Final Results

29 July 2009 ECO Animal Health Group plc (AIM:EAH) Preliminary Results for the year ended 31 March 2009 HIGHLIGHTS · Profit attributable to shareholders before interest, tax, depreciation, amortisation, share based payments and exceptional items increased 66.9 per cent to £3.74 million (2008: £2.24 million) · Turnover up 17.4 per cent at £19.34 million (2008: £16.48 million) · Positive contribution from currency movements · Total dividend of 7.15 pence per share (2008: 7.15 pence) · £3 million of cash generated from operating activities during year · Aivlosin®, ECO's patented macrolide antibiotic, now accounts for over half ECO's total sales · Sales in China, a key market, rose 60 per cent over level of previous year · Further important drug registrations granted for Aivlosin® and Ecomectin® with more expected in current year Peter Lawrence, Executive Chairman of ECO Animal Health Group plc, commented: "The current financial year has started strongly. We remain cautiously optimistic about the likely trading outturn in view of the generally difficult global economic environment and the currency translation effect of the dollar/sterling exchange rate. The exact timing of the granting of marketing authorisations is, as always, difficult to determine but ECO nevertheless expects to benefit from additional marketing authorisations to be granted in the year. These factors give us increasing confidence in the exciting future of the ECO veterinary pharmaceutical business and its ability to generate attractive returns for investors" Contacts: ECO Animal Health Group plc Peter Lawrence 020 8336 6190 Spiro Financial Anthony Spiro 020 8336 6196 Cenkos Securities plc (Nominated Adviser) Stephen Keys 020 7397 8926 Elizabeth Bowman 020 7397 8928 ECO Animal Health Group plc is a leader in the development, registration and marketing of pharmaceutical products for animals. Our products for these global growth markets promote well-being. Our financial goals are achieved through the careful and responsible application of science to generate value for our shareholders. Company Registration No. 1818170 (England and Wales) ECO ANIMAL HEALTH GROUP PLC ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2009 ECO ANIMAL HEALTH GROUP PLC DIRECTORS AND ADVISERS Directors Mr Peter Lawrence Mr Marc Loomes Mrs Julia Trouse Mr Kevin Stockdale Mr David Danson (appointed 18 September 2008) Secretary Mrs Julia Trouse Company number 1818170 Registered office 78 Coombe Road New Malden Surrey KT3 4QS Registered auditors FW Stephens Third Floor 24 Chiswell Street London EC1Y 4YX Registrars Share Registrars Limited Suite E, First Floor 9 Lion and Lamb Yard Farnham Surrey GU9 7LL Bankers NatWest plc Mitcham Branch 282 London Road Mitcham Surrey CR4 2ZP Nominated Advisor and Cenkos Securities plc Broker 6,7,8 Tokenhouse Yard London EC2R 7AS ECO ANIMAL HEALTH GROUP PLC CHAIRMAN'S STATEMENT FOR THE YEAR ENDED 31 MARCH 2009 I am pleased to report encouraging results after another year of solid progress. The global economic climate marked by commodity price volatility, currency crises and a worldwide lack of credit has made business even more challenging than normal. However, the outlook for agriculture and animal health in particular, remains positive despite these hopefully short-term difficulties. In September 2008, we announced the sale of Aquarium Products, our United States based pet products operation. The consideration comprised a cash payment followed by an earn out based on a rising percentage of net sales over the next five years. The Board of ECO believes that this arrangement will achieve the best and fairest price for the business. This sale concludes our strategy of disposing of non-core businesses and leaves us totally focused on our fast growing animal health and veterinary pharmaceuticals operations. Financial Group turnover in the year to 31 March 2009 increased by 17.4 per cent from the level of the previous year to £19.34 million (2008: £16.48 million). Profit attributable to shareholders before interest, tax, depreciation, amortisation, share based payments and exceptional items rose close to 67 per cent to £3.74 million (2008: £2.24 million). International Accounting Standard 21 requires companies to revalue all foreign currency trade receivables at the appropriate year end exchange rate, which in the case of our principal trading currency, the US dollar, was $1.42 to the pound sterling. This calculation has given rise to a substantial exchange gain in the accounts but it should be understood that the gain is notional and does not represent any change in our cash position. Currently the US dollar is trading at over $1.60 to the pound; if this rate remains until the end of the current financial year then all last year's currency gain may be eliminated. Our tight cash management and conservative approach to the business, with particular emphasis on the credit terms given to our distributors around the world, generated some £3 million of cash from operating activities during the year and has helped to finance our continuing and important drug registration program. The Board is recommending an unchanged final dividend of 5.45 pence per share making a total for the year of 7.15 pence per share (2008: 7.15 pence per share). Shareholder approval will be sought at the Annual General Meeting on 24 September 2009 to pay the final dividend on 9 November 2009 to shareholders on the register on 30 September 2009. We will again offer shareholders a scrip alternative to the cash dividend and are grateful to those who have supported us in this way. Since introducing the scrip alternative in 2008, the company has conserved over £1.6 million of cash, which has been reinvested in the business. This is very positive for the business and it is pleasing to note that shareholders who have taken up the scrip have also generally benefited from an overall improvement in the value of these shares. The Board is considering paying an annual dividend to shareholders in the future, which in view of the administration costs may be more appropriate for a company of our size. Over the past six years, shareholders funds have increased from just under £19 million to almost £50 million, which reflects our significant investment in drug registrations and our commitment to generating value for shareholders. Investors The past year has been a very difficult time for investors with stock markets around twenty per cent below the level of twelve months ago. ECO has not escaped the storm but it is encouraging that our share price is significantly higher than when I reported a year ago. The AIM market continues to be a disappointment, as market makers remain nervous and reluctant to hold stock for trading, thereby allowing small transactions to have a disproportionate impact on the share price. It is usually the case when emerging from depressed market levels that investors seek out well-priced stocks in smaller companies; we hope this pattern will be repeated. In February 2009, our new website www.ecoanimalhealthgroupplc.com was launched and shareholders are invited to visit it. The site includes corporate and investor information, including the share price, as well as news and links to product and technical aspects of the business, which investors may find interesting and informative. Operations - ECO Animal Health Overall, ECO's margins have continued to improve, driven by sales mix and cost base improvements. Aivlosin® now accounts for more than half of our global sales. Management is also implementing aggressive and on-going cost of goods reduction and supply chain management programmes, which are starting to deliver real financial benefits. Sales in local currency from our subsidiary in China, Zhejiang ECO Biok Animal Health Products Limited (ECO Biok) were more than 60 per cent ahead from the level of the previous year and once again exceeded our expectations. The value of exports manufactured at ECO Biok's factory also continue to increase. China remains the largest market opportunity for our products and we are currently examining the feasibility of other joint venture and cooperative projects in that country. Aivlosin® Considerable progress has been made during the last twelve months with the Aivlosin® clinical programme in Europe. Aivlosin® is ECO's patented macrolide antibiotic. In June 2008, ECO was granted a marketing authorisation from the European Commission for Aivlosin® granules for oral solution for poultry. This authorisation allows Aivlosin® to be marketed in Europe for the treatment and prevention of mycoplasmal respiratory disease in poultry, a segment estimated to be worth over £10 million per annum at manufacturer level. In March 2009, ECO announced that it had received a positive opinion from the Committee for Medicinal Products for Veterinary Use of the European Medicines Agency for the use of Aivlosin® granules for oral solution for medicated drinking water for pigs. This will allow Aivlosin® to be marketed throughout Europe for the treatment and prevention of ileitis (porcine proliferative enteropathy) which is an important enteric (intestinal) disease. It is estimated that this market segment is worth in the region of £18 million per annum at manufacturer level. The Aivlosin® granules dissolve readily in drinking water thus enabling the rapid, accurate and simultaneous treatment of large numbers of pigs that are more likely to drink than to eat. It is the rapid absorption of Aivlosin® which results in a swift resolution of the disease and a fast return to productive health that makes it profitable for farmers to use when compared with older generation treatments. ECO has targeted a significant share of the pig and poultry markets and has decided to sell directly in the two major EU poultry producing markets, France and the UK. Several new national distributors, selected for their local market knowledge, have now been appointed in other EU territories following the restructuring of our distribution arrangements with Intervet Schering Plough. In order to strengthen and accelerate our marketing position in Europe, we have appointed two additional staff, one based in Holland and the other in the UK. In Japan, there were two significant developments in the marketing of Aivlosin®, which will provide further opportunities for sales and profit growth. In January 2009, ECO was granted a further indication to its marketing authorisation for Aivlosin® Premix for pigs from the Japanese Ministry of Agriculture, Forestry and Fisheries. This new Aivlosin® marketing authorisation, for the treatment of ileitis, complements the existing indication for mycoplasmal respiratory disease. The other development was the appointment of ASKA Pharmaceutical Company Ltd, a major Japanese animal health and pharmaceutical business, as our new distributor for Aivlosin® in that country. ASKA has a well-established distribution network and replaces Takeda Schering Plough with whom we worked for some years. ECO has a minority shareholding in ECO PHARMA Inc, a profitable Japanese distribution company, and has recently entered into discussions with the majority shareholders about the potential sale to ECO of their stakes. Any progress will be reported in due course. In the US we remain confident that the granting of approvals for Aivlosin® will start in 2010 and we are already working on launch and distribution plans for this very important market. Ecomectin® In Europe, Ecomectin®, our branded range of endectocide antiparasitic formulations, achieved total sales more than 10 per cent ahead of the previous year. Growth was driven by new marketing authorisations, which included a pig premix and a horse paste. Ecomectin® Pig Premix, which addresses a market worth about £8 million at manufacturer level, provides a simple solution to the problem of accurately treating a large number of pigs simultaneously. Sales of Ecomectin® Horse Paste have also continued to grow as it is being launched into a number of new territories in the EU. The treatment of internal parasites in horses is the largest equine veterinary market segment in Europe, with an estimated value in the region of £25 million. In Japan, Ecoheart, which is a palatable Ecomectin® chewable tablet for dogs for the treatment and prevention of canine heartworm, has increased its market share in a competitive market, which as in all countries, has been affected by the economic recession. Canine heartworm is potentially fatal, requiring a monthly preventative treatment and, as a disease which is growing in importance as it spreads, has prompted us to submit registration dossiers to a number of countries in anticipation of the increased incidence of this disease. Developments We have begun research into further potential uses of Aivlosin® in production animals other than pigs and poultry. We are optimistic that the results of this research will, over time, offer ECO the opportunity to access new global markets. Work is also progressing on the formulation and development of pet medications of potential major importance and we believe that these will make significant profit contributions when the development and registration programmes are successfully completed. In 2006, ECO and the University of Cambridge entered into a collaborative research agreement to investigate new potential indications for Aivlosin®, which is currently only licensed for respiratory and enteric bacterial diseases in pigs and poultry. During earlier studies funded by ECO, results indicated that Aivlosin® appeared to prevent the replication of certain common viruses including influenza in laboratory test systems, without damaging cell cultures. These potentially important findings formed the basis of patent filings and in addition, ECO and Cambridge Enterprise, the University's commercialisation office, signed licensing agreements to jointly exploit these discoveries. Researchers in The Virology Division of the Department of Pathology at the University of Cambridge have very recently been awarded a grant of £500,000 by the UK Medical Research Council to continue their work to investigate the inhibition of influenza viruses by macrolide antibiotics. This work is still at an early stage but, if successful, could have far reaching and very exciting commercial implications for ECO. People We currently employ over one hundred people around the world; their specialist knowledge covers many fields including veterinary medicine, pharmaceutical development, regulatory, affairs, sales and marketing. The commitment of all our people is the reason that Eco has made so much progress and built a strong platform for growth. In early 2009 we consolidated our drug development departments into our north London head office; this move has improved communication and efficiency. Outlook The current financial year has started strongly.We remain cautiously optimistic about the likely trading outturn in view of the generally difficult global economic environment and the currency translation effect of the dollar/sterling exchange rate. Eco expects to benefit from additional marketing authorisations to be granted in the year. These factors give us increasing confidence in the exciting future of the ECO veterinary pharmaceutical business and its ability to generate attractive returns for investors. Peter Lawrence Chairman 28 July 2009 ECO ANIMAL HEALTH GROUP PLC DIRECTORS' REPORT FOR THE YEAR ENDED 31 MARCH 2009 The directors present their report and financial statements for the year ended 31 March 2009. Directors The following directors have held office since 1 April 2008: Mr Peter Lawrence Mr Marc Loomes Mrs Julia Trouse Mr Kevin Stockdale Mr David Danson (appointed 18 September 2008) Principal activities and review of the business The principal activities of the group in the year under review were those of manufacturers and suppliers of speciality chemicals, animal feed and animal health products. A full review of the year, together with an indication of future developments, is given in the chairman's statement on pages 1 to 4. Results and dividends The consolidated income statement for the year is set out on pages 10 to 11. A final dividend of 5.45p per Ordinary share was paid on 7 November 2008 (2007: 5.45p per Ordinary share) and an interim dividend of 1.7p per Ordinary share was paid on 19 May 2009 for the six months ended 30 September 2008 (2007: 1.70p per Ordinary share). Substantial shareholdings At 31 May 2009, the company had been notified of the following holdings of 3% or more of its issued share capital. Ordinary 5p shares % Schroder Investment Management Limited 10,937,168 23.45 P A Lawrence and family 10,774,835 23.11 Prudential Plc 6,700,000 14.37 Artemis Investment Management Limited 3,180,911 6.82 Axa Framlington Investment Managers UK Limited 3,052,479 6.55 D Salmon & family 2,383,848 5.11 Hargreave Hale Limited 2,350,000 5.04 Vanguard International Explorer Fund 1,446,693 3.10 Directors' interests Under the group's executive share option scheme the following directors have the right to acquire Ordinary shares. M D Loomes 2009: 583,750 at £1.085, 100,000 at £0.85, 100,000 at £1.47 2008: 583,750 at £1.085 J Trouse 2009: 206,100 at £1.085, 50,000 at £0.85, 70,000 at £1.47 2008: 206,100 at £1.085 K Stockdale 2009: 50,000 at £1.085, 50,000 at £0.85. 70,000 at £1.47 2008: 50,000 at £1.085 D Danson 2009: 30,000 at £0.85 Group research and development activities The group is continually researching into and developing new products and markets. Details of expenditure incurred and written off during the year are shown in the accounts. 2009 2008 £ £ During the year the group made the following payments: Charitable donations 100 3,200 _______ _______ Creditors payment policy The company agrees terms and conditions for its business transactions with its suppliers and payments are made on these terms, subject to the terms and conditions being met by suppliers. Trade creditors at the year end amounted to 67 days (2008: 80 days) of average supplies for the year against terms agreed with our suppliers. Internal financial control The board of directors is responsible for the group's system of internal financial control. Internal control systems are designed to meet the particular needs of the companies concerned and the risks to which they are exposed. This provides reasonable, but not absolute, assurance against material misstatement or loss. Strict financial and other controls are exercised by the group over its subsidiary companies by day to day supervision of the businesses by the directors. Corporate governance The company's shares are traded on the Alternative Investment Market of the London Stock Exchange and the company is therefore not required to report on compliance with the Combined Code. The directors support the Combined Code and are implementing many of the recommendations which are relevant to a business the size of Eco Animal Health Group Plc. Stockbrokers Cenkos Securities Plc are the company's nominated advisor and stockbrokers. The closing price per share on 31 March 2009 was 160p per share (2008: 109p). During the year the company's average share price was 113.59p. Auditors The auditors, FW Stephens, will be proposed for reappointment in accordance with section 489 of the Companies Act 2006. Directors' responsibilities The directors are responsible for preparing the financial statements in accordance with applicable law and International Financial Reporting Standards ("IFRS") as adopted by the European Union. Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and of the group and of the profit or loss of the group for that period. In preparing those financial statements, the directors are required to: -select suitable accounting policies and then apply them consistently; -make judgements and estimates that are reasonable and prudent; -state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; -prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group will continue in business. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and the group and enable them to ensure that the financial statements comply with the Companies Act 1985 and Article 4 of the IAS regulations. They are also responsible for safeguarding the assets of the company and the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Statement of disclosure to auditor (a) so far as the directors are aware, there is no relevant audit information of which the group's auditors are unaware, and (b) they have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the group's auditors are aware of that information. On behalf of the board .............................. Mr Peter Lawrence Director ......................... ECO ANIMAL HEALTH GROUP PLC INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC We have audited the group and parent company financial statements of Eco Animal Health Group plc for the year ended 31 March 2009, which comprise of the consolidated income statement, consolidated statement of changes in equity, the consolidated and company balance sheets, the consolidated cashflow statement and related notes. These financial statements have been prepared under the historical cost convention and the accounting policies set out therein. This report is made solely to the company's members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members, as a body for our audit work, for this report, or for the opinion we have formed. Respective responsibilities of directors and auditors As described in the Statement of Directors' Responsibilities on page 7 the company's directors are responsible for the preparation of the financial statements in accordance with applicable law and International Financial reporting Standards ("IFRS") as adopted by the European Union. Our responsibility is to audit the financial statements in accordance with the relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985, and whether, in addition, the group financial statements have been properly prepared in accordance with Article 4 of the IAS regulations.We also report to you whether in our opinion the information in the directors' report and Chairman's statement are consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and transactions with the company is not disclosed. We read the directors' report and the Chairman's statement and consider the implications for our report if we become aware of any apparent misstatements within it. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group's and the company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion: - the group financial statements give a true and fair view in accordance with IFRS as adopted by the European Union of the state of the company's and the group's affairs as at 31 March 2009 and of the group's profit for the year then ended and have been properly prepared in accordance with the Companies Act 1985; and as regards the group financial statements, Article 4 of the IAS Regulations, and - the information given in the directors' report and chairman's statement is consistent with the financial statements. FW Stephens ...................... Chartered Accountants Registered Auditor Third Floor 24 Chiswell Street London EC1Y 4YX ECO ANIMAL HEALTH GROUP PLC CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2009 2009 2008 Notes £ £ Revenue 2 Continuing operations 18,897,645 14,748,776 Acquisitions - 1,732,325 Discontinued operations 447,269 - _______ 19,344,914 _______ 16,481,101 Cost of sales 3 (11,570,899) (10,802,988) _______ _______ Gross profit 7,774,015 5,678,113 Administrative expenses 3 (6,819,884) (6,151,158) Other operating income 3 186,177 152,387 _______ _______ Operating profit/(loss) 4 Continuing operations 1,420,972 (777,657) Acquisitions - 456,999 Discontinued operations (280,664) 1,140,308 - (320,658) _______ _______ (Loss) on sale of division 5 (676,024) (315,115) _______ _______ Profit/(loss) on ordinary 464,284 (635,773) activities before interest Other interest receivable 178,187 40,258 and similar income Interest payable and similar 6 (138,504) (414,668) charges _______ _______ Profit/(loss) on ordinary 503,967 (1,010,183) activities before taxation Tax on profit/(loss) on ordinary 8 181,148 313,767 activities _______ _______ Profit/(loss) on ordinary 685,115 (696,416) activities after taxation _______ _______ _______ _______ ATTRIBUTABLE TO: Equity holders of the parent 447,081 (783,973) Minority interests 238,034 87,557 _______ _______ Profit/(loss) for the year 685,115 (696,416) _______ _______ _______ _______ ECO ANIMAL HEALTH GROUP PLC CONSOLIDATED INCOME STATEMENT(CONTINUED) FOR THE YEAR ENDED 31 MARCH 2009 2009 2008 EARNINGS PER SHARE 11 Basic Diluted Basic Diluted Continuing operations 3.06 3.06 (2.36) (2.36) Discontinued operations (2.08) (2.08) - - _______ _______ _______ _______ _______ _______ _______ _______ 0.98 0.98 (2.36) (2.36) _______ _______ _______ _______ _______ _______ _______ _______ ECO ANIMAL HEALTH GROUP PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2009 Share Group Share Premium Revaluation Other Retained Total Capital Account Reserve Reserves Earnings 2009 £ £ £ £ £ £ Balance as at 1 April 2008 2,256,252 37,095,354 253,347 805,621 8,685,865 49,096,439 Profit for the year - - - - 447,081 447,081 Dividends - - - - (3,268,742) (3,268,742) Arising from issue of shares in the year 63,868 1,191,850 - - - 1,255,718 Foreign currency translation differences - - - - 348,150 348,150 Actuarial losses on pension scheme assets - - - - (99,100) (99,100) Share based payments - - - 132,685 - 132,685 Write back of depreciation - - (2,890) - - (2,890) ________ ________ ________ ________ ________ ________ 2,320,120 38,287,204 250,457 938,306 6,113,254 47,909,341 ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ Total Minority Total 2009 Interest Equity £ £ £ Balance as at 1 April 2008 49,096,439 646,638 49,743,077 Profit for the year 447,081 238,034 685,115 Dividends (3,268,742) - (3,268,742) Arising from issue of shares 1,255,718 - 1,255,718 in the year Foreign currency translation 348,150 213,604 561,754 differences Actuarial losses on pension (99,100) - (99,100) scheme assets Share based payments 132,685 - 132,685 Write back of depreciation (2,890) - (2,890) ____________ ____________ ____________ 47,909,341 1,098,276 49,007,617 ____________ ____________ ____________ ____________ ____________ ____________ ECO ANIMAL HEALTH GROUP PLC BALANCE SHEETS AS AT 31 MARCH 2009 Group Company 2009 2008 2009 2008 Notes £ £ £ £ Non-current assets Intangible assets 12 35,729,507 34,798,363 - - Property, plant and 13 1,157,977 1,348,663 641,257 656,460 equipment Investments 14 285,926 280,550 20,332,240 20,986,556 _________ _________ _________ _________ 37,173,410 36,427,576 20,973,497 21,643,016 _________ _________ _________ _________ Current assets Inventories 15 4,921,413 3,825,724 - - Trade and other receivables 16 8,353,700 8,354,376 20,285,979 20,432,139 Deferred tax asset 17 228,127 228,127 - - Other taxes and social 24,059 150,703 - 143,665 security Cash and cash equivalents 18 3,717,430 6,143,189 2,243,997 5,122,408 _________ _________ _________ _________ 17,244,729 18,702,119 22,529,976 25,698,212 Current liabilities Trade and other payables 19 (3,531,798) (3,523,613) (140,744) (237,332) Short term borrowings (908,500) (79,043) (194,160) (79,043) Current portion of long term - (557,862) - (557,862) borrowings Corporation tax (9,837) (357,755) - (294,858) Other taxes and social (149,118) (82,783) (57,147) (59,137) security Dividends (808,269) (599,608) (808,269) (599,608) _________ _________ _________ _________ Net current assets 11,837,207 13,501,455 21,329,656 23,870,372 _________ _________ _________ _________ Total assets less current 49,010,617 49,929,031 42,303,153 45,513,388 liabilities Non-current liabilities Long term borrowings 20 - (185,954) - (185,954) Long term provisions 21 (3,000) - (3,000) - _________ _________ _________ _________ 49,007,617 49,743,077 42,300,153 45,327,434 _________ _________ _________ _________ _________ _________ _________ _________ Equity Called up share capital 23 2,320,120 2,256,252 2,320,120 2,256,252 Share premium account 24 38,287,204 37,095,354 38,287,204 37,095,354 Revaluation reserve 24 250,457 253,347 250,457 253,347 Other reserves 24 938,306 805,621 938,306 805,621 Retained earnings 24 6,113,254 8,685,865 504,066 4,916,860 _________ _________ _________ _________ 26 47,909,341 49,096,439 42,300,153 45,327,434 Minority interests 25 1,098,276 646,638 - - _________ _________ _________ _________ 49,007,617 49,743,077 42,300,153 45,327,434 _________ _________ _________ _________ _________ _________ _________ _________ Approved by the Board and authorised for issue on .............................. Mr Peter Lawrence Director ECO ANIMAL HEALTH GROUP PLC CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2009 2009 2008 Note £ £ Profit/(loss) from operations 1,140,308 (320,658) Adjustment for: Depreciation of plant and equipment 176,795 217,735 Amortisation of intangible assets 2,526,060 2,168,558 Actuarial pension losses (99,100) (80,400) Increase/(decrease) in pension provision 3,000 (110,500) Share based payments 132,685 257,390 Foreign exchange differences 604,668 (443,671) __________ __________ Operating cash flow before movement in working capital 4,484,416 1,688,454 (Increase) in inventories (1,650,016) (97,090) Decrease in receivables 330,271 525,734 Increase/(decrease) in payables 109,387 (2,291,786) __________ __________ Cash generated from/(absorbed by) operations 3,274,058 (174,688) Interest paid (138,504) (414,668) Taxation (166,770) (1,864) __________ __________ Net cash inflow/(outflow) from 2,968,784 (591,220) operating activities __________ __________ Cash flows from investing activities Acquired with subsidiary - 276,414 Proceeds from sale of a division 291,109 - Purchase of property, plant and equipment (53,275) (141,914) Purchase of investments (5,376) - Purchase of goodwill (214,482) - Cost of acquiring drug registrations (3,871,984) (4,551,891) Interest received 178,187 40,258 __________ __________ Net cash (used in) investing activities (3,675,821) (4,377,133) __________ __________ Cash flows from financing activities Issue of shares 1,255,718 16,425,384 Repayment of bank borrowings (185,954) (444,144) Dividends paid (3,060,081) (2,368,712) __________ __________ (1,990,317) 13,612,528 __________ __________ Net (decrease)/increase in 33,34 (2,697,354) 8,644,175 cash and cash equivalents Cash and cash equivalents at the 5,506,284 (3,137,891) start of the period __________ __________ Cash and cash equivalents at the end 2,808,930 5,506,284 of the period __________ __________ __________ __________ The cash outflow from operating activities includes an amount of £120,513 in respect of the discontinued activity of Interpet Llc. There were no cashflows arising from investing or financing activities prior to the date of disposal. ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2009 1 Accounting policies 1.1 Basis of preparation The group has presented its annual report and accounts in accordance with International Financial Reporting Standards (IFRS), as endorsed by the European Union. The preparation of financial statements in conformity with generally accepted accounting principals 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 reported 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 a 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. 1.2 Basis of consolidation The consolidated financial statements comprise the accounts of the company and its subsidiaries drawn up to 31 March 2009. Profit or losses on intra-group transactions are eliminated in full on consolidation. 1.3 Revenue Revenue represents amounts receivable for goods and services net of VAT and trade discounts. 1.4 Goodwill Goodwill arising on consolidation is included in the balance sheet of the accounts as an asset at cost less impairment according to International Financial Reporting Standards. For the purpose of impairment testing, goodwill is allocated to each of the company's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested annually, or more frequently where there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed. 1.5 Intangible non-current assets Drug registrations are included at cost and amortised on a straight line basis over their estimated useful economic life of 10 years. 1.6 Research and development Research expenditure is written off to the income statement in the year in which it is incurred. Development expenditure is written off in the same way unless the directors are satisfied as to the technical, commercial and financial viability of individual projects. In this situation, the expenditure is deferred and amortised over the period during which the company is expected to benefit. 1.7 Property, plant and equipment and depreciation Non-current assets 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: Freehold property 2% on valuation Long leasehold property on valuation over the remaining term of the lease Plant and machinery 20% on cost Alterations to premises 10% on cost Fixtures, fittings & 20% on cost equipment Motor Vehicles 25% on cost 1.8 Leasing Rentals payable under operating leases are charged against income on a straight-line basis over the lease term. 1.9 Investments Fixed asset investments are stated at cost less provisions for diminution in value. 1.10 Inventories Inventories are valued at the lower of cost and net realisable value, after making allowance for obsolete and slow moving items. 1.11 Contributions to pension schemes 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 balance sheet in accordance with IAS 19. 1.12 Deferred taxation Full provision is made for deferred tax assets and liabilities arising from all timing differences between the recognition of gains and losses in the financial statements and recognition in the tax computation. A net deferred tax asset is recognised only if it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax assets and liabilities are calculated at the tax rates expected to be effective at the time the timing differences are expected to reverse. Deferred tax assets and liabilities are not discounted. 1.13 Foreign currency translation Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. The financial statements of foreign subsidiaries are translated at the rates of exchange ruling at the balance sheet date. The exchange differences arising from the retranslation of the opening net reserves in subsidiaries are taken directly to reserves. Where exchange differences result from the translation of foreign currency borrowings raised to acquire foreign assets, they are taken to reserves and offset against the differences arising from the translation of those assets. All other exchange differences are dealt with through the income statement. 1.14 Financial Instruments Income and expenditure arising on financial instruments is recognised on the accruals basis, and credited or charged to the income statement in the financial period to which it relates. 1.15 Share-based payments For equity-settled share-based payment transactions the group, in accordance with IFRS2 measures their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted. The fair value of those equity instruments shall be measured at grant date, using the Black Scholes method. The expense is apportioned over the vesting period of the financial instrument and is based on the number which are expected to vest and the fair value of those financial instruments at the date of grant. If the equity instruments granted vest immediately, the expense is recognised in full. 2 Revenue The total revenue of the group for the year has been derived from its principal activity. Segmental analysis by geographical area The analysis by geographical area of the group's revenue, profit/(loss) before taxation is set out as below: Revenue 2009 2008 £ £ Geographical segment United Kingdom 517,119 402,654 Europe 4,913,035 3,442,975 Rest of the World 13,914,760 12,635,472 __________ __________ 19,344,914 16,481,101 __________ __________ __________ __________ Profit/(loss) before taxation 2009 2008 £ £ Geographical segment United Kingdom 34,607 (21,022) Europe 328,795 (179,757) Rest of the World 140,568 (809,404) __________ __________ 503,970 (1,010,183) __________ __________ __________ __________ It has not been possible to disclose the group's assets and liabilities by geographical area as they are held centrally. The group's revenue included a figure of £447,269 in respect of the discontinued activity of Interpet LLC, and its profit before taxation included a loss of £280,664 arising from that activity. 3 Cost of sales and net operating expenses 2009 2008 Continuing Discontinued Total Continuing Acquisitions Total £ £ £ £ £ £ Cost of sales 11,206,606 364,293 11,570,899 9,706,351 1,096,637 10,802,988 Administrative expenses 6,455,175 364,709 6,819,884 5,702,163 448,995 6,151,158 Other operating income (185,108) (1,069) (186,177) (127,470) (24,917) (152,387) ___________ ___________ ___________ ___________ ___________ ___________ 17,476,673 727,933 18,204,606 15,281,044 1,520,715 16,801,759 ___________ ___________ ___________ ___________ ___________ ___________ 4 Operating profit/(loss) 2009 2008 Operating profit /(loss) is stated after £ £ charging/(crediting): Depreciation - tangible assets 179,685 217,736 Amortisation of intangible assets 2,526,060 2,168,558 (Gain)/loss on foreign exchange (595,249) 23,036 transactions Auditors remuneration - audit services 38,500 43,000 - non audit services 14,750 11,343 R & D expenditure 3,238 31,041 Operating lease rentals 110,127 100,358 _________ _________ 5 Loss on sale of a division The company disposed of the trading assets and trade of Interpet LLC on 1 October 2008. The assets disposed of and the consideration received are detailed below: £'000 Property, plant and equipment 68 Inventories 554 Trade and other receivables 57 Trade and other payables (56) Loss on disposal (72) _______ 551 _______ Settled by: Cash 291 Expected earnout, based on future sales 260 _______ 551 _______ In addition, goodwill of £586,000 has been written off as well as £18,000 of legal expenses. The comparative figure of £315,115 relates to an adjustment to the proceeds relating to the disposal of Agil trading division in November 2006. 6 Interest payable 2009 2008 £ £ On bank loans and overdrafts 138,504 408,631 Other interest - 6,037 _______ _______ 138,504 414,668 _______ _______ 7 Equity Settled Share Based Payments The measurement requirements of IFRS2 have been implemented in respect of share-options that were granted after 7th November 2002. The expense recognised for share based payments made during the year is shown in the following table; 2009 2008 £ £ Total expense arising from equity- settled share-based transactions 132,685 257,390 The share-based payment plan is described below. Eco Animal Health Group plc Executive Share Option Scheme In accordance with the Executive Share Option Scheme, approved and unapproved share options are granted to full time directors and employees who devote at least 25 hours per week to the performance of duties or employment with the company. The exercise price of the options is equal to the market price of the shares at the date of grant. The options vest three years from the date of grant and if the option holder ceases to be a director or employee of the company due to injury, disability, redundancy or retirement on reaching pensionable age or any other age at which he is bound to retire in accordance with the terms of his 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. The fair value of share options granted is estimated at the date of grant using the Black -Scholes pricing model, taking into account all the terms and conditions upon which the options were granted. Movements in Issued Share Options during the Year The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the period: 2009 2008 2009 WAEP 2008 WAEP Outstanding at the beginning of the period 3,371,565 1.51 2,852,165 2.41 Granted during the period 455,000 0.85 2,527,260 1.19 Expired /cancelled during the period (15,000) 0.92 (2,008,360) 2.37 Outstanding at the period end 3,811,565 1.44 3,371,565 1.51 Exercisable at the end of the period 667,205 2.45 555,325 2.38 The maximum aggregate number of shares over which options may currently be granted cannot exceed 10% of the nominal share capital of the company on the grant date. The options outstanding at 31 March 2009 had a weighted average share price of £1.44, and a weighted average remaining contractual life of 5.9 years. Inputs to the Valuation Model The fair value of share options granted prior to 31st March 2007 were estimated at the time of grant using a trinomial pricing model, taking into account all the terms and conditions upon which the options were granted. For options granted after 1st April 2007 the directors took the decision that a Black-Scholes model would be more appropriate. The following table lists the inputs to the respective models: 2009 2008 2007 Expected dividend yield 4.50% 5.00% 5.00% Expected volatility 30.00% 25.00% 25.00% Contractual life of the options 7-10 years 7-10 years 7-10 years Weighted average risk free interest rate 4.19% 4.66% 4.66% Weighted average fair value £0.168 £0.171 £0.42 The expected volatility was estimated by reference to the historical volatility of the company's share price. The risk free rate of return is estimated as the yield on zero coupon UK government bonds of a term consistent with the contractual life of the options granted. 8 Taxation 2009 2008 £ £ Domestic current year tax Adjustment for prior years (181,148) (270,922) _______ _______ Current tax (credit) (181,148) (270,922) Deferred tax Origination and reversal of timing differences - (42,845) _______ _______ (181,148) (313,767) _______ _______ _______ _______ Factors affecting the tax (credit) for the year Profit/(loss) on ordinary activities before taxation 503,967(1,010,183) _______ _______ _______ _______ Profit/(loss) on ordinary activities before 41,111 (303,055) taxation multiplied by standard rate of UK _______ _______ corporation tax of 28% (2008: 30%) Effects of: Non deductible expenses 219,989 118,801 Depreciation add back 20,960 25,025 Capital allowances (16,301) (14,569) Relief for enhanced expenditure (399,073) (459,790) Other tax adjustments (147,834) 362,666 _______ _______ Current tax (credit) (181,148) (270,922) _______ _______ _______ _______ Deferred tax unprovided for in the financial statements is set out below. All amounts have been provided for according to the provisions of IAS12. Unprovided deferred tax for gains rolled over into new assets is £51,252 (2008: £51,252). 9 Loss for the financial year As permitted by section 230 of the Companies Act 1985, the holding company's income statement has not been included in these financial statements. The loss for the financial year is as follows: 2009 2008 £ £ Holding company's (loss) for the financialyear (1,029,548)(1,751,076) _______ _______ _______ _______ 10 Dividends paid and proposed 2009 2008 £ £ Final dividend for the period ended 31 March - 1,847,481 2007 of 5.45p per ordinary share Interim dividend for the period ending 31 - 588,179 March 2008 of 1.7p per ordinary share Final dividend for the period ended 31 March 2,479,901 - 2008 of 5.45p per ordinary share Interim dividend for the period ending 31 788,841 - March 2009 of 1.7p per ordinary share _________ _________ 3,268,742 2,435,660 _________ _________ _________ _________ 11 Earnings per share Basic earnings per share is calculated upon the result of the continuing activities for the financial year shown in the income statement divided by the weighted average number of shares in issue during the year. Diluted earnings per share takes into account the dilutive effect of share options. 2009 2008 Weighted Weighted average Per average Per number of share number of share Earnings shares amount Earnings shares amount £'000 '000 (pence) £'000 '000 (pence) Basic earnings per share Earnings 1,404 45,818 3.06 (784) 33,199 (2.36) attributable to ordinary shareholders on continuing operations Dilutive - - - - 24 - effect of securities options on continuing operations _______ _______ _______ _______ _______ _______ 1,404 45,818 3.06 (784) 33,223 (2.36) _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ 12 Intangible non-current assets Group Goodwill Development Total Costs £ £ £ Cost At 1 April 2008 20,352,311 23,616,613 43,968,924 Additions 214,482 3,871,984 4,086,466 Disposals (674,644) (765,850) (1,440,494) ___________ ___________ ___________ At 31 March 2009 19,892,149 26,722,747 46,614,896 ___________ ___________ ___________ Amortisation As at 1 April 2008 1,554,324 7,616,237 9,170,561 Amortisation on disposals (88,296) (722,936) (811,232) Charge for the year - 2,526,060 2,526,060 ___________ ___________ ___________ At 31 March 2009 1,466,028 9,419,361 10,885,389 ___________ ___________ ___________ Net book value At 31 March 2009 18,426,121 17,303,386 35,729,507 ___________ ___________ ___________ ___________ ___________ ___________ At 31 March 2008 18,797,987 16,000,376 34,798,363 ___________ ___________ ___________ ___________ ___________ ___________ An impairment review has indicated that goodwill is not impaired. 13 Property, plant and equipment Group Freehold Plant and Fixtures, Total property machinery fittings & equipment £ £ £ £ Cost or valuation At 1 April 2008 650,000 989,193 570,570 2,209,763 Additions - 18,393 34,882 53,275 Disposals - (304,324) (85,717) (390,041) ________ ________ ________ ________ At 31 March 2009 650,000 703,262 519,735 1,872,997 ________ ________ ________ ________ Depreciation At 1 April 2008 26,000 426,072 409,028 861,100 Charge for the year 13,000 109,835 56,850 179,685 On disposals - (258,067) (67,698) (325,765) ________ ________ ________ ________ At 31 March 2009 39,000 277,840 398,180 715,020 ________ ________ ________ ________ Net book value At 31 March 2009 611,000 425,422 121,555 1,157,977 ________ ________ ________ ________ ________ ________ ________ ________ At 31 March 2008 624,000 563,121 161,542 1,348,663 ________ ________ ________ ________ ________ ________ ________ ________ The freehold property was valued on 21 June 2007 by Mr R. L. Sworn of Kelion Sworn, Chartered Surveyors and Valuers, London W1. The freehold property was valued at £650,000 with value in use. The property will continue to be revalued on a regular basis. The value of the freehold property would have been recorded at £360,453 on a historical cost basis. The current revaluation surplus is £250,457 Property, plant and equipment (continued) Company Freehold Fixtures, Total property fittings & equipment £ £ £ Cost or valuation At 1 April 2008 650,000 131,452 781,452 Additions - 6,675 6,675 ______ ______ ______ At 31 March 2009 650,000 138,127 788,127 ______ ______ ______ Depreciation At 1 April 2008 26,000 98,992 124,992 Charge for the year 13,000 8,878 21,878 ______ ______ ______ At 31 March 2009 39,000 107,870 146,870 ______ ______ ______ Net book value At 31 March 2009 611,000 30,257 641,257 ______ ______ ______ ______ ______ ______ At 31 March 2008 624,000 32,460 656,460 ______ ______ ______ ______ ______ ______ 14 Non-current asset investments Group Unlisted investments £ Cost or valuation At 1 April 2008 280,550 Additions 5,376 _______ At 31 March 2009 285,926 Company Unlisted investments £ Cost or valuation At 1 April 2008 & at 31 March 2009 21,523,502 _______ Provisions for diminution in value At 1 April 2008 536,946 Charge for the year 654,316 _______ At 31 March 2009 1,191,262 _______ Net book value At 31 March 2009 20,332,240 _______ _______ At 31 March 2008 20,986,556 _______ _______ Holdings of more than 20% The company holds more than 20% of the share capital of the following companies: Company Country of registration or Shares held incorporation Class % Subsidiary undertakings Eco Animal Health Limited Great Britian Ordinary 100 Eco Animal Health (Europe) Limited B.V.I. Ordinary 100 Eco Group Limited B.V.I. Ordinary 100 Eco Animal Health Southern Africa South Africa Ordinary 100 (Pty) Limited Petlove Limited Great Britain Ordinary 91 Zhejiang Eco Biok Animal Health P. R. of China Ordinary 51 Products Limited Eco Animal Health do Brasil Brazil Ordinary 100 Comercio de Produtos Veterinarios Ltda The principal activity of these undertakings for the last relevant financial year was as follows: Principal activity Eco Animal Health Limited Manufacture of animal drugs Eco Animal Health (Europe) Holding company for Eco Animal Limited Health Limited Eco Group Limited Holding company for Eco Animal Health (Europe) Limited Eco Animal Health Southern Africa Non trading (Pty) Limited Petlove Limited Non trading Zhejiang Eco Biok Animal Health Manufacture of animal drugs Products Limited Eco Animal Health do Brasil Distribution of animal drugs Comercio de Produtos Veterinarios Ltda 15 Inventories Group Company 2009 2008 2009 2008 £ £ £ £ Raw materials and consumables 2,985,385 2,864,305 - - Finished goods and goods for resale 1,936,028 961,419 - - _______ _______ _______ _______ 4,921,413 3,825,724 - - _______ _______ _______ _______ _______ _______ _______ _______ 16 Trade and other receivables Group Company 2009 2008 2009 2008 £ £ £ £ Trade receivables 7,839,283 8,096,018 67,542 - Amounts owed by group undertakings - - 19,931,139 20,358,332 Other receivables 347,276 139,155 274,902 59,978 Prepayments and accrued income 167,141 119,203 12,396 13,829 _______ _______ _______ _______ 8,353,700 8,354,376 20,285,979 20,432,139 _______ _______ _______ _______ _______ _______ _______ _______ 17 Deferred tax Group Company 2009 2008 2009 2008 £ £ £ £ Balance at 1 April 2008 228,127 185,282 - - Movement in the year - 42,845 - - _______ _______ _______ _______ Balance at 31 March 2009 228,127 228,127 - - _______ _______ _______ _______ _______ _______ _______ _______ The deferred tax balance is a result of timing differences between the Company's research and development expenditure between the years 2002 and 2005 and the enhanced tax relief thereon which is given over a period of ten years. No movement occurred in the year because accumulated tax losses have delayed the tax benefit of this expenditure. 18 Cash and cash equivalents Cash and cash equivalents comprise cash and short term deposits held by the group companies. The carrying amount of these assets approximate to their fair value. 19 Current liabilities: Trade and other payables Group Company 2009 2008 2009 2008 £ £ £ £ Trade payables 2,641,150 2,801,960 28,862 53,158 Other payables 508,109 379,916 24,233 70,046 Accruals and deferred income 382,539 341,737 87,649 114,128 _______ _______ _______ _______ 3,531,798 3,523,613 140,744 237,332 _______ _______ _______ _______ _______ _______ _______ _______ 20 Non-current liabilities Group Company 2009 2008 2009 2008 £ £ £ # Bank loans - 185,954 - 185,954 _______ _______ _______ _______ _______ _______ _______ _______ Analysis of loans Wholly repayable within five years - 185,954 - 185,954 _______ _______ _______ _______ _______ _______ _______ _______ Loan maturity analysis In more than one year but - 185,954 - 185,954 not more than two years _______ _______ _______ _______ _______ _______ _______ _______ Included within creditors are the following amounts secured by a debenture on the assets of the group: Bank loans and overdrafts 908,500 822,859 194,160 822,859 _______ _______ _______ _______ _______ _______ _______ _______ 21 Long term provisions Pension obligations Group Group Company Company 2009 2008 2009 2008 Balance at 1 April 2008 - 110,500 - 110,500 Contributions paid to pension schemes - (110,500) - (110,500) Liability arising in the year 3,000 - 3,000 - _______ _______ _______ _______ Balance at 31 March 2009 3,000 - 3,000 - _______ _______ _______ _______ _______ _______ _______ _______ 22 Pension costs Defined Contribution Pension Scheme The group operates a defined contribution pension scheme for the benefit of certain directors and senior employees. The assets of the defined contribution scheme are held separately from the group and independently administered by an insurance company. The pension cost charge represents contributions payable to the fund in the year and amounted to £35,006 (2008: £30,124). Defined Benefit Pension Scheme The group operates a defined benefit scheme in the UK. A full actuarial valuation was carried out at 6 April 2003 and updated to 31 March 2009 by a qualified independent actuary. The major assumptions used by the actuary were: At At 31 31 March March 2009 2008 Discount rate 6.6% 6.2% Rate of increase in pensions in payment 2.7% 3.1% Inflation assumption 2.7% 3.4% The assets in the scheme and the expected rate of return were: Long Value Long Value term at term at rate of 31 rate of 31 return March return March expected 2009 expected 2008 at 31 at 31 March March 2009 £'000s 2008 £'000s Deposit administration contract 6.00% 458 6.00% 533 Annuities 6.60% 1,766 6.20% 1,835 _______ _______ Total market value of assets 2,224 2,368 Present value of scheme liabilities (2,227) (2,325) _______ _______ (Deficit)/surplus in scheme (3) 43 Related deferred tax (liability) - (13) _______ _______ (3) 30 _______ _______ _______ _______ Analysis of amount recognised in statement of total recognised gains and losses . Actual return less expected return on (164) (261) pension scheme assets As % of scheme assets 7.4% 11% Experience gains and losses arising on 3 8 the scheme liabilities As % of present value of scheme 0.1% 1.5% liabilities Changes in assumptions 49 233 underlying the present value of the scheme liabilities As % of present value of scheme 2.2% 10% liabilities _______ _______ Actuarial (loss) recognised in (112) (20) statement of total recognised gains _______ _______ and losses _______ _______ As % of present value of scheme 5.0% 0.86% liabilities _______ _______ Analysis of amount charged to £'000s £'000s operating profit Current service cost 5 6 _______ _______ _______ _______ Analysis of the amount credited to other finance costs/income Expected return on pension scheme assets 144 130 Interest on pension scheme liabilities (140) (126) _______ _______ 4 4 _______ _______ _______ _______ Movement in deficit during the year Surplus/(deficit) in scheme at 43 (158) beginning of year Movement in year: Current service costs (5) (6) Contributions 64 266 Gain/(loss) on 5 (33) settlements/curtailments Net returns on assets 4 4 Actuarial (losses) (112) (20) Expenses paid by scheme (2) (10) _______ _______ (Deficit)/surplus in scheme at end of (3) 43 the year _______ _______ _______ _______ 23 Share capital 2009 2008 £ £ 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 46,402,400 Ordinary shares of 5p each (2008: 2,320,120 2,256,252 45,125,040) _________ _________ _________ _________ During the year 1,277,364 ordinary shares of 5p were issued at a premium of £1,191,850 as a result of the take up of the scrip dividend option. 24 Statement of movements on reserves Group Share Revaluation Other Retained premium reserve reserves earnings account (see below) £ £ £ £ Balance at 1 April 2008 37,095,354 253,347 805,621 8,685,865 Profit for the year - - - 447,081 Foreign currency - - - 348,150 translation differences Premium on shares issued 1,191,850 - - - during the year Dividends paid - - - (3,268,742) Depreciation written back - (2,890) - - Movement during the year - - 132,685 - Actuarial losses on - - - (99,100) pension scheme __________ __________ __________ __________ Balance at 31 March 2009 38,287,204 250,457 938,306 6,113,254 __________ __________ __________ __________ __________ __________ __________ __________ Other reserves Capital redemption reserve Balance at 1 April 2008 & at 31 March 2009 105,829 Share option reserve Balance at 1 April 2008 699,792 Other reserve movement 132,685 __________ Balance at 31 March 2009 832,477 __________ __________ ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 MARCH 2009 Company Share Revaluation Other Retained premium reserve reserves earnings account (see below) £ £ £ £ Balance at 1 April 2008 37,095,354 253,347 805,621 4,916,860 Loss for the year - - - (1,029,548) Foreign currency translation differences - - - (15,404) Premium on shares issued during the year 1,191,850 - - - Dividends paid - - - (3,268,742) Depreciation written back - (2,890) - - Movement during the year - - 132,685 - Actuarial gains or losses on pension - - - (99,100) scheme assets __________ __________ __________ __________ Balance at 31 March 2009 38,287,204 250,457 938,306 504,066 __________ __________ __________ __________ Other reserves Capital redemption reserve Balance at 1 April 2008 & at 31 March 2009 105,829 __________ __________ Reserves provided for by the Articles of Association Balance at 1 April 2008 699,792 Other reserve movement 132,685 __________ Balance at 31 March 2009 832,477 __________ __________ 25 Minority interests 2009 2008 £ £ Balance at 1 April 2008 646,638 2,475 Arising on consolidation of subsidiary - 511,901 Share of subsidiary's profit for the year 238,034 87,557 Share of foreign exchange gain on net investment 213,604 44,705 __________ __________ Balance at 31 March 2009 1,098,276 646,638 __________ __________ __________ __________ 26 Reconciliation of movements in total equity 2009 2008 Group £ £ Profit/(Loss) for the financial year 447,081 (783,973) Dividends (3,268,742) (2,435,660) __________ __________ (2,821,661) (3,219,633) Other recognised gains and losses 249,050 (568,776) Proceeds from issue of shares 1,255,718 16,425,384 Cost of share options granted 132,685 257,390 Write back of depreciation (2,890) (2,890) __________ __________ Net (depletion in)/addition to shareholders' funds (1,187,098) 12,891,475 Opening total equity 49,096,439 36,204,964 __________ __________ Closing total equity 47,909,341 49,096,439 __________ __________ __________ __________ 2009 2008 Company £ £ Loss for the financial year (1,029,548) (1,751,076) Dividends (3,268,742) (2,435,660) __________ __________ (4,298,290) (4,186,736) Other recognised gains and losses (114,504) 15,913 Proceeds from issue of shares 1,255,718 16,425,384 Cost of share options granted 132,685 257,390 Write back of depreciation (2,890) (2,890) __________ __________ Net (depletion in)/addition to shareholders' funds (3,027,281) 12,509,061 Opening total equity 45,327,434 32,818,373 __________ __________ Closing total equity 42,300,153 45,327,434 __________ __________ __________ __________ 27 Contingent liabilities Group There were no contingent liabilities at 31 March 2009 or 31 March 2008. 28 Financial commitments At 31 March 2009 the group had annual commitments under non- cancellable operating leases as follows: Land and buildings Other 2009 2008 2009 2008 £ £ £ £ Expiry date: Within one year 3,947 20,491 7,502 1,639 Between two and five years 147,862 105,845 20,790 34,219 In over five years 45,920 25,698 - - _______ _______ _______ _______ 197,729 152,034 28,292 35,858 _______ _______ _______ _______ _______ _______ _______ _______ 29 Capital commitments The group had no authorised capital commitments as at 31 March 2009 (2008: Nil). 30 Directors' emoluments 2009 2008 £ £ Emoluments for qualifying services 299,532 237,220 Company pension contributions to money 3,434 1,675 purchase schemes _______ _______ 302,966 238,895 _______ _______ _______ _______ The number of directors for whom retirement benefits are accruing under money purchase pension schemes amounted to 1 (2008- 1). Non-executive directors' fees arising from the services of P A Lawrence to Baronsmead VCT plc, Baronsmead AIM VCT plc, Noble AIM VCT plc, Higher Nature Limited and Kiotech International plc amounted to £82,163 (2008: £85,202) and were paid to the company. 31 Employees Number of employees The average monthly number of employees (including directors) during the year was: 2009 2008 Number Number Directors 5 4 Production and development 44 29 Administration and distribution 32 33 Sales 37 29 _______ _______ 118 95 _______ _______ _______ _______ Employment costs 2009 2008 £ £ Wages and salaries 3,151,345 1,564,325 Social security costs 261,818 132,460 Other pension costs 90,385 76,631 _______ _______ 3,503,548 1,773,416 _______ _______ _______ _______ 32 Related party transactions Group and company At the balance sheet date, Eco Animal Health Group plc owed P A Lawrence, a director of Eco Animal Health Group plc, and members of his family a balance amounting to £23,176 (2008:£69,199). This amount represents dividends reinvested into the company. During the year the group provided management services to Kiotech International plc, a company in which P A Lawrence is a director and holds share options. Fees charged were of £39,992 (2008: £37,500). During the year the group provided the services of a representative to C-Corp Limited, a company in which P A Lawrence is a director and shareholder. No fees were charged during the year (2008: nil). During the year the Group made sales to Zhejiang Eco Biok Animal Health Products Limited on an arm's length basis to the value of £1,095,193 (2008: £632,158). At the end of the year there was an inter-company balance owing from this company of £668,276 (2008: £481,063). The group also made sales on an arm's length basis to Eco Animal Health do Brasil Comercio de Productos Veterinarios Ltda to the value of £1,028,948 (2008: nil). At the end of the year there was an inter-company balance of £683,963 (2008: nil). Since both companies are subsidiaries of Eco Animal Health Group plc these transactions and balances have been eliminated on consolidation. 33 Analysis of net funds 1 April Cash flow 31 March 2008 2009 £ £ £ Net cash: Cash at bank and in hand 6,143,189 (2,425,759) 3,717,430 Bank overdrafts (636,905) (271,595) (908,500) _________ _________ _________ 5,506,284 (2,697,354) 2,808,930 _________ _________ _________ Debts falling due after one year (185,954) 185,954 - _________ _________ _________ Net funds 5,320,330 (2,511,400) 2,808,930 _________ _________ _________ _________ _________ _________ 34 Reconciliation of net cash flow to movement 2009 2008 in net debt £ £ (Decrease)/increase in cash in the year (2,697,354) 8,644,175 Cash outflow from decrease in debt 185,954 444,144 _________ _________ Movement in net funds in the year (2,511,400) 9,088,319 Opening net funds/(debt) 5,320,330 (3,767,989) _________ _________ Closing net funds 2,808,930 5,320,330 _________ _________ _________ _________ 35 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 main risks arising from the group's financial statements are interest rate risk, liquidity risk and foreign currency risk. The board review and agree policies for managing each of these risks and they are summarised below. The policies have remained unchanged since 1 April 2002. It is and has been throughout the year under review, the group policy that no trading in financial instruments shall be undertaken. Short term debtors and creditors Short term debtors and creditors have been excluded from all the following disclosures, other than the currency risk disclosure. 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 overdraft facilities of £908,500 (2008: £79,043), which includes a 9.9 million South African Rand overdraft bearing an interest rate which is the aggregate of (a) 1.5% per annum and (b) the rate at which the bank is offered deposits in South African Rand by the leading banks in the London Interbank Market two business days before the start of each repayment period. Liquidity of risk The group ensures short-term flexibility through the use of the overdraft facilities. The board does not at present consider that it is necessary to adopt a detailed borrowings policy as there are sufficient funds available within the current facilities. The maturity of liabilities is shown on note 20. The committed undrawn borrowing facilities of the group were £1,000,000 (2008; £250,000). Currency risk The group operates in overseas markets particularly through its subsidiaries in China and Brazil and is subject to currency exposure on transactions undertaken during the year. The group does not hedge any transactions, and foreign exchange differences on retranslation of foreign assets and liabilities 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: US South Dollar Euro African Other Rand Functional currency of group operations £'000 £'000 £'000 £'000 2009 Sterling equivalent 3,357 1,640 (530) 1,767 2008 Sterling equivalent 5,286 1,767 (350) 565 Financial assets and liabilities The company has no financial assets other than debtors and cash at the bank. Any group bank overdrafts are repayable on demand and are included in the balance sheet as a creditor due in less than one year. The balance sheet values of financial assets and liabilities are not materially different to their fair values.

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ECO Animal Health Group (EAH)
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