Half-year Report

Half-year Report

Eco Animal Health Group Plc

10 December 2018

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

Results for the six months ended 30 September 2018

ECO REPORTS ANOTHER STRONG PERFORMANCE

HIGHLIGHTS

Financials

  • 9% increase in sales to £31.7m (2017: £29.2m) equivalent to 11% increase at CER
  • 15% increase in pre-tax profit to £6.8m (2017: £5.9m)
  • 19% increase in earnings per share to 7.62.p (2017: 6.39p)
  • 36% increase in free cash flow to £3.8m (2017: £2.7m
  • 5% increase in adjusted EBITDA to £8.6m (2017: £8.2m) equivalent to c. 7.4 % increase at CER
  • 25% increase in interim dividend to 4.0p (2017: 3.2p) and additional distribution of 3.5p per share
  • Net cash of £24.7m at the period end (2017: £20.3m)

Operations

  • Demand for Aivlosin® continues to grow strongly.
  • Recovery in Latin America.
  • New vaccine development & distribution agreement signed for the UK, Europe, the Commonwealth of Independent States (CIS), with Japan and Brazil added after period end.
  • New marketing authorisations gained in Vietnam with further authorisations expected in Canada, USA and South East Asia.
  • Continued investment in new routes to market, product development and people to support future growth.

Peter Lawrence, Non-executive Chairman of ECO Animal Health Group plc, commented:

“The second half of the year has started well with a strong and growing order book. ECO has a sound balance sheet with good and reliable cash generation. The Company continues to invest in product development programmes, such as our recently announced vaccine initiatives. We are also working to broaden our portfolio, obtain additional Aivlosin® marketing authorisations and further improve efficiencies in production. I look forward with confidence to reporting another set of impressive results in 2019.”

     

Contacts:

 

 

ECO Animal Health Group plc

 

Peter Lawrence

020 8336 6190

Marc Loomes

020 8447 6906

 

Spiro Financial

 

Anthony Spiro

020 8336 6196

 

N+1 Singer (Nominated Advisor)

 

Mark Taylor, Brough Ransom

020 7496 3000

Peel Hunt LLP (Joint Broker)

020 7418 8955

James Steel, Dr Christopher Golden

020 7418 8900

 

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

Chairman’s statement

I am pleased to report that ECO Animal Health Group has delivered another set of record results for the six months to 30 September 2018. ECO provides essential medications to the ever growing global animal protein production industry. The success of the Company is built on its investment over many years in obtaining marketing authorisations, which are a legal requirement in all of the countries it serves. Currently ECO holds over seven hundred marketing authorisations and its products are prescribed and sold in some 70 countries. Our operations are managed by our 14 offices around the world.

Eight per cent of ECO’s sales are to EU markets and we have protected the Company’s position in Europe post Brexit by establishing a subsidiary, ECO Animal Health Europe Ltd, in Dublin. We expect to have our EU marketing authorisations transferred into this legal entity well before March 2019 at minimal cost to the Company. In addition, this new company formed a joint venture in April 2018 with our North American partner, Pharmgate LLC, to market Pharmgate’s range of swine vaccines in the UK, the EU and the Commonwealth of Independent States; the right to sell in other territories is under discussion. We have recruited a number of experts in the field of vaccine development and registration to support this new venture. Shortly after the end of the period under review, the scope of this joint venture was extended to include Brazil and Japan. It is expected that further vaccine products will flow from our biological research and development pipeline.

Financial performance

Profit before tax in the period under review increased by over 15 per cent to £6.8m (2017: £5.9m) on sales up almost 9 per cent to £31.7m (2017: £29.2m) equivalent to 11 per cent increase at CER. Gross profit advanced by over 6 per cent to £15.1m (2017: £14.2m) and earnings per share rose 19 per cent to 7.62 pence per share (2017: 6.30 pence). Cash generated from operations remained robust advancing to £8.9m (2017: £7.2m) with free cash flow at £3.8m (2017: £2.7m). Net cash at the period end had risen to £24.7m (2017: £20.3m). Earnings before interest, tax, depreciation, amortisation, share based payments and non-controlling (minority) interests were £8.6m (2017: £8.2m), an increase of 5 per cent (c.7.4 per cent increase at CER).

Dividends

The board is pleased to declare an interim dividend of 4.0 pence per share (2017: 3.2 pence) to be paid on 12 April 2019 to shareholders on the register on 1 March 2019 ( Ex dividend 28 February 2019). This increase of 25 per cent reflects the board’s continued confidence in the sustainable growth of our international business. In addition, the board, after a detailed review of the Company’s cash requirements and taking into account the significant cash balance at the period end, has declared a special distribution of 3.5 pence per share to be paid on 9 January 2019 to shareholders on the register on 21 December 2018 (Ex dividend 20 December 2018).

Operations:

Sales of Aivlosin®, our patented molecule for the treatment of economically important diseases in pigs and poultry, increased by almost 6 per cent in sterling (8.5 per cent CER). Aivlosin® is prescribed under strict veterinary control at low, yet efficacious, dose rates for short duration treatments of specified diseases. It meets all current guidelines for the responsible use of antimicrobials, which when used appropriately, help to promote animal welfare and food safety. This growth was organic and achieved without the benefit of new marketing authorisations.

The pattern of sales in the period reflects both the global reach of our business and the nature of the production of pork and poultry as commodities. Revenue growth across Latin America was strong, led by our subsidiaries in Mexico and in Brazil where the early signs of a recovery are evident.

In China, our subsidiary, Zhejiang ECO Biok Animal Health Products Co. Ltd (ECO Biok) posted solid growth despite the challenge of softer pork prices, trade wars and disease and in advance of marketing authorisations to target poultry producers. The recently declared outbreak of African Swine Fever (ASF) in China has affected ECO Biok’s ability to sell on farm for fear of spreading infection. The authorities are trying to contain the disease, which appears to be affecting producers mostly in northern China, although business in the south, while competitive, remains positive. Pork however is a global commodity and there will always be winners and losers amongst the major producing and exporting countries. ECO has experienced many years of animal disease outbreaks and with our global reach and experience, it is hoped that while not yet certain, the current situation can be managed.

In Canada, business was robust, whilst in the USA producers were adversely affected by lower pork prices during the period under review but subsequently prices have started to recover. Sales in Japan, our most mature market, showed a modest increase compared to the prior year.

Revenue in the UK, where ECO has developed very good relationships with key swine and poultry (layer) producers, grew strongly. In Europe, sales were hampered by distribution restructuring and the timing of third party manufacturing audits by external regulatory authorities.

In late August, ECO received a marketing authorisation in Vietnam, the fourth largest egg producing country in Southeast Asia, for the use of Aivlosin® 625 mg/g water soluble granules for both pigs and poultry. This authorisation allows ECO to start selling Aivlosin® in Vietnam for the medication of drinking water for the treatment and prevention of porcine proliferative enteropathy (PPE) caused by Lawsonia intracellularis in pigs, the treatment and prevention of respiratory disease associated with Mycoplasma gallisepticum in chickens and the treatment of respiratory disease in turkeys associated with Ornithobacterium rhinotracheale. Importantly, this license allows ECO to submit the EU approved Aivlosin® regulatory files for the treatment of commercial layers in Vietnam, The granting of a zero withdrawal period is a significant advantage to egg producers, who as a result, are not required to destroy eggs laid while birds are being treated.

ECO Animal Health India became fully operational after the period end. It is expected that further ECO subsidiaries will be established in key countries which produce protein of animal origin in the future.

Outlook:

The second half of the year has started well with a strong and growing order book. ECO has a sound balance sheet with good and reliable cash generation. The Company continues to invest in product development programmes, such as our recently announced vaccine initiatives. We are also working to broaden our portfolio, obtain additional Aivlosin® marketing authorisations and further improve efficiencies in production. I look forward with confidence to reporting another set of impressive results in 2019.

Peter A Lawrence

Non-executive Chairman

7 December 2018

 

CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS TO 30 SEPTEMBER 2018

 
    Six months   Six months   Year
to to ended
30.09.18 30.09.17 31.03.18
Notes (unaudited) (unaudited) (audited)
£000 £000 £000
Revenue 3 31,745 29,204 67,201
Cost of sales (16,659)   (14,970)   (34,986)
Gross Profit 15,086 14,234 32,215
Other operating income 30 138 436
Administrative expenses (6,801) (6,050) (13,363)
Currency profits/(losses) 105 (300) (970)
Amortisation of intangible assets (1,999) (1,700) (3,428)
Share based payments (375)   (380)   (778)
Profit from operating activities: 6,046 5,942 14,112
Net finance income/(costs) 697 (102) (247)
Share of profit of associate 27   24   7
Profit before income tax 6,770 5,864 13,872
Income tax charge (765)   (641)   (2,225)
Profit for the period from continuing operations 6,005   5,223   11,647
 
Attributable to:
Owners 5,052 4,188 9,315
Minority interest 953   1,035   2,332
6,005   5,223   11,647

BASIC EARNINGS PER SHARE

5 7.62p 6.39p 14.19p
 
FULLY DILUTED EARNINGS PER SHARE 5 7.46p 6.37p 14.06p
Earnings from continuing activities before
interest, taxation, depreciation, amortisation
and share based payments
EBITDA 8,597 8,185 18,601
 
Exclude foreign exchange differences (105)   300   970
EBITDA excluding foreign exchange differences 8,492   8,485   19,571
 
 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS TO 30 SEPTEMBER 2018
     
Six months Six months Year
to to ended
30.09.18 30.09.17 31.03.18
(unaudited) (unaudited) (audited)
£000 £000 £000
 
Profit for the period 6,005 5,223 11,647
Foreign currency translation differences (282) (482) (372)
Defined benefit pension plan - actuarial losses -   -   (15)
Other comprehensive income for the period (282)   (482)   (387)
 
Total comprehensive income for the period 5,723 4,741 11,260
 
Attributable to:
Owners 4,873 3,858 9,028
Minority interest 850   883   2,232
5,723   4,741   11,260
 
 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS TO 30
SEPTEMBER 2018

               
Share Share Other Revaluation Retained Total Non-Controlling Minority Total
Capital Premium Reserves Reserves Earnings Interest Equity
Account Account
£000 £000 £000 £000 £000 £000 £000 £000
 
At 1 April 2017 3,271 58,154 2,449 664 29,293 93,831 4,342 98,173
 
Profit for the year - - - - 9,315 9,315 2,332 11,647

Other comprehensive income:

Foreign currency differences - - - - (272) (272) (100) (372)
Actuarial (losses) on pension scheme assets -   -   -   -   (15)   (15)   -   (15)

Total comprehensive income for the year

-   -   -   -   9,028   9,028   2,232   11,260
Transactions with owners recorded directly in equity

Contributions by and
distributions to owners

Issue of shares in the year 20 693 - - - 713 - 713
Share-based payments - - 778 - - 778 - 778
Transfers on expiry of options - - (404) - 404 - - -
Dividends relating to 2017 -   -   -   -   (4,660)   (4,660)   (1,389)   (6,049)

Transactions with owners

20   693   374   -   (4,256)   (3,169)   (1,389)   (4,558)
At 31 March 2018 3,291   58,847   2,823   664   34,065   99,690   5,185   104,875
 

Total comprehensive income
for the period:

Profit for the period - - - - 5,052 5,052 953 6,005

Other comprehensive income

Foreign currency translation differences -   -   -   -   (179)   (179)   (103)   (282)
Total comprehensive income for the period -   -   -   -   4,873   4,873   850   5,723

Transactions with owners

Issue of shares in the year 67 3,058 - - - 3,125 - 3,125
Share based payments - - 375 - - 375 - 375
Dividends relating to 2018 -   -   -   -   (2,106)   (2,106)   (1,643)   (3,749)

Total transactions with owners

67   3,058   375   -   (2,106)   1,394   (1,643)   (249)
At 30 September 2018 3,358   61,905   3,198   664   36,832   105,957   4,392   110,349
               
Non-
Controlling
Share Share Other Revaluation Retained Total Minority Total
Capital Premium Reserves Reserves Earnings Interest Equity
Account Account
£000 £000 £000 £000 £000 £000 £000 £000
Prior interim period
At 1 April 2017 3,271 58,154 2,449 664 29,293 93,831 4,342 98,173

Total comprehensive income
for the period:

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

Other comprehensive
income

Foreign currency translation differences -   -   -   -   (330)   (330)   (152)   (482)
Total comprehensive income for the period -   -   -   -   3,858   3,858   883   4,741

Transactions with owners

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

Total transactions with owners

17   568   86   -   (1,341)   (670)   (1,389)   (2,059)
At 30 September 2017 3,288   58,722   2,535   664   31,810   97,019   3,836   100,855
 
 
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
       
As at As at As at
30.09.18 30.09.17 31.03.18
(unaudited) (unaudited) (audited)
Notes £000 £000 £000
ASSETS
Non current assets
Goodwill and other intangibles 8 59,840 55,956 57,631
Property,plant and equipment 9 2,127 1,888 1,866
Investment property 10 200 185 200
Investments 125   113   98
62,292 58,142 59,795
Current assets
Inventories 18,302 18,830 17,663
Trade and other receivables 18,528 14,583 17,193
Income tax recoverable 362 470 113
Other taxes and social security 1,004 961 1,160
Cash and cash equivalents 24,729   20,304   21,261
62,925   55,148   57,390
Total assets 125,217   113,290   117,185
Current liabilities
Trade and other payables (11,635) (10,260) (10,715)
Income tax (378) (244) (152)
Other taxes and social security (1,405) (702) (108)
Dividends (50)   (40)   (42)
(13,468) (11,246) (11,017)

Total assets less current liabilities

111,749 102,044 106,168
 
Non current liabilities
Deferred tax (1,400)   (1,189)   (1,293)
110,349   100,855   104,875
Equity
Capital and reserves
Called up share capital 3,358 3,288 3,291
Share premium 61,905 58,722 58,847
Revaluation reserve 664 664 664
Other reserves 3,198 2,535 2,823
Retained earnings 36,832   31,810   34,065
105,957 97,019 99,690
Minority interest 4,392   3,836   5,185
Total equity 110,349   100,855   104,875
 
 
CONSOLIDATED STATEMENT OF CASH FLOWS
 
  Six months to   Six months to   Year ended
30.09.18 30.09.17 31.03.18
(unaudited) (unaudited) (audited)
£000 £000 £000
Cashflows from operating activities
Profit before tax 6,770 5,864 13,872
 
Adjustment for:
Net finance (income)/costs (697) 102 247
Depreciation of property plant and equipment 149 139 297
Revaluation of investment property - - (15)
Amortisation of intangible assets 1,999 1,700 3,428
Pension payments (29) - (39)
Share of associate's results (27) (24) (7)
Share based payments 375   380   778
Operating cash flow before movement in working capital 8,540 8,161 18,561
 
Change in inventories (639) 845 2,012
Change in receivables (1,179) 1,511 (1,298)
Change in payables 2,246   (3,318)   (3,432)
Cash generated from operations 8,968 7,199 15,843
Finance costs - - (14)
Income tax (paid) (681)   (548)   (1,763)
Net cash inflow from operating activities 8,287 6,651 14,066

Cash flows from investing activities

Purchase of property plant and equipment (431) (194) (324)
Disposal of property plant and equipment - - 1
Costs of acquiring drug registrations (4,208) (3,773) (7,176)
Finance income 70   61   138

Net cash (used in) investing activities

(4,569)   (3,906)   (7,361)
Cash flows from financing activities
Proceeds from issue of share capital 3,125 585 713
Dividends paid (3,741)   (3,024)   (6,046)
Net cash (used in) financing activities (616)   (2,439)   (5,333)
 
Net increase in cash and cash equivalents 3,102 306 1,372
Foreign exchange movements 366 (604) (713)
Cash and cash equivalents at the beginning of the period 21,261 20,602 20,602
Cash and cash equivalents at the end of the period 24,729   20,304   21,261
Free cash flow 3,648   2,648   6,580
 

NOTES TO THE PRELIMINARY RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2018

1. Basis of preparation

The financial information for the period to 30 September 2018 does not constitute statutory accounts as defined by Section 435 of the Companies Act 2006. It has been prepared in accordance with the accounting policies set out in, and is consistent with, the audited financial statements for the twelve months to 31 March 2018.

The Group applies revised IAS 1 “Presentation of Financial Statements (2007)”. As a result, the Group presents all non-owner changes in equity in consolidated statements of comprehensive income and all owner changes in equity in consolidated statements of changes in equity.

2. Statement of compliance

The interim financial statements do not include all of the information required for full annual financial statements and do not comply with all of the disclosure requirements in IAS 34 “Interim Financial Reporting”. Accordingly, whilst the interim statements have been prepared in accordance with IFRS, and have been reviewed by the Group’s auditors, Kreston Reeves LLP, in the interests of improved Corporate Governance, they cannot be construed as being in full compliance with IFRS and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 March 2018.

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

4. Principal risks and uncertainties

These were set out on pages 80-81 of the notes to the consolidated financial statements for the year ended 31 March 2018. The key exposures are to foreign currency exchange rates, potential delays in obtaining marketing authorisations and single sources of supply for some raw materials and have remained unchanged since the year end.

5. Earnings per share

   
Six months to Six months to Year ended
30.09.18 30.09.17 31.03.18
(unaudited) (unaudited) (audited)
 
Weighted average number of shares in issue (000's) 66,326 65,517 65,646
Fully diluted weighted average number of shares in issue (000's) 67,757 65,787 66,251
 
Profit attributable to equity holders of the company (£'s) 5,052 4,188 9,315
 
Basic earnings per share (pence) 7.62 6.39 14.19
Fully diluted earnings per share (pence) 7.46 6.37 14.06
 

5. Earnings per share

6. Dividends

     
Six months to Six months to Year ended
30.09.18 30.09.17 31.03.18
(unaudited) (unaudited) (audited)
 
£000 £000 £000
Dividend in respect of the year ended 31 March 2017
at 2.5p/7.1p per ordinary share - 1,635 4,660
Dividend in respect of the year ended 31 March 2018
at 3.2p per ordinary share 2,106   -   -
2,106 1,635 4,660
 
Dividend paid by subsidiary to non-controlling interests (minorities) 1,642   1,389   1,389
3,748   3,024   6,049
 
The company paid a further dividend of 6p per share on 17 October 2018, after the period end.
The total paid was £4.03 million.
 

7. Related party transactions

At the balance sheet date ECO Animal Health Group plc owed no balances to persons connected to P A Lawrence, a director of ECO Animal Health Group plc (30 September 2017: £271,986).

During the period the Group provided management services to Anpario plc and Emmelle Construction Limited, both companies in which P A Lawrence is a director and holds equity interests. Fees charged were: Anpario plc £6,667 (2017: £20,000) and Emmelle Construction Limited £18,035 (2017: £22,000).

8. Intangible non-current assets

       
Distribution Development
Goodwill Rights Costs Total
Cost £000 £000 £000 £000
Cost at 1 April 2017 17,930 1,442 67,643 87,015
Additions -   -   3,773   3,773
Cost at 30 September 2017 17,930 1,442 71,416 90,788
Additions -   -   3,403   3,403
Cost at 31 March 2018 17,930 1,442 74,819 94,191
Additions - - 4,208 4,208
             
Cost at 30 September 2018 17,930   1,442   79,027   98,399
 
Amortisation
Amortisation at 1 April 2017 - 759 32,373 33,132
Charge for the period -   39   1,661   1,700
Amortisation at 30 September 2017 - 798 34,034 34,832
Charge for the period -   33   1,695   1,728
Amortisation at 31 March 2018 - 831 35,729 36,560
Charge for the period -   39   1,960   1,999
Amortisation at 30 September 2018 -   870   37,689   38,559
 
Net book value at 30 September 2018 17,930   572   41,338   59,840
 
Net book value at 1 April 2018 17,930   611   39,090   57,631
 
Net book value at 30 September 2017 17,930   644   37,382   55,956
 
Net book value at 1 April 2017 17,930   683   35,270   53,883
 

9. Property, plant and equipment

      Fixtures,    
Freehold Plant and fittings & Motor
Property Machinery equipment Vehicles Total
Cost £000 £000 £000 £000 £000
Cost at 1 April 2017 730 1,541 865 75 3,211
Additions - 51 143 - 194
Foreign exchange movements -   (30)   -   (5)   (35)
Cost at 30 September 2017 730 1,562 1,008 70 3,370
Additions - 55 75 - 130
Disposals - (14) - (5) (19)
Foreign exchange movements -   (1)   -   (4)   (5)
Cost at 1 April 2018 730 1,602 1,083 61 3,476
Additions - 261 150 21 432
Disposals - (19) - - (19)
Foreign exchange movements -   (27)   -   (8)   (35)
Cost at 30 September 2018 730   1,817   1,233   74   3,854
 
Depreciation
Depreciation at 1 April 2017 13 737 587 9 1,346
Charge for the period 6 76 52 5 139
Foreign exchange movements -   (3)   -   -   (3)
Depreciation at 30 September 2017 19 810 639 14 1,482
Charge for the period 7 78 67 7 159
Disposals - (14) - (5) (19)
Foreign exchange movements -   (10)   -   (2)   (12)
Depreciation at 1 April 2018 26 864 706 14 1,610
Charge for the period 5 81 57 6 149
Disposals - (18) - - (18)
Foreign exchange movements -   (14)   -   -   (14)
Depreciation at 30 September 2018 31   913   763   20   1,727
 
Net book value
Net book value at 30 September 2018 699   904   470   54   2,127
 
Net book value at 1 April 2018 704   738   377   47   1,866
 
Net book value at 30 September 2017 711   752   369   56   1,888
 
Net book value at 1 April 2017 717   804   278   66   1,865
 

10 Investment property

   
Freehold
Property Total
Valuation £000 £000
 
Valuation at 1 April 2017 and 30 September 2017 189 189
Revaluation in March 2018 11   11
Valuation at 31 March 2018 and 30 September 2018 200   200
 
 
Depreciation
Depreciation at 1 April 2017 and 30 September 2017 4 4
Revaluation in March 2018 (4)   (4)
Depreciation at 31 March 2018 and 30 September 2018 -   -
 
Net Book Value
Net Book Value at 31 March 2018 and 30 September 2018 200   200
 
Net Book Value at 1 April 2017 and 30 September 2017 185   185
 

This financial information was approved by the board on 07 December 2018.

Copies of this interim report are being sent to all of the Company’s shareholders. Further copies can be obtained from the Company’s registered office at 78 Coombe Road, New Malden, Surrey, KT3 4QS.

DIRECTORS AND
OFFICERS

   Peter Lawrence   (Non-Executive Chairman)
Marc Loomes (Chief Executive)
Kevin Stockdale (Finance Director)
Julia Trouse

(Executive Director and
Company Secretary)
Brett Clemo (Executive Director)
Andrew Jones (Non-Executive Director,)
Anthony Rawlinson (Non-Executive Director)
 
REGISTERED OFFICE 78 Coombe Road, New Malden, Surrey. KT3 4QS
Tel: 020-8336-2900 Fax: 020-8336-0909
 
COMPANY NUMBER 01818170
 
INFORMATION AT

www.ecoanimalhealthgroupplc.com

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