010
IAS 39 (amended) Financial Instruments: Recognition and Measurement:
Eligible Hedged Items 1 July 2009
IFRS 1 (amended) First-time Adoption of IFRS 1 July 2009
IFRS 1 (amended) Additional Exemptions for First-Time Adopters 1 January 2010
IFRS 2 (amended) Group Cash-settled Share-based Payment Transactions
1 January 2010
IFRS 3 (revised) Business Combinations 1 July 2009
IAS 38 (amended) Intangible assets 1 January 2010
IFRS 5 (amended) Non-current assets held-for-sale and discontinued
operations 1 January 2010
IFRS 8 (amended) Operating segments 1 January 2010
IAS 1 (amended) Presentation of financial statements 1 January 2010

2.2 Adoption of new and revised standards (continued)

IAS 7 (amended)       Statement of cash flows       1 January 2010    
IAS 36 (amended) Impairment of assets 1 January 2010

At the Date of the authorisation of these financial statements, the following standards and interpretations were in issue but not yet effective.

IFRIC 14 (amended)       Prepayments of a Minimum Funding Requirement       1 January 2011    
IAS 24 (revised) Related Party Disclosures 1 January 2011
IFRIC 17 Distributions of a Non-cash Assets to Owners 1 July 2009*
IFRIC 18 Transfers of Assets from Customers 1 July 2009*
IFRS 1 (amended) Limited exemption from Comparative IFRS 7 Disclosures
For First Time Adopters 1 July 2010
IFRS 1 (amended) Severe Hyperinflation and Removal of Fixed Dates for
First-time Adopters 1 July 2011*
IFRS 7 (amended) Financial Instruments: Disclosures 1 July 2011*
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments 1 July 2010
IFRS 9 (amended) Financial Instruments 1 January 2013*

*Not yet endorsed by the EU.

A review of the impact of these standards, amendments and interpretations continues. At this stage the directors do not believe that they will give rise to any significant financial impact.

The Group did not early adopt any new or amended standards during the year and does not plan to early adopt any of the standards issued but not yet effective.

2.3 Basis of consolidation

The consolidated financial statements comprise the account of the Company and its subsidiaries drawn up to 31 March 2011.

An entity is classed as a subsidiary of the Company when as a result of contractual arrangements the Company has the power to govern its financial and operating policies so as to obtain benefits from its activities.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured, as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value the difference is recognised directly in the income statement.

Accounting policies have been changed where material to ensure consistency with the policies adopted by the Group. Although the subsidiaries in Brazil, China and Japan all have December year ends, the Group uses management accounts to the end of March to prepare the Group accounts. Subsidiaries are wholly consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation.

2.4 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting to the chief operating decision-maker. The chief operating decision-maker who is responsible for allocating resources and assessing performance of the operating segments has been identified as the Board.

2.5 Foreign currency translation

(a) Functional and presentational currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“functional currency”). The consolidated financial statements are presented in Pounds Sterling, which is the Company’s functional and the Group’s presentational currency.

(b) Transactions and balances

Monetary assets and liabilities denominated in foreign currencies are translated into Pounds Sterling at the rates of exchange ruling at the date of the financial statements.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Foreign exchange gains and losses that relate to borrowing and cash and cash equivalents are presented in the income statement within finance income or finance costs.

(c) Group companies

The results and financial position of all Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows;

  • assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of the balance sheet;
  • income and expenses for each income statement are translated at average exchange rates unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case the income and expenses are translated at the rate on the dates of the transaction; and
  • all resulting exchange differences are recognised as a separate component of equity.

When a foreign operation is partially disposed of or sold, exchange differences that were recognised in equity are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing exchange rate.

2.6 Financial instruments

Non-derivative financial assets

The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when and only when, the Group has a legal right to offset the amounts and intends to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group has the following non-derivative financial assets: loans and receivables and available-for-sale assets.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.

Loans and receivables comprise trade and other receivables and cash and cash equivalents.

Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale and that are not classified in any other categories. The Group’s investments in equity securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein are recognised in other comprehensive income and presented within equity. When an investment is derecognised, the cumulative gain or loss in other comprehensive income is transferred to profit or loss.

Non-derivative financial liabilities

All financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

The Group has the following non-derivative financial liabilities: bank overdrafts and trade and other payables.

Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest method.

2.7 Goodwill

Goodwill arising on the acquisition of an entity represents the excess of the costs of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity recognised at the date of acquisition.

Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is not subject to amortisation but is tested for impairment.

Negative goodwill arising on an acquisition is recognised directly in the income statement. On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss recognised in the income statement on disposal. Goodwill arising before the date of transition to IFRS, on 1 April 2004, has been retained at the previous UK GAAP amounts, subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.

2.8 Other intangible assets

Drug registrations, patents and licenses

The Group recognises internally generated or externally acquired intangible assets at cost and subsequently recognises them at cost less accumulated amortisation and impairment losses. Intangible assets acquired as part of a business combination are recognised at fair value.

Expenditure on drug registrations and licenses is recognised as an internally generated or externally acquired intangible asset only if all the following conditions are met:

  • an asset is created that can be identified
  • it is probable that the asset created will generate future economic benefits: and
  • the development cost of the asset can be measured reliably.

All drug registrations and licenses are amortised on a straight-line basis over their useful economic life of 10 years.

Distribution rights

Distribution rights are recognised at cost and amortised on a straight line basis over their estimated useful economic life of 20 years. They are reviewed for impairment when any indication of potential impairment exists.

2.9 Property, plant and equipment and depreciation

Plant and equipment are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows;

Plant and machinery       20% on cost
Fixtures, fittings and equipment 20% on cost
Motor Vehicles 25% on cost

Freehold land and buildings are stated at valuation less depreciation. The property is professionally valued by a qualified surveyor at least once every three years. Surpluses and deficits arising from the periodic valuations are taken to the revaluation reserve in the statement of financial position and are recognised in the statement of comprehensive income for the year. Depreciation is provided at a rate calculated to write off the valuation less estimated residual value over the remaining useful life of the building at a rate of 2 per cent per annum. Land is not depreciated.

2.10 Impairment of non-financial assets

The carrying amounts of the Group’s assets are reviewed at each year end, to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated in order to determine the impairment loss if any. The recoverable amount is the higher of its fair value and its value in use. For intangible assets with an indefinite useful life, an impairment test is performed at each year end.

In assessing value in use, the expected future cash flows from the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognised in the income statement whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.

A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a change in the estimates used to determine the recoverable amount, but not to an amount higher than the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognised in prior years.

2.11 Leasing

The Group leases certain property, plant and equipment.

Assets obtained under finance leases, where the Group has substantially all the risks and rewards of ownership are capitalised as property, plant and equipment and depreciated over the shorter of the lease term and their useful lives. Obligations under such agreements are included in borrowings net of the financial charge allocated to future periods. The financial element of the rental payment is charged to the income statement so as to produce constant periodic rates of charge on the net obligations outstanding in each period.

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease.

2.12 Inventories

Inventories are valued at the lower of cost and net realisable value. Cost is determined using the first-in, first-out method. The cost of finished goods comprises raw materials, direct labour and other direct costs. Net realisable value is the estimated selling price in the ordinary course of business.

2.13 Trade receivables

Trade receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowance for estimated, irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

2.14 Investments

Non-current asset investments are stated at fair value, including transaction costs, less impairment. They are recognised or derecognised on the date when the contract for acquisition or disposal requires the delivery of that investment.

Investments in subsidiaries are stated at cost less impairment in the Parent Company’s statement of financial position.

An impairment is recognised in profit or loss when there is objective evidence that the asset is impaired and is measured on the difference between the investment’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate adjusted for a risk premium. Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised costs would have been had the impairment not been recognised.

Investments classified as available-for-sale are stated at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in net profit or loss for the period. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity, is determined using the weighted average cost method, is included in the net profit or loss for the period.

2.15 Interest in joint ventures

A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control; that is, when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control.

The Group reports its interests in jointly controlled entities using proportionate consolidation. The group’s share of the assets, liabilities, income, expenses and cash flows of jointly controlled entities are combined with the equivalent items in the results on a line-by-line basis.

2.16 Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held on call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position.

2.17 Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

2.18 Bank borrowings and loans

Interest-bearing bank loans and overdrafts are recorded as the proceeds received, net of direct issue costs (which equate to fair value). Finance charges including premiums payable on settlement or redemption and direct issue costs are accounted for on an accruals basis in profit or loss using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

2.19 Trade payables

Trade payables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method.

2.20 Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be required to settle the obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation outstanding at the year end and are discounted to present value where the effect is material.

2.21 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the Group’s activities. Revenue is shown net of value added tax, returns, rebates and discounts and after eliminating sales within the Group.

The Group recognises revenue on despatch of the goods (which the directors believe transfers substantially all the risks and rewards of ownership to the buyer). No goods are despatched on a sale or return basis. Distributors trade on their own account and not as agents.

The Group also receives interest, royalty income and management charges in respect of accounting services supplied to certain ex-subsidiaries. The amounts are small and are recognised on an accruals basis.

2.22 Pensions

Defined Contribution Scheme

The pension costs charged against operating profits represent the amount of the contributions payable to the schemes in respect of the accounting period.

Defined Benefit Scheme

The regular cost of providing retirement pensions and related benefits is charged to the income statement over the employees’ service lives on the basis of a constant percentage of earnings. Any difference between the charge to the income statement and the contributions paid to the scheme are disclosed as an asset or liability in the statement of financial position in accordance with IAS 19. Actuarial gains or losses are taken directly to equity in the statement of comprehensive income.

2.23 Share-based payments

The Group has applied the requirements of IFRS2 Share-based payments. In accordance with the transitional provisions, IFRS2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested at 1 January 2005.

The Group issues equity-settled share-based payments to certain employees in exchange for services from those employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant of such equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions (with a corresponding movement in equity).

Fair value is measured by use of the Black-Scholes model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behaviour considerations.

Further details of the inputs to the Black-Scholes model can be found in note 21 to the accounts.

2.24 Taxation

Tax expense for the period comprises current and deferred tax.

Current tax, including UK corporation tax and foreign tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted by the year end. Tax expenses are recognised in the income statement or statement of comprehensive income according to the treatment of the transactions which give rise to them.

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax basis of assets and liabilities and their carrying amount in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted, or substantially enacted, by the date of the statement of financial position and are expected to apply when the related deferred tax asset is realised or deferred tax liability is settled.

Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.

2.25 Share Capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

2.26 Dividend distribution

Final dividend distributions to the Company’s shareholders are recognised as liabilities in the financial statements in the period in which they are approved by the Company’s shareholders. Interim dividends are recognised when they are paid.

2.26 Critical accounting estimates and judgements

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are:

(a) Estimated impairment value of intangible assets
The Group tests annually whether intangible assets with indefinite life have suffered any impairment. Other intangible assets are reviewed for impairment when an indication of potential impairment exists. Impairment provisions are recorded as applicable based on directors’ estimates of recoverable values. Details of the impairment reviews performed can be found in note 11 of the financial statements.

(b) Income taxes
The Group is subject to income taxes predominantly in the United Kingdom but also in other jurisdictions.

Significant estimates are required in determining the provision for income taxes. There are some transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises assets and liabilities based on estimates of the final agreed position. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

(c) Pension scheme
The Group maintains one defined benefit pension scheme which has been accounted for according to the provisions of IAS19. Although the assumptions were determined by a qualified actuary, any change in those assumptions may materially impact the financial position and results of the Group. Details of the assumptions used can be found in note 20 of the financial statements.

(d) Share-based payments
The charge to the Income Statement in respect of share-based payments has been externally calculated using management’s best estimates of the amount of options expected to vest and various other inputs to the Black-Scholes model, as disclosed in note 21. Any variation in those assumptions may have a material impact on the Group’s future results and financial position.

3. Segment information

Management has determined the operating segments based on the reports reviewed by the Board that are used to make strategic decisions. The Board considers the business from a geographical perspective. Geographically, management considers the performance in the UK and Europe, China, Japan and the Indian subcontinent, Latin America and the rest of the world. The segment information provided to the Board for the year ended 31 March 2011 is as follows;

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

      U.K.       Europe      

China, Japan
and the Indian
subcontinent

       Latin America       Rest of the world       Total    
£ £ £ £ £ £

Year ended 31 March
2011
Total segmental revenue 567,921 4,344,378 12,198,318 10,095,787 4,433,739 31,640,143
Inter-segment revenue -       -       (2,218,332)       (2,343,549)       -       (4,561,881)
 

Revenue from external
customers

 567,921 4,344,378 9,979,986 7,752,238 4,433,739 27,078,262
                                         
 
Sale of goods 567,921 4,344,378 9,979,986 7,752,238 4,091,730 26,736,253
Royalties - - - - 342,009 342,009
                                         
 
567,921 4,344,378 9,979,986 7,752,238 4,433,739 27,078,262
 
Adjusted EBITDA (935,268) 1,416,463 2,481,290 1,849,331 1,289,536 6,101,352
Total assets 11,843,501 9,446,879 20,182,417 14,721,730 8,439,425 64,633,952
                                         
 
 

Year ended 31 March
2010
Total segmental revenue 397,676 4,468,518 9,077,571 8,194,429 3,748,145 25,886,339
Inter-segment revenue -       -       (1,999,006)       (2,119,169)       -       (4,118,175)
 

Revenue from external
customers

 397,676 4,468,518 7,078,565 6,075,260 3,748,145 21,768,164
                                         
 
Sale of goods 397,676 4,468,518 7,078,565 6,075,260 3,474,793 21,494,812
Royalties - - - - 273,352 273,352
                                         
 
397,676 4,468,518 7,078,565 6,075,260 3,748,145 21,768,164
 
Adjusted EBITDA (847,766) 1,579,389 1,634,099 1,799,571 1,144,734 5,310,027
Total assets 14,123,532       9,634,533       17,787,404       13,972,000       8,567,826       64,085,295

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

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

      2011       2010
£ £
Adjusted EBITDA for reportable segments 6,101,352 5,310,027
Depreciation (88,543) (144,553)
Amortisation (3,239,948) (2,869,270)
Impairment provisions - (100,885)
Share-based payment charges (303,504) (203,285)
Finance (expense) (177,741)       (88,387)
 
Profit before tax after discontinued activities 2,291,616       1,903,647

4. Continued and discontinued operations and acquisitions

  Revenue   Expenses  

Other
operating
income

  

Profit before
tax

   Tax  

Profit for the
year
2011 £ £ £ £ £ £
 
Continuing operations 27,078,262   (24,965,607)   178,961   2,291,616   (297,813)   1,993,803
 
27,078,262 (24,965,607) 178,961 2,291,616 (297,813) 1,993,803
                     
 
2010
 
Continuing operations 20,334,255 (18,583,979) 184,963 1,935,239 (309,039) 1,626,200
Acquisitions 1,433,909   (1,364,727)   111   69,293   (27,488)   41,805
 
21,768,164 (19,948,706) 185,074 2,004,532 (336,527) 1,668,005
Discontinued activities -   (100,885)   -   (100,885)   -   (100,885)
 
21,768,164 (20,049,591) 185,074 1,903,647 (336,527) 1,567,120
                     
 
Analysis of sales by type:
Continuing Total Continuing Aquisitions Total
2011 2011 2010 2010 2010
£ £ £ £ £
 
Sale of goods 26,736,253 26,736,253 20,060,903 1,433,909 21,494,812
Royalties 342,009   342,009 273,352   -   273,352
 
27,078,262   27,078,262 20,334,255   1,433,909   21,768,164

5. Result from operating activities

      2011       2010    
£ £
Result from operating activities is stated after charging:
Cost of inventories recognised as an expense 16,365,337 12,743,194
Employee benefits expenses 2,879,736 2,494,271
Amortisation of intangible assets 3,239,948 2,869,270
Depreciation 88,543 144,553
Loss on foreign exchange transactions 268,757 161,657
Research and development 29,245 780
Operating lease rentals 146,221 136,548
 

Fees payable to the Company's auditor for the audit of the parent
Company and Group annual accounts

18,000 22,500
Fees payable for taxation services - 1,514

Fees payable for audit of the Company's subsidiaries pursuant to
legislation

 27,000       22,500
 
2011 2010
£ £

Earnings due to shareholders before interest, tax, depreciation,
amortisation, share-based payments and foreign exchange
differences

Profit from operating activities 2,469,357 2,092,919
Depreciation 88,543 144,553
Amortisation 3,239,948 2,869,270
Share-based payments 303,504 203,285
         
 
6,101,352 5,310,027
Foreign exchange differences 268,757       161,657
 
6,370,109 5,471,684
Minorities (403,022)       (328,052)
 
5,967,087       5,143,632

6. Finance cost/income

      2011       2010    
£ £
Finance costs
Interest paid (54,169) (104,495)
Foreign exchange differences on bank loans and overdrafts (196,688) -
 
Finance income
On short term bank deposits 73,116       16,108
 
Net finance income/expense (177,741)       (88,387)

7. Earnings per share

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

  2011       2010
Earnings  

Weighted
average
number of
shares

  

Per share
amount

 Earnings  

Weighted
average
number of
shares

  

Per share
amount
£'000 000 (pence) £'000 000 (pence)

Earnings attributable to
ordinary shareholders on
continuing operations after
tax

 1,590 51,873 3.07 1,340 48,025 2.79

Losses on discontinued
activities

 - 51,873 - (101) 48,025 (0.21)
-

Dilutive effect of share
options

 - 1,860 (0.11) - - -
       
 

Fully diluted earnings per
share

 1,590 53,733 2.96 1,239 48,025 2.58
 

Earnings attributable to
ordinary shareholders on
continuing operations
before tax

 1,888 51,873 3.64 1,676 48,025 3.49

Dilutive earnings per share takes into account the dilutive effect of share options. For the previous year, fully diluted earnings per share were equal to basic earnings per share

8. Taxation

      2011       2010    
£ £
Current tax year
Foreign corporation tax on profits for the year 189,248 48,288
Adjustment for prior years (14,205)       (339,370)
 
Current tax charge/(credit) 175,043 (291,082)
 
Deferred tax
Origination and reversal of temporary differences 122,770       627,609
 
Income tax charge 297,813 336,527
         
Factors affecting the tax charge for the year
Profit on ordinary activities before taxation 2,291,616 2,004,532
         
 
2011 2010
£ £

Profit on ordinary activities before taxation multiplied by standard rate of
UK corporation tax of 28% (2010: 28%)

 641,652 561,269
Effects of:
Non deductible expenses 73,425 30,245
Non chargable credits (113,993) -
Enhanced allowance on research and development expenditure (153,062) (6,025)
Lower tax rate for Chinese subsidiary (153,561) (186,279)
Prior year adjustments - (55,661)
Other tax adjustments 3,352       (7,022)
 
Income tax charge 297,813 336,527
         
 
2011 2010
% %
Applicable tax rate per UK legislation 28.00 28.00
Effects of:
Non deductible expenses 3.20 1.51
Non chargable credits (4.97) -
Enhanced allowance on research and development expenditure (6.68) (0.30)
Lower tax rate for Chinese subsidiary (6.70) (9.29)
Prior year adjustments - (2.78)
Other tax adjustments 0.15       (0.35)
 
Effective tax rate 13.00       16.79

9. Profit/(loss) for the financial year

      2011       2010    
£ £
 
Parent Company's profit for the financial year 1,353,391       6,967,288

10. Dividends

      2011       2010    
£ £
 

Interim dividend for the period ended 31 March 2009 of 1.7p per
ordinary share

- 788,841

Final dividend paid for the period ended 31 March 2009 of 5.45p
per ordinary share

- 2,543,961

Interim dividend for the period ended 31 March 2010 of 2.3p per
ordinary share

1,190,888 -
         
 
1,190,888       3,332,802

The Board is declaring a dividend of £1,565,855 being 3.00 pence per share in respect of the year ended 31 March 2011. A scrip dividend alternative will be offered.

11. Intangible fixed assets

Group       Goodwill      

Distribution
rights

      

Drug
registrations,
patents and
license costs

       Total    
Cost £ £ £ £
At 1 April 2009 17,452,878 1,034,860 26,722,747 45,210,485
Additions 477,617 - 3,478,515 3,956,132
Acquired with subsidiary -       -       925,989       925,989
 
At 1 April 2010 17,930,495 1,034,860 31,127,251 50,092,606
Additions - - 4,269,988 4,269,988
Foreign exchange movements -       -       63,209       63,209
 
At 31 March 2011 17,930,495 1,034,860 35,460,448 54,425,803
                         
 
Amortisation
At 1 April 2009 - 260,408 9,419,361 9,679,769
Charge for the year -       55,318       2,813,952       2,869,270
 
At 1 April 2010 - 315,726 12,233,313 12,549,039
Charge for the year -       55,318       3,184,630       3,239,948
 
At 31 March 2011 - 371,044 15,417,943 15,788,987
 
Net Book Value
At 31 March 2011 17,930,495       663,816       20,042,505       38,636,816
 
At 31 March 2010 17,930,495       719,134       18,893,938       37,543,567
 
At 1 April 2009 17,452,878       774,452       17,303,386       35,530,716

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

Distribution rights are amortised over their estimated useful life of 20 years and reviewed for impairment when any indication of potential impairment exists. The remaining amortisation period at the date of the financial statements was 12 years.

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

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

477,617

 

17,930,495

 

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

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

The Group prepares cash flow forecasts derived from the most recent financial budgets and projections that are approved by management for the year ahead and then extrapolates them assuming a 3% annual growth rate which is well below the current performance of the existing business. The directors believe that the long term growth rate assumed does not exceed the average long term growth rate for the relevant markets. The exception to this rule is ECOpharma Inc. In this case the directors believe that a 5 percent growth rate in sales and margin for the second to fifth years, followed by a 3 per cent growth rate thereafter is appropriate.

Management estimates discount rates using the pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU’s. In the current year management estimated the applicable rate to be 11%. Despite general economic conditions, management considers that there is adequate headroom when comparing the net present value of the cash flows to the carrying value of goodwill to conclude that no impairment is necessary this year. On current assumptions the excess of recoverable amount over carrying value is over £24 million.

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

Drug registrations and licenses are amortised over their estimated useful lives of 10 years, which is the directors’ estimate of the time it would take to develop a new product allowing for the Group’s patent protection and the exclusivity period which comes with certain registrations. Given the economic climate the directors have conducted an impairment review in the current year by preparing cash flow projections for the year ahead and extrapolating the results for the 10 year life of the registrations assuming zero growth and an 11% discount rate to establish value in use. On the current assumptions the excess of the recoverable amount over carrying value is more than £14 million. The calculations have also shown that a 6 year life is more than enough to justify the current carrying value of these registrations. Moreover, fair value calculated as 10 times the current cash generated by the registrations gives an even higher result, so management has again concluded that no impairment is necessary.

12. Property, plant and equipment

Group  

Land and
Buildings
(freehold)

 

Plant and
machinery

 

Fixtures,
fittings and
equipment

 

Motor
Vehicles

  Total
Cost or valuation £ £ £ £ £
At 1 April 2009 650,000 703,262 519,735 - 1,872,997
Additions - 59,149 12,984 - 72,133
Disposals -       2,577   -   2,577
 
At 1 April 2010 650,000 762,411 535,296 - 1,947,707
Additions - 93,456 15,590 42,211 151,257
Foreign exchange movements - 280,133 - - 280,133
                 
At 31 March 2011 650,000 1,136,000 550,886 42,211 2,379,097
                 
 
Depreciation
At 1 April 2009 39,000 277,840 398,180 - 715,020
Charge for the year 13,000   81,299   50,254   -   144,553
 
At 1 April 2010 52,000 359,139 448,434 - 859,573
Charge for the year 9,400 29,058 42,125 7,960 88,543
Foreign exchange movements - 203,463 (151) 2,083 205,395
Revaluation adjustment (52,000)   -   -       (52,000)
 
At 31 March 2011 9,400 591,660 490,408 10,043 1,101,511
                 
 
Net Book Value
At 31 March 2011 640,600   544,340   60,478   32,168   1,277,586
 
At 31 March 2010 598,000   403,272   86,862   -   1,088,134
 
At 1 April 2009 611,000   425,422   121,555   -   1,157,977

The freehold property was valued on 28 April 2010 by Mr R Sworn of Kelion Sworn Chartered Surveyors and Valuers, London, W1. The fair value in use of the freehold property was determined at £650,000 by means of applying a 7.5% discount rate to the annual rental value of the property as determined by local market conditions. The property will continue to be valued on a regular basis

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

The value of the freehold property would have been recorded at £340,049 (2010: £350,251) on a historical cost basis giving rise to the current revaluation surplus of £260,659.This balance is not distributable to shareholders.

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

Company      

Land and
Buildings
(freehold)

     

Fixtures,
fittings and
equipment

      Total    
Cost or valuation £ £ £
At 1 April 2009 650,000 138,127 788,127
Additions -       1,624       1,624
 
At 1 April 2010 650,000 139,751 789,751
Additions -       3,766       3,766
 
At 31 March 2011 650,000 143,517 793,517
                 
 
Depreciation
At 1 April 2009 39,000 107,870 146,870
Charge for the year 13,000       9,177       22,177
 
At 1 April 2010 52,000 117,047 169,047
Charge for the year 9,400 11,459 20,859
Revaluation adjustment (52,000)       -       (52,000)
 
At 31 March 2011 9,400 128,506 137,906
                 
 
Net Book Value
At 31 March 2011 640,600       15,011       655,611
 
At 31 March 2010 598,000       22,704       620,704
 
At 1 April 2009 611,000       30,257       641,257

The freehold property was valued on 28 April 2010 by Mr R Sworn of Kelion Sworn Chartered Surveyors and Valuers, London, W1. The fair value in use of the freehold property was determined at £650,000 by means of applying a 7.5% discount rate to the annual rental value of the property as determined by local market conditions. The property will continue to be valued on a regular basis.

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

The value of the freehold property would have been recorded at £340,049 (2010: £350,251) on a historical cost basis giving rise to the current revaluation surplus of £260,659.This balance is not distributable to shareholders.

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

13. Fixed asset investment

Group                      

Available
for sale
quoted
assets at
fair value

Unlisted
investments

Total
Cost or fair value £ £ £
At 1 April 2009 250,000 35,926 285,926
Additions -       3,368       3,368
At 31 March 2010 250,000 39,294 289,294
Revaluation 61,594       -       61,594
 
At 31 March 2011 311,594 39,294 350,888
                 
 
Net Book Value
At 31 March 2011 311,594       39,294       350,888
 
At 31 March 2010 250,000       39,294       289,294
 
At 1 April 2009 250,000       35,926       285,926
 
Company

Available
for sale
quoted
assets at
fair value

Investments
in subsidiary
undertakings
at cost

Total
Cost or fair value £ £ £
At 1 April 2009 and 2010 250,000 21,273,502 21,523,502
Revaluation 61,594       -       61,594
 
At 31 March 2011 311,594       21,273,502       21,585,096
 
Impairment
At 1 April 2009, 2010 and 2011 -       1,191,262       1,191,262
 
Net Book Value
At 31 March 2011 311,594       20,082,240       20,393,834
 
At 31 March 2010 250,000       20,082,240       20,332,240
 
At 1 April 2009 250,000       20,082,240       20,332,240

The available for sale quoted asset value of £311,594 (2010: £250,000) relates to our holding in Kiotech International plc which is traded on the AIM market of the London Stock Exchange.

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

Company       Country of registration or incorporation       Class       Shares held %    
Subsidiary undertakings held by Company
Zhejiang ECO Biok Animal Health Products Limited P. R. of China Ordinary 3
Petlove Limited Great Britain Ordinary 91
ECO Animal Health Limited Great Britain Ordinary 100
 
Subsidiary undertakings held by Group
ECO Animal Health (Europe) Limited B.V.I. Ordinary 100
ECO Animal Health Southern Africa (Pty) Limited South Africa Ordinary 100
Zhejiang ECO Biok Animal Health Products Limited P. R. of China Ordinary 51
Shanghai ECO Biok Veterinary Drug Sale Company Ltd. (via Zhejiang ECO Biok Animal Products Ltd.) P. R. of China Ordinary 51
ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda Brazil Ordinary 100
ECOpharma Inc. Japan Ordinary 100
ECO Animal Health USA Corp. U. S. A. Ordinary 100

Interpet LLC

U. S. A.

Ordinary

100

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

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

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

      Equity       Profit/loss       Equity       Profit/loss    
for the year for the year
2011 2011 2010 2010
£ £ £ £
 
Zhejiang ECO Biok Animal Health Products Ltd 3,649,202 822,493 2,852,691 669,494

ECO Animal Health do Brasil Comercio de Produtos
Veterinarios Ltda

41,893 (45,195) 75,834 57,114
ECOpharma Inc 758,461       224,171       507,380       66,735

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

The directors are in the process of taking ECO Animal Health (Europe) Limited out of the group structure and having it dissolved.

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

Zhejiang ECO Animal Health Products Limited, ECOpharma Inc. and ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda all have 31 December year ends. The Group receives management accounts for the three months to 31 March for each subsidiary for use in preparing the consolidated financial statements.

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

The following amounts included in the group’s financial statements are related to its interest in Pharmgate LLC.

        £
Current assets 20,439
Current liabilities (4,751)
Expenses 100,153

14. Inventories

      Group       Company    
2011       2010 2011       2010
£ £ £ £
 
Raw materials and consumables 2,935,528 2,956,737 - -
Finished goods and goods for resale 1,868,401       2,740,572       -       -
-
At 31 March 2011 4,803,929       5,697,309       -       -

The cost of inventories recognised as an expense and included in cost of sales in the period amounted to £16,365,337 (2010: £12,743,194).

15. Trade and other receivables

    Group       Company    
2011       2010 2011       2010
£ £ £ £
 
Trade receivables 9,015,511 8,555,993 - -
Amounts owed by group undertakings - - 28,184,995 28,993,559
Other receivables 391,384 304,837 281,542 210,589
Prepayments and accrued income 235,922       123,457       158,624       49,232
 
9,642,817 8,984,287 28,625,161 29,253,380
                         
 
Non current 128,224 - 28,313,219 28,993,559
Current 9,514,593       8,984,287       311,942       259,821
 
9,642,817       8,984,287       28,625,161       29,253,380

As at 31 March 2011, trade receivables of £1,324,362 (2010: £2,111,185) due to the Group and £nil (2010: £nil) due to the Company were past due but not impaired. These relate to long standing distributors with whom we have agreed settlement terms and with whom there is no history of default.

      Group       Company    
2011       2010 2011       2010
£ £ £ £
 
Up to 3 months past due 1,238,808 1,987,280 - -
3 to 6 months past due 33,021 73,856 - -
Over 6 months past due 52,533       50,049       -       -
 
1,324,362       2,111,185       -       -

As at 31 March 2011, trade receivables of £124,348 were impaired and provided for. The impaired receivables mainly relate to historic debt for which recovery is still being sought. The Group mitigates its exposure to credit risk by extensive use of commercial credit reference agencies, close management of its customers’ trading against terms offered and use of retention of title clauses wherever possible. The ageing analysis of the impaired balances is as follows:

      Group       Company    
2011       2010 2011       2010
£ £ £ £
Current 1,379 260,627 - -
Up to 3 months past due 27,622 47,786 - -
3 to 6 months past due 26,478 - - -
Over 6 months past due 68,869       136,531       -       -
 
124,348       444,944       -       -

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

          Group
Group 2011
£
 
Balance at 1 April 444,944
Recovered in the year (274,619)
Written off in the year (45,977)
 
Balance at 31 March 124,348

In view of the global economic crisis during the year ended March 2009, the directors took the view that the unprecedented global economic conditions coupled with difficulties in collecting debt within terms merited a provision in respect of bad debts across the whole of the Latin America region. The directors are pleased to note that due to continuing active management and recovery of the overdue accounts, the actual losses experienced were again lower than had been anticipated and therefore the provision made in 2009 could be further reduced in the current year.

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

  Group   Company
2011   2010 2011   2010
£ £ £ £
 
Pounds Sterling 633,540 415,285 28,478,774 29,099,526
Euros 2,806,327 2,264,126 - -
U S Dollars 4,070,628 4,079,667 146,387 153,854
Chinese RMB 544,793 570,497 - -
Brazilian Real 606,322 609,300 - -
Japanese Yen 757,984 885,922 - -
Other currencies 223,223   159,490   -   -
 
9,642,817   8,984,287   28,625,161   29,253,380

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

16. Deferred tax

Group

Deferred tax assets and liabilities are attributable to the following:

      Liabilities       Net    
2011       2010 2011       2010
£ £ £ £
Drug registration expenditure (2,281,894) (1,930,695) (2,281,894) (1,930,695)
Freehold property (72,590) - (72,590) -
Plant and equipment (2,050) (4,612) (2,050) (4,612)
Investments (14,782) - (14,782) -
Tax losses carried forward 1,539,455       1,313,588       1,539,455       1,313,588
 
Amount (payable) after more than one year (831,861)       (621,719)       (831,861)       (621,719)

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

     

Drug
registration
expenditure
(after tax
losses)

 

     


Freehold
property

      

Property,
plant and
equipment

      



Investments

      



Total

    
£ £ £ £ £
 
At 31 March 2010 (617,107) - (4,612) - (621,719)

(Charge)/credit for the year through
income statement

 (125,332) - 2,562 - (122,770)

Movement through the year through
revaluation reserve

 -       (72,590)       -       (14,782)       (87,372)
 
At 31 March 2011 (742,439)       (72,590)       (2,050)       (14,782)       (831,861)

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

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

Company                            


Freehold
property

Property,
plant and
equipment



Investments



Total
£ £ £ £
 
At 31 March 2010 - (3,268) - (3,268)

Charge for the year through income
statement

 - 1,536 - 1,536

Movement through the year through
revaluation reserve

 (72,590)       -       (14,782)       (87,372)
 
At 31 March 2011 (72,590)       (1,732)       (14,782)       (89,104)

A credit of £1,536 (2010: charge of £3,268) was recognised in the Company’s income statement for the year. A charge of £87,372 (2010: nil) was recognised in the Company’s Revaluation Reserve.

17. Cash and cash equivalents

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

      Note       Group       Company    
2011       2010 2011       2010
£ £ £ £
 
Cash and cash equivalents 9,471,537 9,881,722 6,243,597 7,917,774
Overdrafts 19 (53,196)       (3,978,873)       (53,196)       (3,884,184)
 
Net funds per cash flow 9,418,341       5,902,849       6,190,401       4,033,590

18. Trade and other payables

      Group       Company    
2011       2010 2011       2010
£ £ £ £
 
Trade payables 4,904,967 2,976,221 135,904 37,412
Other payables 514,654 350,415 69,025 3,722
Accruals and deferred income 375,701       285,030       21,659       38,507
 
5,795,322       3,611,666       226,588       79,641

19. Borrowings

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

      Group       Company    
2011       2010 2011       2010
£ £ £ £
 
Short term borrowings 53,196       3,978,873       53,196       3,884,184

Currency analysis of short term borrowings

          Group       Company    
2011       2010 2011       2010
£ £ £ £
 
U S Dollars - 3,301,140 - 3,301,140
Euros 53,196 583,044 53,196 583,044
South African Rand -       94,689       -       -
 
53,196       3,978,873       53,196       3,884,184

The committed undrawn net facilities of the Group were £1,000,000 (2010: £1,000,000) as the Group actually had a positive net cash balance at 31 March 2011. The facilities are due for renewal on 22 July 2011 but in view of the group’s generation of cash during the year the facility is not likely to be renewed. The interest rate for all the overdrafts is 2.75 per cent over the relevant currency base rate.

20. Pension and other post-retirement benefit commitments

Defined Contribution pension Scheme

The Group operates defined contribution pension schemes for the benefit of certain directors and senior employees. The assets of the schemes are held separately from the Group and independently administered by insurance companies. The pension cost charge represents contributions payable to the funds in the year and amounted to £201,994 (2010: £85,872).

Defined Benefit Pension Scheme

The Group operates a defined benefit scheme in the UK for ex-employees only. A full actuarial valuation was carried out at 6 April 2009 and updated 31 March 2011 by a qualified independent actuary. The major assumptions used by the actuary were:

    31 March       1 April    
2011 2010
Discount rate 5.5% 5.5%
Rate of increase in pension payment 3.4% 3.6%
Inflation assumption with a maximum of 5% p.a. 3.4% 3.6%

Mortality rates

Pre retirement mortality is based on the mortality table known as AMCOO for males and AFCOO for females. Allowance has been made for the improvement in mortality experienced recently and expected in the future by using 100% for males and 70% for females of the “Medium Cohort” improvement table, subject to a minimum improvement rate of 1.4% p.a. for males and 1.1% p.a. for females. To allow for the expected additional cost of purchasing annuities on retirement, only 60% of the mortality indicated by these projections has been taken into the calculations.

Expectation of life at normal retirement age is 25.1 (2010: 25.0) years for males and 29.0 (2010: 28.9) years for females. For members retiring in 20 years time, the expectation of life at normal retirement age would be 28.0 (2010: 27.9) years for males and 31.2 (2010: 31.1) years for females.

Results   2011   2011   2010   2010
£ £ £ £
Assets at start of year 2,592,000 2,224,000
Defined benefit obligation at start of year (2,575,000) (2,227,000)
 
Net asset/(liability) at 1 April 17,000 (3,000)
 
Current service cost, including risk benefits (2,000) (5,000)
 
Operating cost (2,000) (5,000)
 
Expected return on assets 144,000 142,000
Interest cost (138,000) (143,000)
 
6,000 (1,000)
 
Gain/(loss) on asset return 10,000 89,000
Experience gain 1,000 9,000
Gain/(loss) on changes in assumptions 3,000 (123,000)
 
Statement of other comprehensive income 14,000 (25,000)
 
Employer contributions gross 59,000 54,000
Expenses paid by trustees (6,000) (3,000)
 
53,000 51,000
 
Net asset at 31 March 2011 88,000 17,000
   
 
 
Actual assets at end of year 2,684,000 2,592,000
Actual defined benefit obligation at end of year 2,596,000 2,575,000

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

Reconciliation of changes in the asset value during the year

      2011       2010
£ £
Fair value of assets at 1 April 2,592,000 2,224,000
Expected return on assets 144,000 142,000
Gain/(loss) on asset return 10,000 89,000
Employer contributions (gross) 59,000 54,000
Death in service insurance premiums paid (2,000) (5,000)
Expenses paid by trustees (6,000) (3,000)

(Decrease)/increase in secured pensioners
value due to scheme experience

(113,000) 91,000
 
Fair value of assets at 31 March 2011 2,684,000 2,592,000
   
 
Reconciliation of changes in the liability value during the year
 
Defined benefit obligation at 1 April 2,575,000 2,227,000
Interest cost 138,000 143,000
Experience (gain) on liabilities (1,000) (9,000)
(Gain)/loss on changes in assumptions (3,000) 123,000

Increase/(decrease) in secured pensioners
value due to scheme experience

(113,000) 91,000
 
Defined benefit obligation at 31 March 2011 2,596,000 2,575,000

The expected contribution to be paid by the employer during the next accounting year is £59,000. This includes a provision of £5,000 for death in service risk premium, being the same as last year.

Year ended 31 March     2011   2010   2009   2008   2007
 

Present value of defined benefit
obligation

2,596,000

2,575,000 2,227,000 2,325,000 2,625,000
Fair value of plan assets

2,684,000

2,592,000 2,224,000 2,368,000 2,467,000
Surplus/(deficit) in plan

88,000

17,000 (3,000) 43,000 (158,000)
Experience gains on plan liabilities

1,000

9,000 3,000 8,000 12,000

21. Share-based payments

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

      2011       2010    
£ £
 
Total expense arising from equity settled share-based transactions 303,504       203,285

The share based payment plan is described below:

Movements in issued share options during the year

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

      2011       2011       2010       2010    
WAEP WAEP
£ £
Outstanding at 1 April 3,307,390 1.14 3,811,565 1.44
Granted during the period 985,000 1.48 767,000 1.45
Expired/cancelled during the period (30,000) 1.39 (1,226,175) 2.23
Exercised during the period (255,000) 1.09 (45,000) 1.25
Outstanding at 31 March 4,007,390 1.23 3,307,390 1.14
Exercisable at 31 March 1,905,390       1.12       34,480       2.33

The maximum aggregate number of shares over which options may currently be granted cannot exceed 10 per cent of the nominal share capital of the Company on the grant date. The options outstanding at 31 March 2011 had a weighted average share price of £1.23 and a weighted average contractual life of 5.4 years.

Eco Animal Health Group plc Executive Share Option Scheme

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

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

Details of options granted to directors can be found in the Directors Report and notes 27 (Directors Emoluments) and 29 (Related Party Transactions).

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

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

Date of grant       Unapproved       Approved      

Exercise
price (pence)

       Expiry date    
 
06 August 2003 10,000 202.50 06 August 2013
25 October 2005 10,000 340.00 25 October 2012
20 February 2006 11,880 252.50 20 February 2016
10 August 2006 12,600 238.00 10 August 2016
03 March 2008 618,900 108.50 03 March 2018
03 March 2008 1,242,010 108.50 03 March 2015
18 September 2008 35,000 85.00 18 September 2018
18 September 2008 395,000 85.00 18 September 2015
30 April 2009 55,550 147.00 30 April 2019
30 April 2009 481,450 147.00 30 April 2016
06 August 2009 22,000 135.00 06 August 2019
06 August 2009 103,000 135.00 06 August 2016
24 December 2009 29,350 155.00 24 December 2019
24 December 2009 10,650 155.00 24 December 2016
12 April 2010 375,000 150.00 12 April 2017
20 May 2010 115,100 140.00 20 May 2020
20 May 2010 389,900 140.00 20 May 2017
13 September 2010 90,000         161.00 13 September 2017
 
3,097,010       910,380

The market price of the shares at 31 March 2011 was 216.0p with a range in the year of 114p to 280p.

Inputs to the Valuation Model

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

The following table lists the inputs to the respective models:

      2011       2010       2009       2008       2007    
 
Vesting period (years) 3 3 3 3 3
Option expiry (years) 7-10 yrs 7-10 yrs 7-10 yrs 7-10 yrs 7-10 yrs
Dividends expected on the shares 4.50% 5.00% 4.50% 5.00% 5.00%
Risk free rate (average) 2.00% 2.40% 4.19% 4.66% 4.66%
Volatility of share price 45% 40% 30% 25% 20%
Weighted average fair value 37.78p 32.6p 16.8p 18.7p 43.1p

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

22. Share capital

      2011       2010    
£ £
Authorised
68,100,000 Ordinary shares of 5p each 3,405,000 3,405,000
10,790 Deferred ordinary shares of 10p each 1,079 1,079
32,334 Convertible preference shares of £1 each 32,334       32,334
 
3,438,413 3,438,413
         
 
Allotted, called up and fully paid
52,195,172 ( 2010: 51,612,768) Ordinary shares of 5p each 2,609,758       2,580,637

During the year a further 327,420 shares were issued at a premium of £517,298 as a result of the take up of the scrip dividend option and 255,000 more shares were issued at a premium of £263,905 as a result of the exercise of options by former employees.

23. Minority interests

      2011       2011       2010       2010    
£ £ £ £
 
Balance at 1 April 1,400,296 1,098,276
Share of subsidiary's profit for the year 403,022 328,052

Share of foreign exchange gain/(loss) on
net investment

 80,070 (26,032)
483,092 302,020
Share of dividend paid by subsidiary (92,801) -
 
Balance at 31 March 1,790,587 1,400,296

24. Other reserves

Group and Company      

Capital
redemption
reserve

 

     

Reserve
for share-
based
payments

      Total    
£ £ £
At 1 April 2009 105,829 832,477 938,306
Share-based payments -       203,285       203,285
 
At 31 March 2010 105,829 1,035,762 1,141,591
Share-based payments - 303,504 303,504
Transfer to retained earnings on expiry of options -       (114,865)       (114,865)
 
At 31 March 2011 105,829       1,224,401       1,330,230

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

  At 1 April   Movement   At 31 March
2010 in the year 2011
£ £ £
In respect of:
Zhejiang ECO Biok Animal Health Products Limited 242,299 83,339 325,638

ECO Animal Health do Brasil Comercio de Produtos
Veterinarios Ltda

(8,972) 11,253 2,281
ECOpharma Inc. 22,341 26,913 49,254
ECO Animal Health Southern Africa (pty) Ltd. - 38 38
Interpet LLC - 2,245 2,245
Pharmgate LLC - (629) (629)
 

Foreign currency differences attributable to owner credited
directly to reserves.

123,159

25. Financial commitments

At 31 March 2011 the Group had minimum commitments under non-cancellable operating leases as follows:

      Land and Buildings       Motor vehicles    
2011       2010 2011       2010
£ £ £ £
Expiry date:
Within one year - 85,116 3,168 7,943
Between two and five years 713,846 113,124 67,244 40,141
In over five years 2,293,625       2,488,472       -       -
 
3,007,471       2,686,712       70,412       48,084

26. Capital commitments

The group had no authorised capital commitments as at 31 March 2011 (2010: Nil).

27. Directors’ emoluments

      2011       2010    
£ £
 
Emoluments for qualifying services 439,520 404,076
Company pension contributions to money purchase schemes 94,074 3,518
Share-based payments 157,288 94,621
Benefits in kind       19,577       10,535
 
      710,459       512,750

No directors exercised share options during this or the previous year.

The number of directors for whom retirement benefits are accruing under money purchase pension schemes amounted to 3 (2010: 1). No directors accrued benefits under defined benefit schemes for this or the previous year.

The highest paid director received £266,565 (2010: £208,780) including share-based payments and £79,220 (2010: nil) of pension contributions.

28. Employees

Number of employees

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

      2011       2010    
Number Number
 
Directors 7 6
Production and development 47 47
Administration 39 29
Sales 51       42
 
144 124
         
 
Employment costs (including amounts capitalised)
2011 2010
£ £
 
Wages and salaries 3,512,002 3,199,092
Share-based payments 303,504 203,285
Social security costs 277,724 268,688
Other pension costs 203,994       90,872
 
4,297,224       3,761,937

29. Related party transactions

At the year end 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 £62,886 (2010: £3,268). This amount represents dividends reinvested in the Group.

During the year, the Group provided management services to Kiotech International plc, a company in which P A Lawrence is a Director and holds share options. Fees of £26,000 (2010: £35,505) were charged.

During the year, the Group provided the services of two employees to C-Corp Limited, a company in which P A Lawrence is a Director and shareholder. Fees of £44,279 (2010: nil) were charged during the year.

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

Subsidiary companies     Sales      

Year end
receivables

      Sales      

Year end
receivables

   
2011 2010
£ £ £ £
 
Zhejiang ECO Biok Animal Health Products Limited 1,119,737 541,705 1,202,172 689,515
ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda. 2,343,549 1,371,550 2,119,169 1,569,551
ECOpharma Inc. 1,098,594 337,958 796,834 829,854

Interest and management charges from Parent to the other Group companies

During the year the Company made management charges on an arm’s length basis to ECO Animal Health Limited amounting to £187,222 (2010: £181,540) and charged interest of £304,705 (2010: £245,721) to the Company. Both of these charges were made through the inter-company account and were eliminated on consolidation.

ECO Animal Health Limited also made management charges on an arm’s length basis to ECOpharma Inc. amounting to £85,828 (2010: £46,000). The whole transaction was eliminated on consolidation.

ECO Animal Health Limited also paid £100,153 of management charges to ECO Animal Health USA Corp. which were that company’s share of the expenses incurred by Pharmgate LLC prior to commencement of sales in the USA. This transaction was eliminated on consolidation.

During the year ECO Animal Health Limited paid a dividend of £1,500,000 (2010: £7,000,000) to ECO Animal health Group plc. This dividend was also eliminated on consolidation.

During the year Zhejiang ECO Biok Animal Health Products Limited paid dividends of £7,425 (2010: nil) to ECO Animal Health Group plc and £89,164 (2010: nil) to ECO Animal Health Limited. Both amounts were eliminated on consolidation.

Key management compensation

The group regards the directors as its key management.

      2011       2010    
£ £
 
Salaries and short term benefits 507,343 464,399
Retirement benefits 94,074 3,518
Share-based payments 157,288       94,621
 
758,705       562,538

During the year P Lawrence and his family received dividends in the form of cash and shares to the value of £252,934 (2010: £ 757,231), and the other directors and their families received dividends in the form of cash and shares to the value of £ 662 (2010: £ 2,358).

30. Financial instruments

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

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

Interest rate risk

The Group finances its operations through a mixture of retained earnings and bank borrowings. At the year end the interest rate exposure of the Group arose on currency overdraft facilities of £53,196 (2010: £3,978,873), details of which are shown in the note below on capital and liquidity risk. IFRS7 requires the disclosure of a sensitivity analysis that details the effects on the Group’s profit or loss and other equity of reasonably possible fluctuations in market rates. This sensitivity analysis has been determined based on exposure at the year end date. If interest rates had been 1 per cent higher or lower and all other variables were held constant the Group’s profit would have decreased/increased by a maximum of £532.

Capital and liquidity risk

The Group manages its capital to ensure continuity as a going concern whilst maximising returns through the optimisation of debt and equity. As part of this, the Board considers the cost and risk associated with each class of capital. The capital structure of the Group consists of debt which includes the borrowings disclosed in note 19, cash and cash equivalents in note 17 and equity attributable to equity holders of the parent comprising issued capital, reserves and retained earnings as disclosed in the Group’s statement of changes in equity.

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

At 31 March 2011 the Group was contractually obliged to make repayments as detailed below:

      2011       2010    
WITHIN ONE YEAR OR ON DEMAND £ £
 
Bank overdrafts 53,196 3,978,873
Trade payables 4,904,967 2,976,221
         
 
4,958,163       6,955,094

Credit risk

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

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

Currency risk

The Group operates in overseas markets particularly through its subsidiaries in China, Brazil and Japan and is subject to currency exposure on transactions undertaken during the year. The Group does have some hedging of receivables when the Board feels it is appropriate to do so and foreign exchange differences on retranslation of foreign monetary items are taken to the income statement.

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

Foreign currency of Group operations
2011   US Dollar   Euros   Rand   Chinese RMB   Japanese Yen   Brazilian Real   Other
 
Sterling equivalent (000's) 4,508 2,410 204 2,867 165 835 52
 
2010
 
Sterling equivalent (000's) (808) 1,326 (14) 1,871 1,145 726 (15)

30. Financial instruments (Continued)

At 31 March 2011 the Group was mainly exposed to the U S Dollar, the Euro, the Chinese RMB and the Brazilian Real. The following table details the effect of a 10 per cent movement in the exchange rate of these currencies against sterling when applied to outstanding monetary items denominated in foreign currency as at 31 March 2011. A positive number indicates the decrease in profit which would arise from a 10 per cent weakening of the foreign currency concerned.

      £'000
 
U S Dollar 410
Euro 219
Chinese RMB 261
Brazilian Real 76

Analysis of financial instruments by category

Group

     

Loans and
receivables

      

Available
for sale

       Total    
2011 £ £ £
 
Investments 43,461 311,594 355,055
Trade and other receivables (excluding prepayments) 9,406,895 - 9,406,895
Cash and cash equivalents 9,594,403 - 9,594,403
 
2010

Loans and
receivables

Available
for sale

 Total
£ £ £
 
Investments 39,294 250,000 289,294
Trade and other receivables (excluding prepayments) 8,860,830 - 8,860,830
Cash and cash equivalents 9,881,722 - 9,881,722

Company

     

Loans and
receivables

      

Available
for sale

       Total    
2011 £ £ £
 
Investments - 311,594 311,594
Trade and other receivables (excluding prepayments) 30,466,537 - 30,466,537
Cash and cash equivalents 6,243,597 - 6,243,597
 
2010

Loans and
receivables

Available
for sale

 Total
£ £ £
 
Investments - 250,000 250,000
Trade and other receivables (excluding prepayments) 29,204,148 - 29,204,148
Cash and cash equivalents 7,917,774 - 7,917,774

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

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ECO Animal Health Group (EAH)
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