Final Results

Final Results

Eco Animal Health Group Plc

ECO Animal Health Group plc

(AIM: EAH)

Results for the year ended 31 March 2012

HIGHLIGHTS

  • First Aivlosin® marketing authorisation for US received after year end, further approvals expected
  • 31.8 per cent increase in profit after tax to £2.6 million (2011: £2.0 million)
  • 41.6 per cent uplift in diluted earnings per share to 4.19 pence (2011: 2.96 pence)
  • Rise to £6.5 million (2011: £6.4 million) in profit attributable to shareholders before interest, tax, depreciation, amortisation, share based payments, impairment, foreign exchange and minorities.
  • 25 per cent increase in dividend to 3.75 pence per share (2011: 3.0 pence)
  • Net cash of £9.5 million at year end
  • Continuing strong Aivlosin® sales in key markets
  • New subsidiary formed 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 2012 and the current year has started well. We are confident that the long awaited marketing authorisations in the US and Canada will have a major positive effect on the development of ECO, although it will be some months before the product launches gain momentum. We do not expect a noticeable impact on our financial performance until next year.

ECO is very well placed to further broaden its product ranges and its global reach will ensure that it capitalises on opportunities as they arise in all the Company’s major markets. The Company is set for an exciting future and looks forward to maximising value for shareholders”

Contacts:

ECO Animal Health Group plc

Peter Lawrence 020 8336 6190

Spiro Financial

Anthony Spiro 020 8336 6196

Cenkos Securities plc (Nominated Adviser)

Stephen Keys 020 7397 8926

ECO Animal Health Group plc is a leader in the development, registration and marketing of pharmaceutical products for animals. Our products for these global growth markets promote well-being. Our financial goals are achieved through the careful and responsible application of science to generate value for our shareholders.

CHAIRMANS STATEMENT

FOR THE YEAR ENDED 31 MARCH 2012

I am pleased to report that ECO Animal Health Group has delivered another sound set of results for the year ended 31 March 2012. In the Interim Report issued in December 2011, I advised that the second half had started well with a significant increase in sales; I am pleased to report that this performance was maintained for the balance of the year. The results for the year have been achieved in a marketplace under considerable pressure from the ongoing global economic difficulties and it is particularly encouraging that the overall consumption of meat protein continues to grow and the animal health industry along with it.

The most important event affecting the future performance of the Group occurred after the year end when, in July 2012, the Center for Veterinary Medicine (CVM) of the US Food and Drug Administration (FDA) granted ECO a marketing authorisation in the United States for Aivlosin® 625 mg/g water soluble granules for swine. This long awaited decision follows an enormous amount of product development and regulatory work by our staff for the US authorities and represents the culmination of a huge investment by the Group over the past decade. The significance of this initial approval cannot be over stated as it allows ECO to enter a market that is one third of the global market for its products, which until now was closed to the Group.

FINANCIAL

Group turnover increased by close to 5 per cent to £28.3 million (2011: £27.1 million) while in US dollar terms the increase was 7 per cent. The US dollar exchange rate against other major currencies has a significant influence on ECO’s performance as a large portion of the Group’s sales and purchases are in US dollars and the value of that currency influences the translation of our results into sterling. As a global business, it is inevitable that we are impacted by currency movements and we take steps, where appropriate, to hedge that risk. In the year under review, the US dollar weakened against sterling and the Group hedged its exposure about half way through the period, albeit at some initial expense, but this has subsequently proved to have been the correct course of action.

Profit after tax for the year increased by 31.8 per cent to over £2.6 million (2011: £2.0 million) and profit before interest and non cash charges of tax, depreciation and amortisation, share based payments, impairment, foreign exchange and minorities rose to £6.5 million (2011: £6.4 million). I believe that this measure is a truer reflection of the state of the business than profit before tax, because we are required to amortise or depreciate drug registration costs, rather than to assess them by the increase in their fair value. The depreciation figure alone in our financial statements leads to an understatement of the actual value of our marketing authorisations worldwide and therefore of the total return to shareholders. Further, the figure for share based payments (which we are required to recognise in the income statement as a measure of the non cash remuneration received by our employees in return for their efforts during the year) has a significant impact on our reported profit. The method of calculating the amount charged to the income statement is an inexact science and will vary from award to award, as market conditions change. This is because the value of any award can be based on a variety of complex assumptions, variables and models, which inevitably, are subject to review and will change as further data becomes available over time.

Diluted earnings per share advanced 41.6 per cent reaching 4.19 pence (2011: 2.96 pence) The Group continues to benefit from enhanced tax allowances associated with the costs of developing its drugs. As a result of this and the favourable resolution of tax enquiries relating to previous years, the Group continues to accumulate tax losses, which have served to reduce the necessary level of deferred tax provision when compared to prior years. As a result, the Group does not expect to have a liability in respect of UK Corporation Tax for some years. Cash generated from operations during the year exceeded £6 million and the Group was able to deliver net cash balance at the year end of £9.5 million, a slight increase on the previous year.

The Board is pleased to declare a dividend of 3.75 pence per share (2011: 3.00 pence) which is an increase of 25 per cent and reflects our continued confidence in the business and the anticipated further profit contribution from its product portfolio. This will be paid on 5 October 2012 to shareholders on the register on 28 August 2012. Once again, we are offering shareholders a scrip alternative to the cash dividend and remain grateful to the many shareholders who support us in this way and help to conserve cash within the Company.

OPERATIONS

Overall ECO sales were ahead by nearly 5 per cent in the year to 31 March 2012 and the increase in the second half of the year, over the equivalent period in 2011, was in excess of 11 per cent. This accelerating trend is encouraging and was achieved in tough global markets, where pricing pressures intensified during the year, reflecting the generally difficult environment. ECO responded rapidly to the changing market dynamics by introducing pricing strategies to retain and, where possible grow, market shares.

We were particularly pleased to see a rise of 23 per cent in our turnover in Latin America, which delivered an increase in earnings of over 40 per cent from this important and fast growing region. The growth was driven principally by advances in Aivlosin® sales to Argentina and Venezuela, underpinned by continuing substantial sales in Brazil. ECO set up a new subsidiary in Mexico which should generate increased sales of Aivlosin® and other ECO products to the large and growing Mexican and Central American markets.

Further growth was driven by strong sales of Aivlosin® in China, India and Malaysia. Sales from our Chinese subsidiary, Zhejiang ECO Biok Animal Health Products Limited, also continued to grow, rising a further 7 per cent during the year. As this important business is currently focused on pigs, the next significant strategic step is to broaden its product offering by entering the poultry sector in China for which the company already holds a number of marketing authorisations.. Aivlosin®’s excellent product performance in India, Malaysia and Turkey and its growing reputation, is leading to increased penetration in these rapidly developing markets for poultry.

The difficulties within the Eurozone, coupled with the decline in the value of the Euro against sterling and the US dollar, meant that the sterling value of turnover and earnings arising from within that area dropped back slightly. Substantial investment and progress has since been made that will support future Aivlosin® growth, including an adjustment in strategy with increased focus on key markets, employment of additional sales support staff, the appointment of a new distributor in France and obtaining an important new approval for Aivlosin® Water Soluble Granules for use in poultry in Turkey. The European markets remain important to ECO, although their potential is not as significant as those territories with faster growing animal production where in general our presence is strong.

We were also particularly encouraged by the growth in UK sales of over 30 per cent, reflecting the continued success of our direct- to- market strategy with Aivlosin®.

Although the initial signs of recovery in Japan were promising, following the natural disasters of March 2011, it is now apparent that the full impact of these cataclysmic events is taking longer to overcome than previously thought. Many farmers were put out of business either through flooding, nuclear contamination or logistical problems and the cumulative effect has caused our business there to suffer for much of the year. Confidence in the economy and particularly in local agriculture was badly damaged, but following a series of initiatives undertaken by our Ecopharma subsidiary, its sales have been showing signs of a firm recovery since the year end.

Aivlosin®– North America

The last few months have been transformational in ECO’s development of Aivlosin®. North America is an extremely important market for this product and access is dependent on obtaining the necessary regulatory approvals, which is a very lengthy, costly and exacting process. In November 2011 the Veterinary Drugs Directorate (VDD) of Health Canada granted a marketing authorisation for Aivlosin® 625 mg/g water soluble granules for pigs for the treatment of ileitis, an enteric (gut) disease in pigs. The Health Canada approval was the first in North America for Aivlosin®. Initial sales in Canada, which started in March 2012, have been very encouraging and the feedback from veterinarians is positive.

In July 2012, after years of trials and preparatory work by ECO’s product development and regulatory specialists in the UK and North America, the US Food and Drug Administration (FDA) also granted ECO a marketing authorisation in the United States for Aivlosin® 625 mg/g water soluble granules for pigs for the treatment of ileitis. The FDA’s approval is ECO’s first in the United States and marks a very important step in the Group’s continuing development of Aivlosin® as a global veterinary product. ECO established a joint venture sales and marketing company, Pharmgate Animal Health LLC, in the US in 2010 to prepare for the launch of Aivlosin®.

These approvals will, in due course, be followed by further authorisations for other formulations and indications.

PEOPLE

We now employ over 150 people in our 14 offices around the world and we are, as always, grateful to our dedicated, hard working team of highly qualified specialists who are making our Group a leading force in the global animal health markets.

OUTLOOK

We are confident that the long awaited marketing authorisations in the US and Canada will have a major positive effect on the development of ECO, although it will be some months before the product launches gain momentum. We do not expect a noticeable impact on our financial performance until next year. ECO is very well placed to further broaden its product ranges and its global spread will ensure that it capitalises on opportunities as they arise in all the Group’s major markets. The Group is set for an exciting future and looks forward to maximising value for shareholders.

Peter Lawrence

Executive Chairman

19 July 2012

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 MARCH 2012

    2012       2011
Notes £ £
 
Revenue 2,3 28,322,177 27,078,262
Cost of sales (17,504,226) (16,365,337)
Gross profit 10,817,951 10,712,925
 
Other income 4 760,062 178,961
Administrative expenses (9,373,175) (8,422,529)
 
Profit from operating activities 5 2,204,838 2,469,357
 
Finance income 6 130,931 73,116
Finance costs 6 (15,427) (250,857)
Net finance income/(expense) 115,504 (177,741)
 
Profit before income tax 2,320,342 2,291,616
Income tax credit/(charge) 8 306,584

(297,813)

Profit for the year 2,626,926 1,993,803
 
Profit attributable to:
Owners of the parent company 2,217,627 1,590,781
Minority interest 24 409,299 403,022
Profit for the year 2,626,926 1,993,803
 
Basic and diluted earnings per share (pence) 7 2012 2011
 
Post tax earnings per share 4.24 3.07
 
Diluted earnings per share (pence) 4.19 2.96

The consolidated income statement has been prepared on the basis that all operations are continuing operations.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 MARCH 2012

    2012       2011
Notes £ £
 
Profit for the year 2,626,926 1,993,803
 
Other comprehensive income:
Foreign currency translation differences 200,872 203,229
Defined benefit plan actuarial (losses)/gains 21 (151,000) 14,000
Revaluation of investments (2,828) 61,594
Transfer on disposal of investment (58,766) -
Revaluation of freehold property - 52,000
Deferred tax on revaluations 14,782 (87,373)
Other comprehensive income for the year 3,060 243,450
 
Total comprehensive income for the year 2,629,986 2,237,253
 
Attributable to:
Owners of the parent company 2,140,405 1,754,161
Minority interest 24 489,581 483,092
2,629,986 2,237,253

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

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MARCH 2012

CONSOLIDATED   Attributable to the owners of the Parent
Share   Share   Treasury   Revaluation   Other   Retained   Total   Minority   Total
Capital premium Reserve Reserve Reserves Earnings Interest Equity
Account
£ £ £ £ £ £ £ £ £
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 losses 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
Profit for the year - - - - - 2,217,627 2,217,627 409,299 2,626,926
Other comprehensive income:
Foreign currency differences - - - - - 120,590 120,590 80,282 200,872
Actuarial losses on pension scheme assets - - - - - (151,000) (151,000) - (151,000)
Revaluation of investment - - - (2,828) - - (2,828) - (2,828)
Transfer on disposal of investment - - - (58,766) - - (58,766) - (58,766)
Deferred taxation - - - 14,782 -   14,782 - 14,782
Total comprehensive income for the year - - - (46,812) - 2,187,217 2,140,405 489,581 2,629,986
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Issue of shares in the year 146,202 4,587,817 - - - - 4,734,019 - 4,734,019
Share-based payments - - - - 290,890 - 290,890 - 290,890
Transfers on expiry of options - - - - (96,989) 96,989 - - -
Dividends relating to 2011 - - - - - (1,567,595) (1,567,595) (388,581) (1,956,176)
Cancellation of share premium account - (13,250,000) - - 3,250,000 10,000,000 - - -
Treasury reserve arising from issue of jointly owned shares - - (5,217,580) - - - (5,217,580) - (5,217,580)
Transactions with owners 146,202 (8,662,183) (5,217,580) - 3,443,901 8,529,394 (1,760,266) (388,581) (2,148,847)
Balance as at 31 March 2012 2,755,960 37,606,917 (5,217,580) 498,728 4,774,131 15,938,372 56,356,528 1,891,587 58,248,115

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MARCH 2012

COMPANY   Attributable to the owners of the Parent
Share   Share   Treasury   Revaluation   Other   Retained   Total
Capital premium Reserve Reserve Reserves Earnings
Account
£ £ £ £ £ £ £
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 losses 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 -
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
 
Profit for the year - - - - - 739,303 739,303
Other comprehensive income: - - - - - - -
Actuarial losses on pension scheme assets - - - - - (151,000) (151,000)
Revaluation of investment - - - (2,828) - - (2,828)
Transfer on disposal of investment - - - (58,766) - - (58,766)
Deferred taxation - - - 14,782 - - 14,782
Total comprehensive income for the year - - - (46,812) - 588,303 541,491
 
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Issue of shares in the year 146,202 4,587,817 - - - - 4,734,019
Share-based payments - - - - 290,890 - 290,890
Transfers on expiry of options - - - - (96,989) 96,989
Dividends relating to 2011 - - - - - (1,567,595) (1,567,595)
Cancellation of share premium account - (13,250,000) - - 3,250,000 10,000,000 -
Treasury reserve arising from issue of jointly owned shares - - (5,217,580) - - - (5,217,580)
Transactions with owners 146,202 (8,662,183) (5,217,580) - 3,443,901 8,529,394 (1,760,266)
             
Balance as at 31 March 2012 2,755,960 37,606,917 (5,217,580) 229,867 4,774,131 14,311,458 54,460,753

STATEMENTS OF FINANCIAL POSITION (CO. NUMBER: 01818170)

AS AT 31 MARCH 2012

    Group   Company
2012   2011 2012   2011
Notes £ £ £ £
Non-current assets
Intangible assets 11 39,109,147 38,636,816 - -
Property, plant and equipment 12 1,268,063 1,277,586 662,599 655,611
Investment property 13 154,773 - 154,773 -
Investments 14 8,738 350,888 20,082,240 20,393,834
40,540,721 40,265,290 20,899,612 21,049,445
Current assets
Inventories 15 4,417,317 4,803,929 - -
Trade and other receivables 16 10,755,390 9,642,817 28,912,983 28,625,161
Income tax recoverable 15,921 355,667 - 213,622
Other taxes and social security 292,182 94,712 229,630 3,588
Cash and cash equivalents 18 14,002,422 9,471,537 9,793,239 6,243,597
Total current assets 29,483,232 24,368,662 38,935,852 35,085,968
 
Liabilities
Trade and other payables 19 (6,705,991) (5,795,322) (734,166) (226,588)
Short -term borrowings 20 (4,492,690) (53,196) (4,492,690) (53,196)
Income tax (58,084) (77,529) - -
Other taxes and social security (157,572) (76,699) (44,143) (54,628)
Dividends (31,122) (32,369) (31,122) (32,369)
Current liabilities (11,445,459) (6,035,115) (5,302,121) (366,781)
Net current assets 18,037,773 18,333,547 33,633,731 34,719,187
Total assets less current liabilities 58,578,494 58,598,837 54,533,343 55,768,632
Non current liabilities
Deferred tax 17 (330,379) (831,861) (72,590) (89,104)
TOTAL ASSETS LESS TOTAL LIABILTIES 58,248,115 57,766,976 54,460,753 55,679,528
 
EQUITY
Issued share capital 23 2,755,960 2,609,758 2,755,960 2,609,758
Share premium account 37,606,917 46,269,100 37,606,917 46,269,100
Treasury reserve 25 (5,217,580) - (5,217,580) -
Revaluation reserve 498,728 545,540 229,867 276,679
Other reserves 26 4,774,131 1,330,230 4,774,131 1,330,230
Retained earnings 15,938,372 5,221,761 14,311,458 5,193,761
56,356,528 55,976,389 54,460,753 55,679,528
Minority interests 24 1,891,587 1,790,587 - -
TOTAL EQUITY 58,248,115 57,766,976 54,460,753 55,679,528

Approved by the Board and authorised for issue on 19 July 2012

Peter Lawrence Director

The notes on pages 18 to 62 form part of these financial statements.

STATEMENT OF CASHFLOWS

FOR THE YEAR ENDED 31 MARCH 2012

    Group   Group   Company   Company
2012 2011 2012 2011
Notes £ £ £ £
Cashflows from operating activities
Profit before income tax 2,320,342 2,291,616 732,074 1,352,597
Adjustment for:
Net finance costs/(income) (115,504) 177,741 (398,154) (406,817)
Depreciation 12 & 13 98,219 88,543 21,932 20,859
Amortisation of intangible assets 11 3,593,365 3,239,948 - -
Pension payments 21 (64,000) (59,000) (64,000) (59,000)
Pension operating costs 21 3,000 2,000 3,000 2,000
Share based payments 22 290,890 303,504 290,890 303,504
Profit on disposal of investment (28,210) - (58,766) -
 
Operating cash flows before movements in working capital 6,098,102 6,044,352 526,976 1,213,143
Change in inventories 386,612 893,380 - -
Change in receivables (1,396,043) (421,077) (599,864) 772,301
Change in payables 991,542 2,158,550 497,093 146,407
 
Cash generated from operations 6,080,213 8,675,205 424,205 2,131,851
Finance costs (90,356) (54,169) (89,831) (52,866)
Income tax 140,185 (155,860) 219,119 (742)
Net cash from operating activities 6,130,042 8,465,176 553,493 2,078,243
 
Cash flows from investing activities
Disposal of investment 308,766 - 308,766 -
Acquisition of property, plant and equipment 12 (140,457) (151,257) (27,143) (3,766)
Acquisition of investment property 13 (156,550) - (156,550) -
Purchase of drug registrations 11 (4,063,647) (4,269,988) - -
Finance income 126,931 73,116 483,985 459,683
Net cash used in investing activities (3,924,957) (4,348,129) 609,058 455,917
 
Cash flows from financing activities
Proceeds from issue of share capital 4,390,913 305,995 4,390,913 305,995
Dividends paid (1,614,317) (776,145) (1,225,736) (683,344)
Purchase of own shares (5,217,580) - (5,217,580) -
Net cash used in financing activities (2,440,984) (470,150) (2,052,403) (377,349)
Net (decrease)/increase in cash and cash equivalents (235,899) 3,646,897 (889,852) 2,156,811
Foreign exchange movements 327,290 (131,405) - -
Balance at 1 April 2011 9,418,341 5,902,849 6,190,401 4,033,590
Balance at 31 March 2012 18 9,509,732 9,418,341 5,300,549 6,190,401

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 2012

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 2012.

  Effective from
 
IFRIC 19 (issued 2009) "Extinguishing Financial Liabilities with Equity Instruments" 01 July 2010
IFRS 1 (amended 2010) "Limited Exemption from Comparative IFRS Disclosures for first time Adoptors" 01 July 2010
IFRS 3 "Measurement of non-controlling interests" 01 July 2010
IFRIC 14 (amended 2009) "Prepayments of a Minimum Funding Requirement" 01 January 2011
IAS 24 (revised 2009) "Related Party Disclosures" 01 January 2011
IAS 34 "Significant events and transactions" 01 January 2011
IFRIC 13 "Fair value of award credit" 01 January 2011

2.3 Adoption of new and revised standards (continued)

The adaption of these standards and interpretations has not had a significant impact on the Group. At the date of the authorisation of these financial statements, the following standards and interpretations were in issue but not yet effective.

    Effective from
 
IFRS 1 (amended 2010) "Severe Hyperinflation and Removal of Fixed Dates for First-time Adoptors" 01 July 2011
IFRS 7 (amended 2010) Financial Instruments: Disclosures" 01 July 2011
IAS12 (amended 2012) "Deferred Tax: Recovery of Underlying Assets" 01 January 2012
IFRS 9 (issued 2009) "Financial Instruments" 01 January 2013
IFRS 10 (issued 2011) "Consolidated Financial Statements" 01 January 2013
IFRS 11 (issued 2011) "Joint arrangements" 01 January 2013
IFRS 12 (issued 2011) "Disclosure of Interests in Other Entities" 01 January 2013
IFRS 13 (issued 2011) "Fair Value Measurement" 01 January 2013
IAS 1 (issued 2011) "Presentation of other items of Comprehensive Income" 01 July 2012
IAS 19 "Employee Benefits (Revised)" 01 January 2013

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

2.4 Basis of consolidation

The consolidated financial statements comprise the accounts of the Company and its subsidiaries drawn up to 31 March 2012.

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 and China 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.

2.5 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.

2.6 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 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.

2.7 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 from 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

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.

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.

2.8 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.

2.9 Other intangible assets

Drug registrations, patents and licences

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 licences 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 licences 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.

2.10 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.

2.11 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.

2.12 Investment property

Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is measured at cost on initial recognition and subsequently at its cost less any accumulated impairment and depreciation.

2.13 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.

2.14 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.

2.15 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.

2.16 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, determined using the weighted average cost method, is included in the net profit or loss for the period.

2.17 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.

2.18 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.

2.19 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.

2.20 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.

2.21 Trade payables

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

2.22 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.

2.23 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.

2.24 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.

2.25 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).

The Group’s Employee Benefit Trust (“the Trust”) was set up on 6 October 2011 to administer the Group’s Joint Share Ownership Plan (JSOP). The trust was funded by loans from the Group, with its assets comprising shares in the Company. The Group recognised the assets and liabilities of the Trust in its own accounts and the carrying value of the Company’s shares held by the Trust were recorded as a deduction in total equity until such a time as the shares vest unconditionally to employees.

Fair value, for both options and jointly owned shares 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 22 to the accounts.

2.26 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.

2.27 Equity

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.

Amounts arising on the restructuring of equity and reserves to protect creditor interests are credited to the capital redemption reserve.

The Treasury reserve arises when the Company issues equity share capital under its Joint Share Ownership Plan, which is held in trust by ECO Animal Health Group plc Employee Benefit Trust. The interests of this trust are consolidated into the Group’s financial statements and the relevant amount treated as a reduction in equity. The expenses of the trust are included in the consolidated income statement.

2.28 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.

2.29 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 21 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 22. 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 2012 is as follows;

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

  U.K.   Europe   China, Japan and the Indian subcontinent   Latin America   Rest of the world   Total
£ £ £ £ £ £
Year ended 31 March 2012
Total segmental revenue 760,235 4,201,343 11,546,943 11,791,871 4,644,930 32,945,322
Inter-segment revenue - - (2,421,888) (2,196,659) (4,598) (4,623,145)
 
Revenue from external customers 760,235 4,201,343 9,125,055 9,595,212 4,640,332 28,322,177
Sale of goods 760,235 4,201,343 9,125,055 9,595,212 4,325,068 28,006,913
Royalties - - - - 315,264 315,264
760,235 4,201,343 9,125,055 9,595,212 4,640,332 28,322,177
 
Adjusted EBITDA (846,287) 1,103,737 1,934,133 2,636,392 1,359,337 6,187,312
Total assets 15,285,976 9,464,789 20,078,286 16,556,570 8,638,332 70,023,953
           
 
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

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:

  2012   2011
£ £
Adjusted EBITDA for reportable segments 6,187,312 6,101,352
Depreciation (98,219) (88,543)
Amortisation (3,593,365) (3,239,948)
Share-based payment charges (290,890) (303,504)
Finance income/(expense) 115,504 (177,741)
Profit before tax 2,320,342 2,291,616

4. Other income

This includes an amount of £550,000 received in compensation for a claim against a former adviser relating to tax losses not claimed within the statutory time limit.

5. Result from operating activities

  2012   2011
£ £
Result from operating activities is stated after charging:
Cost of inventories recognised as an expense 17,504,226 16,365,337
Employee benefits expenses 2,967,640 2,879,736
Amortisation of intangible assets 3,593,365 3,239,948
Depreciation 98,219 88,543
Loss on foreign exchange transactions 332,411 268,757
Research and development 37,561 29,245
Operating lease rentals 178,625 146,221
 
Fees payable to the Company's auditor for the audit of the parent Company and Group annual accounts 18,000 18,000
Fees payable for audit of the Company's subsidiaries pursuant to legislation 27,000 27,000
 
2012 2011
£ £
Earnings due to shareholders before interest, tax, depreciation, amortisation, share-based payments and foreign exchange differences.
Profit from operating activities 2,204,838 2,469,357
Depreciation 98,219 88,543
Amortisation 3,593,365 3,239,948
Share-based payments 290,890 303,504
   
 
6,187,312 6,101,352
Foreign exchange differences 332,411 268,757
 
6,519,723 6,370,109
Minorities (409,299) (403,022)
 
6,110,424 5,967,087

6. Finance cost/income

  2012   2011
£ £
Finance costs
Interest paid (90,356) (54,169)
Foreign exchange differences on bank loans and overdrafts 74,929 (196,688)
 
Finance income
On short term bank deposits 130,931 73,116
Net finance income/(expense) 115,504 (177,741)

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.

  2012   2011
Earnings   Weighted average number of shares   Per share amount Earnings   Weighted average number of shares   Per share amount
£'000 000 (pence) £'000 000 (pence)
Earrnings attributable to ordinary shareholders on continuing operations after tax 2,218 52,333 4.24 1,590 51,873 3.07
Dilutive effect of share options - 553 (0.05) - 1,860 (0.11)
Fully diluted earnings per share 2,218 52,886 4.19 1,590 53,733 2.96

Dilutive earnings per share takes into account the dilutive effect of share options. For the purposes of calculating earnings per share, shares held by the Employee Benefit Trust as part of the Joint Share Ownership Plan are excluded from the calculation of the weighted average number of shares. The weighted average number of shares held by the Trust during the year was 1,233,950.

8. Taxation

  2012   2011
£ £
Current tax year
Foreign corporation tax on profits for the year 189,527 189,248
Adjustment for prior years (9,411) (14,205)
Current tax 180,116 175,043
 
Deferred tax
Origination and reversal of temporary differences (486,700) 122,770
Income tax(credit)/charge (306,584) 297,813
Factors affecting the tax charge for the year
Profit on ordinary activities before taxation 2,320,342 2,291,616
 
2012 2011
£ £
Profit on ordinary activities before taxation multiplied by the applicable rate of UK corporation tax of 26% (2011: 28%) 603,289 641,652
Effects of:
Non deductible expenses 148,535 73,425
Non chargeable credits (453,659) (113,993)
Enhanced allowance on research and development expenditure (742,797) (153,062)
Lower tax rate for Chinese subsidiary (116,428) (153,561)
Unused tax losses carried forward 263,899 -
Other tax adjustments (9,423) 3,352
Income tax charge (306,584) 297,813
 
2012 2011
% %
Applicable tax rate per UK legislation 26.00 28.00
Effects of:
Non deductible expenses 6.40 3.20
Non chargeable credits (19.55) (4.97)
Enhanced allowance on research and development expenditure (32.01) (6.68)
Lower tax rate for Chinese subsidiary (5.02) (6.70)
Unused tax losses carried forward 11.37 -
Other tax adjustments (0.40) 0.15
Effective tax rate (13.21) 13.00

9. Profit for the financial year

  2012   2011
£ £
 
Parent Company's profit for the financial year 739,303 1,353,391

10. Dividends

  2012   2011
£ £
 
Dividend for the period ended 31 March 2010 of 2.3p per ordinary share - 1,190,888
Dividend for the period ended 31 March 2011 of 3.0p per ordinary share 1,567,595 -
   
1,567,595 1,190,888

The Board is declaring a dividend of 3.75 pence per share in respect of the year ended 31 March 2012. A scrip dividend alternative will be offered.

11. Intangible fixed assets

Group   Goodwill   Distribution rights   Drug registrations, patents and licence costs   Total
Cost £ £ £ £
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 1 April 2011 17,930,495 1,034,860 35,460,448 54,425,803
Additions - - 4,063,647 4,063,647
At 31 March 2012 17,930,495 1,034,860 39,524,095 58,489,450
 
Amortisation
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 1 April 2011 - 371,044 15,417,943 15,788,987
Charge for the year - 51,743 3,541,622 3,593,365
Foreign exchange movements - - (2,049) (2,049)
At 31 March 2012 - 422,787 18,957,516 19,380,303
 
Net Book Value
At 31 March 2012 17,930,495 612,073 20,566,579 39,109,147
 
At 31 March 2011 17,930,495 663,816 20,042,505 38,636,816
 
At 1 April 2010 17,930,495 719,134 18,893,938 37,543,567

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 11 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 £35 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 £16 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 licences 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 remaining 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 £18 million. The calculations have also shown that on current budget figures a 5 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 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 1 April 2011 650,000 1,136,000 550,886 42,211 2,379,097
Additions - 6,117 74,749 59,591 140,457
Foreign exchange movements - 43,660 - - 43,660
 
At 31 March 2012 650,000 1,185,777 625,635 101,802 2,563,214
         
 
Depreciation
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 1 April 2011 9,400 591,660 490,408 10,043 1,101,511
Charge for the year 9,400 33,433 37,597 16,012 96,442
Foreign exchange movements - 97,190 8 - 97,198
At 31 March 2012 18,800 722,283 528,013 26,055 1,295,151
         
Net Book Value
At 31 March 2012 631,200 463,494 97,622 75,747 1,268,063
 
At 31 March 2011 640,600 544,340 60,478 32,168 1,277,586
 
At 1 April 2010 598,000 403,272 86,862 - 1,088,134

The freehold property at 78 Coombe Road, New Malden 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 £328,743 (2011: £340,049) on a historical cost basis giving rise to the current revaluation surplus of £229,867.This balance is not distributable to shareholders.

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

13. Investment property

Group and Company   Land and Buildings (freehold)   Total
£ £
Cost
Additions 156,550 156,550
At 31 March 2012 156,550 156,550
 
Depreciation
Charge for the year 1,777 1,777
At 31 March 2012 1,777 1,777
 
 
Net Book Value
At 31 March 2012 154,773 154,773
 
At 31 March 2011 - -

The investment property was purchased at open market value during the year.

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

14. Fixed asset investment

Group      
Available for sale quoted assets at fair value Unlisted investments Total
Cost or fair value £ £ £
At 1 April 2010 250,000 39,294 289,294
Revaluation in the year 61,594 - 61,594
At 31 March 2011 311,594 39,294 350,888
Revaluation in the year (2,828) (30,556) (33,384)
Disposals (308,766) - (308,766)
 
At 31 March 2012 - 8,738 8,738
 
Net Book Value
At 31 March 2012 - 8,738 8,738
 
At 31 March 2011 311,594 39,294 350,888
 
At 1 April 2010 250,000 39,294 289,294

The available for sale asset (the holding in Anpario plc (formerly Kiotech International plc)) was sold during the year.

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. 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 Southern Africa (Pty) Limited South Africa Ordinary 100
Zhejiang ECO Biok Animal Health Products Limited P. R. China Ordinary 48
Shanghai ECO Biok Veterinary Drug Sale Company Ltd. (via Zhejiang ECO Biok Animal Products Ltd.) P. R. China Ordinary 48
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
ECO Animal Health de Mexico Mexico Ordinary 100
ECO Argentina S.A. Argentina 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 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
ECO Animal Health de Mexico Distribution of animal drugs
ECO Argentina S.A. 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 for the year Equity Profit/loss for the year
2012 2012 2011 2011
£ £ £ £
 
ECO Animal Health Limited 3,345,471 2,068,100 1,277,371 1,237,171
Zhejiang ECO Biok Animal Health Products Ltd 3,855,323 835,305 3,649,202 822,493
ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda (129,901) (197,683) 41,893 (45,195)
ECOpharma Inc 671,451 (98,253) 758,461 224,171
ECO Animal Health de Mexico 9,233 9,093 - -

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.

During the year ECO Animal Health (Europe) Limited was taken out of the group structure and dissolved.

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

Zhejiang ECO Animal Health Products Limited and ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda both have 31 December year ends. The Group receives management accounts for the three months to 31 March for these subsidiaries for use in preparing the consolidated financial statements. ECOpharma Inc has changed its year end to March with effect from 31 March 2012.

ECO Argentina S.A. which holds neither assets nor liabilities and which has not traded since its formation has been excluded from consolidation.

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 Group has also entered into a new 50% joint venture, Pharmgate Animal Health Canada Inc, to

The following amounts included in the group’s financial statements are related to its interest in these joint ventures.

  Pharmgate LLC   Pharmgate Animal Health Canada Inc
2012   2011 2012   2011
£ £ £ £
Current assets 31,803 20,439 16,377 -
Current liabilities (9,851) (4,751) (14,705) -
Sales - - 5,644 -
Margins - - 4,599 -
Expenses (100,153) 100,153 - -

15. Inventories

  Group   Company
2012   2011 2012   2011
£ £ £ £
 
Raw materials and consumables 2,279,354 2,935,528 - -
Finished goods and goods for resale 2,137,963 1,868,401 - -
At 31 March 2012 4,417,317 4,803,929 - -

The cost of inventories recognised as an expense and included in cost of sales in the period amounted to £17,504,226 (2011: £16,635,337).

16. Trade and other receivables

  Group   Company
2012   2011 2012   2011
£ £ £ £
 
Trade receivables 9,616,990 9,015,511 - -
Amounts owed by group undertakings - - 28,418,185 28,184,995
Other receivables 768,301 391,384 226,630 281,542
Prepayments and accrued income 370,099 235,922 268,168 158,624
10,755,390 9,642,817 28,912,983 28,625,161
 
Non current 100,225 128,224 28,373,610 28,313,219
Current 10,655,165 9,514,593 539,373 311,942
10,755,390 9,642,817 28,912,983 28,625,161

As at 31 March 2012, trade receivables of £2,102,528 (2011: £1,324,362) due to the Group and £nil (2011: £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. The ageing analysis of these trade receivables is as follows:

  Group   Company
2012   2011 2012   2011
£ £ £ £
 
Up to 3 months past due 1,731,377 1,238,808 - -
3 to 6 months past due 286,649 33,021 - -
Over 6 months past due 84,502 52,533 - -
2,102,528 1,324,362 - -

As at 31 March 2012, trade receivables of £32,379 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
2012   2011 2012   2011
£ £ £ £
Current - 1,379 - -
Up to 3 months past due - 27,622 - -
3 to 6 months past due - 26,478 - -
Over 6 months past due 32,379 68,869 - -
32,379 124,348 - -

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

  Group
Group 2012
£
 
Balance at 1 April 124,348
Recovered in the year (75,605)
Written off in the year (16,364)
Balance at 31 March 32,379

The directors are pleased to note that the active management of the Latin American accounts provided for in 2009 as a result of the economic conditions at that time, has resulted in a positive outcome in almost all cases and that the remaining general provision in respect of this region could be released during the year.

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

  Group   Company
2012   2011 2012   2011
£ £ £ £
Pounds Sterling 776,993 633,540 28,780,350 28,478,774
Euros 2,857,514 2,806,327 - -
U S Dollars 5,513,412 4,070,628 132,633 146,387
Chinese RMB 411,957 544,793 - -
Brazilian Real 357,576 606,322 - -
Japanese Yen 492,684 757,984 - -
Other currencies 345,254 223,223 - -
10,755,390 9,642,817 28,912,983 28,625,161

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

17. Deferred tax

Group

Deferred tax assets and liabilities are attributable to the following:

  Liabilities   Net
2012   2011 2012   2011
£ £ £ £
 
Drug registration expenditure (2,139,050) (2,281,894) (2,139,050) (2,281,894)
Freehold property (72,590) (72,590) (72,590) (72,590)
Plant and equipment (12,094) (2,050) (12,094) (2,050)
Investments - (14,782) - (14,782)
Tax losses carried forward 1,893,355 1,539,455 1,893,355 1,539,455
Amount (payable) after more than one year (330,379) (831,861) (330,379) (831,861)

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

  Drug registration expenditure   Freehold property   Property, plant and equipment   Investments   Total
£ £ £ £ £
 
At 31 March 2011 (742,439) (72,590) (2,050) (14,782) (831,861)
Credit/(charge) for the year through income statement 496,744 - (10,044) - 486,700
Movement through the year through revaluation reserve - - - 14,782 14,782
At 31 March 2012 (245,695) (72,590) (12,094) - (330,379)

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.

18. 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
2012   2011 2012   2011
£ £ £ £
 
Cash and cash equivalents 14,002,422 9,471,537 9,793,239 6,243,597
Overdrafts 20 (4,492,690) (53,196) (4,492,690) (53,196)
Net funds per cash flow 9,509,732 9,418,341 5,300,549 6,190,401

19. Trade and other payables

  Group   Company
2012   2011 2012   2011
£ £ £ £
 
Trade payables 5,410,817 4,904,967 124,057 135,904
Other payables 887,400 514,654 565,651 69,025
Accruals and deferred income 407,774 375,701 44,458 21,659
6,705,991 5,795,322 734,166 226,588

20. 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
2012   2011 2012   2011
£ £ £ £
 
Short term borrowings 4,492,690 53,196 4,492,690 53,196

Currency analysis of short term borrowings

  Group   Company
2012   2011 2012   2011
£ £ £ £
 
U S Dollars 4,072,226 - 4,072,226 -
Euros 420,464 53,196 420,464 53,196
4,492,690 53,196 4,492,690 53,196

The Group has no net overdraft facilities in place at the year end, although it has the facility to overdraw in specific currencies within a positive total cash balance. The interest rate for all currency overdrafts is 2.75 per cent over the relevant currency base rate.

21. 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 £316,853 (2011: £201,994).

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 2012 by a qualified independent actuary. The major assumptions used by the actuary were:

  31 March   1 April
2012 2011
Discount rate 4.6% 5.5%
Rate of increase in pension payment 2.9% 3.4%
Inflation assumption with a maximum of 5% p.a. 2.9% 3.4%

Mortality rates

Pre retirement mortality is based on the mortality table known as AMCOO for males and AFCOO for females and 70% of the mortality indicated by this table has been taken, as in the previous year.

Post retirement mortality is based on the mortality table known as PCMAOO for males and PCFAOO 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 retirement age of 65 is 25.2 (2011: 25.1) years for males and 29.1 (2011: 29.0) years for females. For members retiring in 20 years time, the expectation of life at age 65 would be 28.1 (2011: 28.0) years for males and 31.3 (2011: 31.2) years for females.

Results   2012   2011
£   £ £   £
Assets at start of year 2,684,000 2,592,000
Defined benefit obligation at start of year (2,596,000) (2,575,000)
Net asset at 1 April 88,000 17,000
Current service cost, including risk benefits (3,000) (2,000)
(3,000) (2,000)
Expected return on assets 150,000 144,000
Interest cost (139,000) (138,000)
11,000 6,000
(Loss)/gain on asset return (26,000) 10,000
Experience (loss)/gain (5,000) 1,000
(Loss)/gain on changes in assumptions (120,000) 3,000
Statement of other comprehensive income (151,000) 14,000
Employer contributions gross 64,000 59,000
Expenses paid by trustees (7,000) (6,000)
57,000 53,000
Net asset at 31 March 2012 2,000 88,000
 
Actual assets at end of year 2,959,000 2,684,000
Actual defined benefit obligation at end of year 2,957,000 2,596,000

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

  2012   2011
£   £ £   £
Fair value of assets at 1 April 2,684,000 2,592,000
Expected return on assets 150,000 144,000
(Loss)/gain on asset return (26,000) 10,000
Employer contributions (gross) 64,000 59,000
Death in service insurance premiums paid (3,000) (2,000)
Expenses paid by trustees (7,000) (6,000)
Increase/(decrease) in secured pensioners value due to scheme experience 97,000 (113,000)
 
Fair value of assets at 31 March 2012 2,959,000 2,684,000
 
Reconciliation of changes in the liability value during the year
 
Defined benefit obligation at 1 April 2,596,000 2,575,000
Interest cost 139,000 138,000
Experience loss/(gain) on liabilities 5,000 (1,000)
Loss/(gain) on changes in assumptions 120,000 (3,000)
Increase/(decrease) in secured pensioners value due to scheme experience 97,000 (113,000)
 
Defined benefit obligation at 31 March 2012 2,957,000 2,596,000

The expected contribution to be paid by the employer during the next accounting year is £59,000. This includes a provision of £3,000 for death in service risk premium, (2011: £5,000).

Year ended 31 March   2012   2011   2010   2009   2008
 
Present value of defined benefit obligation 2,959,000 2,596,000 2,575,000 2,227,000 2,325,000
Fair value of plan assets 2,957,000 2,684,000 2,592,000 2,224,000 2,368,000
Surplus/(deficit) in plan 2,000 88,000 17,000 (3,000) 43,000
Experience (loss)/gains on plan liabilities (5,000) 1,000 9,000 3,000 8,000

22. 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:

  2012   2011
£ £
 
Total expense arising from equity settled share-based transactions 290,890 303,504

The share based payment plans are described below:

Movements in issued share options and jointly owned shares during the year

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

           
 
Options Jointly owned shares Options
2012 2012 2012 2012 2011 2011
WAEP WAEP WAEP
£ £ £
Outstanding at 1 April 4,007,390 1.23 - - 3,307,390 1.14
Granted during the period 456,500 1.87 2,603,290 2.00 985,000 1.48
Expired/cancelled during the period - - - - (30,000) 1.39
Exercised during the period (1,206,040) 1.03 - - (255,000) 1.09
Outstanding at 31 March 3,257,850 1.39 2,603,290 2.00 4,007,390 1.23
Exercisable at 31 March 1,129,350 1.11 - - 1,905,390 1.12

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 2012 had a weighted average share price of £1.39 and a weighted average contractual life of 5.2 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.

Details of options granted to directors can be found in the Directors Report and notes 29 (Directors Emoluments) and 31 (Related Party Transactions).

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.

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 490,900 108.50 03 March 2018
03 March 2008 443,970 108.50 03 March 2015
18 September 2008 35,000 85.00 18 September 2018
18 September 2008 115,000 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
11 October 2011 154,100 186.50 11 October 2021
11 October 2011 302,400   186.50 11 October 2018
2,321,370 936,480

ECO Animal Health Group plc Joint Share Ownership Plan

In accordance with the newly established Joint Share Ownership Plan (JSOP), jointly owned shares may be awarded to directors and employees of the company.

The shares are awarded at the market price on the day of the award and are held jointly by the employee concerned and the ECO Animal Health Group plc Employee Benefit Trust. After a three year vesting period, the shares may be sold at the option of the employee. The proceeds of sale are split between the trust and the employee so that the Trust receives the original market value of the shares sold plus a 5.9% per annum carry charge, with the employee receiving any excess over this amount.

Because these are actual issued shares in the company rather than options there is no expiry date associated with jointly owned shares. However, they will normally be forfeit if the employee ceases to be an employee of the company for any reason other than death, injury, redundancy, retirement on or after normal retirement age or disposal by the Group of the employing business entity.

The market price of the shares at 31 March 2012 was 207.5p with a range in the year of 185p to

Inputs to the Valuation Model (for options and jointly owned shares)

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 Black-Scholes model which applies to both options and jointly owned shares.

  2012   2011   2010   2009   2008
 
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 1.00% 4.50% 5.00% 4.50% 5.00%
Risk free rate 2.00% 2.00% 2.40% 4.19% 4.66%
Volatility of share price 27% 45% 40% 30% 25%
Weighted average fair value of options 41.0p 37.78p 32.6p 16.8p 18.7p

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.

Under the terms of the Group’s Joint Share Ownership Plan (JSOP) on 6 October 2011, the Group issued a part interest in 1,819,290 Ordinary shares of 5p each to the Executive Directors at a price of 194p per share as an effective modification to existing benefits under the Group’s Unapproved Share Option Scheme.

As part of this transaction the Directors exercised 1,039,290 of vested options and agreed that a further 780,000 of unvested options would be effectively capped at the 6 October 2011 market price of 194p by means of a partial waiver of these options. The jointly owned shares and the capped options are therefore treated as one instrument when looking at the overall limit on outstanding share options and jointly owned shares.

On 21 October 2011, the Group issued a part interest in a further 784,000 Ordinary shares of 5p each to the Executive Directors and certain other senior employees below board level as an alternative to unapproved options. These shares were issued at a price of 214p per share and have a vesting period of three years.

The fair value of the part interest in the jointly owned shares was calculated using a Black-Scholes model with the same assumptions as those used for the options issued during the year. The weighted average fair value of each jointly owned share issued during the year was 26.15 pence.

23. Share capital

  2012   2011
£ £
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
55,119,201 ( 2011: 52,195,172) Ordinary shares of 5p each 2,755,960 2,609,758

During the year a further 173,989 shares were issued at a premium of £334,406 as a result of the take up of the scrip dividend option and 1,206,040 more shares were issued at a premium of £1,182,451 as a result of the exercise of options by employees. In addition, 1,544,000 shares were issued as a result of the Group’s new share ownership scheme at a premium of £3,070,960.

During the year the Company obtained a court order authorising the cancellation of £10,000,000 of the total share premium. This amount was transferred to the credit of the Company’s retained earnings in accordance with the resolution approved by the shareholders at the Annual General Meeting on 2 September 2011. At the same time an amount of £3,250,000 was transferred from the Share Premium Account to a non-distributable Special Reserve for the protection of creditors. This transfer will be reversed when all creditors outstanding as at the date of the court order have been paid or alternatively, when a further £3,250,000 has been credited to the Share Premium Account as a result of the issue of equity.

24. Minority interests

  2012   2012   2011   2011
£ £ £ £
 
Balance at 1 April 1,790,587 1,400,296
Share of subsidiary's profit for the year 409,299 403,022
Share of foreign exchange gain on net investment 80,282 80,070
 
489,581 483,092
Share of dividend paid by subsidiary (388,581) (92,801)
Balance at 31 March 1,891,587 1,790,587

25. Treasury share reserve

 

  2012   2011
£ £
 
Balance at 1 April - -
Arising in the year 5,217,580 -
Balance at 31 March 5,217,580 -

Treasury share reserve includes £5,217,580 (2011: £nil), being the cost of 2,603,290 shares in the Company held by the Group’s JSOP.

26. Other reserves

Group and Company   Capital redemption reserve   Special reserve   Reserve for share-based payment   Total
£ £ £ £
At 1 April 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
Share-based payments - - 290,890 290,890
Transfer to retained earnings on expiry of options - - (96,989) (96,989)
Transfer on reduction of share premium for protection of creditors - 3,250,000 - 3,250,000
At 31 March 2012 105,829 3,250,000 1,418,302 4,774,131

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 2011   Movement in the year   At 31 March 2012
£ £ £
 
In respect of:
Zhejiang Eco Biok Animal Health Products Limited 325,638 83,555 409,193
Eco Animal Health do Brasil Comercio de Produtos Veterinarios Ltda 2,281 25,891 28,172
ECOpharma Inc. 49,254 11,243 60,497
ECO Animal Health Southern Africa (pty) Ltd 38 (131) (93)
Interpet LLC 2,245 84 2,329
Pharmgate LLC (629) (52) (681)
Foreign currency differences attributable to owner credited directly to reserves. 120,590

27. Financial commitments

At 31 March 2012 the Group had minimum commitments under non-cancellable operating leases as follows:

  Land and Buildings   Motor vehicles
2012   2011 2012   2011
£ £ £ £
Expiry date:
Within one year 10,377 - 4,988 3,168
Between two and five years 536,971 713,846 62,136 67,244
In over five years 2,197,631 2,293,625 - -
2,744,979 3,007,471 67,124 70,412

28. Capital commitments

The group had no authorised capital commitments as at 31 March 2012 (2011: Nil).

29. Directors’ emoluments

  2012   2011
£ £
 
Emoluments for qualifying services 386,008 439,520
Company pension contributions to money purchase schemes 183,024 94,074
Share-based payments 174,979 157,288
Benefits in kind 22,317 19,577
766,328 710,459

During the year the directors exercised 1,059,290 (2011: nil) share options realising a gain of £968,243 (2011: £nil).

The number of directors for whom retirement benefits are accruing under money purchase pension schemes amounted to 3 (2011: 3). No directors accrued benefits under defined benefit schemes for this or the previous year.

The highest paid director received £304,766 (2011: £266,565) including share-based payments and £120,854 (2011: £79,220) of pension contributions.

30. Employees

Number of employees

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

  2012   2011
Number Number
 
Directors 7 7
Production and development 49 47
Administration 34 39
Sales 55 51
145 144
 
Employment costs (including amounts capitalised)
2012 2011
£ £
 
Wages and salaries 3,628,585 3,512,002
Share-based payments 290,890 303,504
Social security costs 329,837 277,724
Other pension costs 319,853 203,994
4,569,165 4,297,224

31. 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 £512,337 (2011: £62,886).

During the year, the Group provided management services to Anpario plc (formerly Kiotech International plc), a company in which P A Lawrence is a Director and holds share options. Fees of £26,000 (2011: £26,000) 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 £48,970 (2011: £44,279) were charged.

During the year ECO Animal Health Limited made sales on an at arm’s length basis to the following other 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
2012 2011
£ £ £ £
 
Zhejiang Eco Biok Animal Health Products Limited 1,854,311 558,361 1,119,737 541,705
Eco Animal Health do Brasil Comercio de Produtos Veterinarios Ltda. 2,196,659 1,250,962 2,343,549 1,371,550
Ecopharma Inc. 567,577 344,499 1,098,594 337,958
ECO Animal Health de Mexico - 175,411 - -
ECO Animal Health USA Corp. - 22,633 - -

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 £195,598 (2011: £187,222) and charged interest of £397,298 (2011: £304,705) 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 £32,316 (2011: £85,828). The whole transaction was eliminated on consolidation.

ECO Animal Health Limited also paid £109,011 (2011: £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 no dividend (2011: £1,500,000) to ECO Animal Health Group plc.

During the year Zhejiang ECO Biok Animal Health Products Limited paid dividends of £31,085 (2011: £7,425) to ECO Animal Health Group plc and £373,356 (2011: £89,164) to ECO Animal Health Limited. Both amounts were eliminated on consolidation.

During the year P Lawrence and his family received dividends in the form of cash and shares to the value of £333,185 (2011: £252,934), and the other directors and their families received dividends in the form of cash and shares to the value of £895 (2011: £662).

During the year the Company acquired at open market value a freehold property from C-Corp Limited of which P A Lawrence is a Director and Shareholder, for a total cost of £156,550 including 1% stamp duty.

Joint Ventures

During the year ECO Animal Health Limited made sales on an arm’s length basis of £4,515 to ECO Animal Health Canada LLC. This balance remained outstanding at the year end.

Key management compensation

The group regards the directors as its key management.

  2012   2011
£ £
 
Salaries and short term benefits 461,639 507,343
Retirement benefits 183,024 94,074
Share-based payments 174,979 157,288
819,642 758,705

32. 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 £4,492,690 (2011: £53,196), 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

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 20, cash and cash equivalents in note 18 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 2012 the Group was contractually obliged to make repayments as detailed below:

  2012   2011
WITHIN ONE YEAR OR ON DEMAND £ £
 
Bank overdrafts 4,492,690 53,196
Trade payables 5,410,817 4,904,967
   
9,903,507 4,958,163

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 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          
2012   US Dollar   Euros Rand Chinese RMB Japanese Yen Brazilian Real Other
 
Sterling equivalent (000's) (1,930) 2,141 266 2,790 438 794 192
 
2011
 
Sterling equivalent (000's) 4,508 2,410 204 2,867 165 835 52

At 31 March 2012 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 2012. A positive number indicates the decrease in profit which would arise from a 10 per cent weakening of the foreign currency concerned.

2012   2011
£'000 £'000
 
U S Dollar (175) 410
Euro 195 219
Chinese RMB 254 261
Brazilian Real 72 76

Analysis of financial instruments by category

Group

  Loans and receivables   Available for sale   Total
2012 £ £ £
 
Investments 8,738 - 8,738
Trade and other receivables (excluding prepayments) 10,385,291 - 10,385,291
Cash and cash equivalents 14,002,422 - 14,002,422
 
2011 Loans and receivables Available for sale Total
£ £ £
 
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

Company

  Loans and receivables   Available for sale   Total
2012 £ £ £
 
Trade and other receivables (excluding prepayments) 28,644,815 - 28,644,815
Cash and cash equivalents 9,793,239 - 9,793,239
 
2011 Loans and receivables Available for sale Total
£ £ £
 
Investments - 311,594 311,594
Trade and other receivables (excluding prepayments) 28,466,537 - 28,466,537
Cash and cash equivalents 6,243,597 - 6,243,597

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.

Companies

ECO Animal Health Group (EAH)
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