TIDMANCR
RNS Number : 3754N
Animalcare Group PLC
24 September 2019
Animalcare Group plc
Interim Results for the six months ended 30 June 2019
24 September 2019 - Animalcare Group plc ("the Company" or
"Group") (AIM: ANCR), the European Animal Health business,
announces its interim results for the six months ended 30 June
2019.
The Group continues to trade in line with market expectations
for the full year on revenue and EBITDA and is making continued
progress against its strategic priorities, building a strong
foundation for growth.
Financial Highlights
-- Revenue in line with the same period last year at GBP36.1m
(increase of c. 0.9% at CER, 1H18: GBP36.1m)
o Strong sales growth across several key territories driven by
successful new product launches
o Growth offset by temporary supply challenges related to
third-party manufacturers
-- Underlying* EBITDA increased by 8.6% to GBP6.8m (1H18:
GBP6.2m). On a comparable basis, excluding the impact of IFRS16,
underlying* EBITDA and EBITDA margin were flat at GBP6.2m (1H18:
GBP6.2m) and 17.3% (1H18: 17.3%) respectively
-- Our focus on freeing up cash to reinvest in the pipeline has
driven underlying* cash conversion of 92.3%, on track to improve on
the 80% achieved for the full year 2018
-- Net debt reduction to GBP20.9m (31 December 2018: GBP23.6m;
30 June 2018: GBP26.0m) largely driven by improved cash conversion,
which is ahead of plan
-- Underlying* basic EPS at 6.4 pence (1H18: 6.1 pence).
Statutory loss before tax, which incorporates non-underlying items,
of GBP1.6m (1H18: GBP0.1m profit)
-- Declared interim dividend of 2.0 pence per share, in line with the prior period
Strategic progress
The Group continues to focus on driving sales and profitable
growth through portfolio optimisation, strengthening capabilities
and creation of a robust pipeline:
Product portfolio
-- Resources focused on the promotion of higher margin products.
25% of product brands to be delisted or divested by the end of
2019, with no significant impact to profit
Pipeline
-- Regulatory approval granted for three new products to be
launched in late 2019. A further two approvals are expected by year
end
-- Clinical trials initiated on a novel pain product
Business development
-- Significant progress to expand our sales in new territories
and strengthen our existing portfolio
-- Two new distribution agreements signed:
o An exclusive distribution agreement for an equine pain product
across Europe
o A new distribution agreement for Proccanius(R), the first
product to be launched across all of the Group's seven territories
(post-period end)
-- Two existing distribution agreements have been extended to
distribute Animalcare's products in new markets within the period
and an additional three distribution contracts have been signed
post-period end for further products and territories
-- Launched Orozyme in China in partnership with a local Chinese distributor (post-period end)
Operational Highlights
-- Strengthened management team, including the appointment of a new Benelux Country Manager
o New long-term incentive plan introduced to encourage retention
of key staff and align their interests with those of
shareholders
-- Completed the restructure and centralisation of the R&D
and Technical and Regulatory teams, delivering the planned
headcount reduction of nine employees in Spain and the UK at a
one-off cost of GBP1.4m
Animalcare's Chief Executive Officer, Jenny Winter, commented:
"Over the last six months we have made strong progress in
delivering our five-pillar strategy to create a more focused and
effective organisation to capitalise on growth in the animal health
market. Optimising our product portfolio and rebuilding the
pipeline has been a key focus and I am pleased to report on the
recently signed agreements, including the first product to be
marketed in all seven of our territories.
"Our cash conversion is on track to deliver an improvement on
the prior year, which underpins our capacity to invest in short and
longer- term growth opportunities and to deliver sustainable,
profitable growth. We remain confident of delivering on market
expectations for the current financial year."
*The Group presents a number of non-GAAP Alternative Performance
Measures (APMs) which exclude non-underlying items as set out in
note 3. EBITDA is defined as underlying earnings before interest,
tax, depreciation and amortisation.
Analyst briefing today
Jenny Winter, Chief Executive Officer, and Chris Brewster, Chief
Financial Officer, will host a meeting and conference call for
analysts to provide an update the Company, followed by a Q&A
session, at 08:30am BST today at the offices of Panmure Gordon
& Co, One New Change, London, EC4M 9AF.
Dial-in details:
International and UK dial-in:
+44 (0) 2071 928000
Belgium dial-in:
080048740
Conference ID:
7066649
Presentation slides will be made available on Animalcare's
website, www.animalcaregroup.com , prior to the conference
call.
For further information, please contact:
Animalcare Group plc
Tel: 01904 487687
Jenny Winter, Chief Executive Officer
Chris Brewster, Chief Financial Officer
Panmure Gordon (Nominated Adviser & Broker)
Tel: 020 7886 2500
Corporate Finance
Freddy Crossley / Emma Earl
Corporate Broking
James Stearns
Consilium Strategic Communications
Tel: 020 3709 5709
Amber Fennell / Angela Gray / Olivia Manser
Animalcare@consilium-comms.com
About Animalcare www.animalcaregroup.com
Animalcare Group plc is a UK AIM listed veterinary sales and
marketing organisation resulting from the merger of Animalcare and
Ecuphar NV in July 2017. Animalcare operates in 32 countries in
Europe and a further 16 worldwide. The company is focused on
bringing new and innovative products to market through its own
development pipeline, partnerships and via acquisition.
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) 596/2014 (MAR).
Chairman's Statement
Animalcare has made good progress over the first half of 2019,
accelerating the integration of our business and executing upon our
five strategic priorities to build the strong foundations from
which to deliver sustainable growth over the medium to
long-term.
Under the leadership of Jenny Winter, the Board has identified a
clear path forward to achieve financial success through a focus on
five core therapy areas and higher margin products, whilst aiming
to grow faster than the markets in which we operate. This is
alongside building fruitful relationships with our stakeholders and
attracting and retaining the best people to drive success.
In line with our strategic priorities, we continue to focus on
building a strong financial base for future growth. New product
launches and annualised growth of products launched in 2018
continue to be the main driver of growth, with seven new products
launched in the period. However, this was offset by temporary
supply challenges related to third-party manufacturers. As a
result, Group revenue was in line with the same period last year.
Our underlying EBITDA was also flat on a comparable basis and we
continue to closely monitor our cost base alongside a focus on top
line growth. The Group's cash performance was strong, with cash
conversion improving to 92.3% versus the 80% achieved in the 2018
financial year and net debt reduced to GBP20.9m. Further details on
the financial performance can be found in the Financial Review of
this report.
During late 2018, we completed a strategic review of our
development pipeline and refocused our activities to drive growth
over the next three to five years. The first phase of the product
prioritisation is now complete and we continue to divest products
which make insignificant contributions to our profit. Alongside
this, we are reviewing our product development pipeline with a
focus on continuing the development of products which have the
greatest potential to deliver future growth.
The Board is pleased to declare an interim dividend of 2.0 pence
per share, in line with prior period. We will continue to closely
monitor the current dividend policy to ensure an appropriate
balance between investment for future growth and returning capital
to shareholders.
I would like to thank the executive team and employees within
our organisation for their continued hard work as we deliver on our
strategic objectives.
Jan Boone, Chairman
Business Review
Introduction
During the first six months of 2019 we have taken steps to
execute our strategy to focus the Company on its core portfolio,
integrate our operations, build a strong financial base and drive
forward new opportunities to deliver sustainable, profitable growth
over the next three to five years.
Trading during the period, in the continuing Pharmaceuticals
segment, was in line with market expectations and prior period in
terms of both revenue and underlying profitability. We made a
commitment to improving the Group's cash conversion during 2019
financial year, principally via a targeted inventory reduction of
GBP1 million for the full year. We are on track to deliver this
target which in turn has supported the reduction observed in our
net debt since the 2018-year end.
Operational Review
Our strategy is built on five priorities and we have
demonstrated progress in the period under each of these:
1) Strong finances
We delivered solid sales growth across several key territories
in the period and we continue to focus on top line growth, whilst
closely monitoring our cost base. Cash conversion has been
particularly strong, and we are well financed to invest in future
growth.
2) Key leadership
The delivery of our strategy heavily relies on the management
team and in order to incentivise and retain our key employees we
implemented a new LTIP for the Leadership Team and rolled-out
performance-based bonus plans. We also strengthened our Country
Manager team with appointment of Sara Maddens in Benelux.
During the first half of 2019 we have accelerated the pace of
integration to drive simplification and improve efficiency. We
completed the restructure and centralisation of the R&D and
Technical & Regulatory centralisation teams, delivering the
planned headcount reduction of nine employees in the UK and
Spain.
Following the appointment of Stephen Pearson as Group Head of
Supply Chain in late 2018, significant progress has been made in
creating an integrated, sustainable and efficient supply chain. We
have streamlined supply across Southern Europe, supporting delivery
of our inventory reduction target of GBP1.0m for the current
financial year. Investment in SAP ERP will commence shortly to
drive further efficiencies during 2020 and beyond.
3) Growth portfolio
Over the last six months we have delivered the first phase of
the portfolio review with the long-term objective of creating a
focused and more balanced product portfolio closely aligned to the
growth segments of our market and where we have existing
capabilities. Following this review 25% of brands that are
insubstantial in terms of revenue and insignificant in terms of
EBITDA contribution are expected to be delisted or divested by the
end of the year with a further c20% reduction anticipated during
2020. We will continue to support our production animal business
through targeted products within specific segments and customer
groups.
4) Business development
We continue to strengthen our relationships with key
stakeholders including our international partners and we recently
launched, Orozyme, our first product with our partner in China.
In addition, we are focused on securing distribution agreements
and in the period we completed one significant distribution deal
and a further distribution deal was signed after period close. In
the first half we signed an exclusive distribution agreement with a
partner for an equine pain product that is aligned to our
strategy.
In August, we were pleased to secure an agreement with Vetcare
in Finland for the distribution of Proccanius, the first and only
canine product with three important live Lactobacillus strains
isolated from healthy dogs, and the first product to be launched
across all seven territories in which we operate. We expect sales
to commence late 2019 with a full year effect in 2020 into a market
which is estimated to be around GBP10m and growing.
5) Innovative pipeline
Alongside the business development initiative, the internal
product pipeline has progressed, with approval granted for three
new products, Butazocare, Doxycare and Metrocare. All three are
anticipated to be launched as planned during H2 and we expect two
further approvals by the end of 2019 for launch in the first half
of 2020. We are continuing to seek to broaden our product portfolio
through strategic partnerships and we are exploring a number of
opportunities including novel pharmaceuticals
Our Identichip and Identibase business is an asset, with its
database of 5.4 million pet owners, that we believe could have
significant value. It has continued to perform well and we are
reviewing opportunities to expand the potential of this business
and develop the technology.
Brexit
The outcome of the Brexit negotiations remains unclear and we
continue with our contingency preparations, which are on track to
ensure that there is minimal impact to our business operations. We
continue to closely monitor the situation.
Financial Review
Overview of underlying financial results - Continuing
Operations
A summary of the underlying financial results, which the
Directors believe provides a clearer understanding of business
performance, is shown below. The Group adopted IFRS 16 'Leases' on
1 January 2019, the impact of which is set out in note 9.
Comparative financial measures have not been restated. Commentary
has been made upon both an IFRS16 and IAS17 (the previous
accounting standard) to allow meaningful comparison to prior
periods.
Six Months to 30 June 2019 2018 % Change
at AER
GBP'000 GBP'000 %
-------- -------- ---------
Revenue 36,121 36,057 0.2%
-------- -------- ---------
Gross Profit 19,135 19,291 (2.2%)
-------- -------- ---------
Gross Margin % 53.0% 53.5% (1.3%)
-------- -------- ---------
Underlying Operating
Profit 5,178 5,155 0.4%
-------- -------- ---------
Underlying EBITDA 6,765 6,227 8.6%
-------- -------- ---------
Underlying EBITDA
margin % 18.7% 17.3% 1.4%
-------- -------- ---------
Underlying Profit
after tax 3,857 3,684 4.7%
-------- -------- ---------
Basic Underlying EPS
(p) 6.4p 6.1p 4.9%
-------- -------- ---------
Revenue
The Group delivered revenue growth of 0.2% (0.9% at CER) from
continuing operations to GBP36.1m, split by product category as
shown in the table below:
Six Months to 30 June 2019 2018 % Change
at AER
GBP'000 GBP'000 %
-------- -------- ---------
Companion Animals 23,724 23,805 (0.3%)
-------- -------- ---------
Production Animals 9,322 9,358 (0.4%)
-------- -------- ---------
Equine & other 3,075 2,894 5.6%
-------- -------- ---------
Total 36,121 36,057 0.2%
-------- -------- ---------
Companion Animals revenue declined by 0.3% to GBP23.7m. Growth
from new product launches and annualised sales of products launched
in 2018 was offset by supply issues which impacted sales by GBP1.1m
versus prior period. We expect these supply challenges to be
largely resolved by the end of the financial year. Production
Animals revenue declined by 0.4% on prior period primarily driven
by 2.3% lower demand for antibiotics. Equine and other sales
increased by 5.6% to GBP3.1m due to growth within our existing
portfolio.
Underlying operating results
Underlying EBITDA increased by 8.6% to GBP6.8m (2018: GBP6.2m)
however on a comparable IAS17 basis, adjusted underlying EBITDA was
GBP6.2m, in line with prior year. On an adjusted basis, EBITDA
margins at 17.3% were in line with prior period. The gross margin
decrease to 53.0% reflects lower margin sales mix towards
distribution products and our Equine product category. We have
maintained our focus on operating costs, with SG&A expenses as
a percentage of revenue reducing from 36.2% to 35.7%.
The effective tax rate was 20.9% (2018: 25.3%) primarily
reflecting our tax planning initiatives to optimise research and
developments tax credits and utilisation of tax losses.
Non-underlying items
Non-underlying items totaling GBP6.7m (2018: GBP3.8m) relating
to profit before tax have been incurred in the period, as set out
in note 3. These principally comprise:
1. Amortisation and impairment of acquisition related
intangibles of GBP5.1m (2018: GBP3.0m). The increase versus prior
period reflects the non-cash impairment of three projects within
the acquired product development pipeline at a fair value of
GBP1.5m that failed to meet technical, competitive or commercial
milestones.
2. Restructuring costs of GBP1.8m (2018: GBPnil) largely
relating to the R&D and Technical & Regulatory team
centralisation and associated costs of implementing headcount
reduction in the UK and Spain at a cost of GBP1.4m
Interim dividend
The Board is proposing an interim dividend of 2.0 pence per
share, in line with 2018. The interim dividend will be paid on 22
November 2019 to shareholders whose names are on the Register of
Members at close of business on 25 October 2019. The ordinary
shares will become ex-dividend on 24 October 2019.
Cash flow, net debt and borrowing facilities
The Group is committed to improving cash generation, important
to generate the funds we need to invest for growth. We monitor
progress using cash conversion as a percentage of underlying
EBITDA, as set out in the table below. We have set a target in 2019
to improve on the 80% achieved for the full year 2018.
Six months Six months Year ended
to 30 June to 30 June 31 December
2019 2018 2018
GBP'000 GBP'000 GBP'000
------------------------------- ------------ ------------ -------------
Underlying EBITDA 6,765 6,227 11,798
------------ ------------ -------------
Net cash flow from operations 4,831 1,558 7,430
------------ ------------ -------------
Non-underlying items 1,415 719 1,993
------------ ------------ -------------
Underlying net cash flow
from operations 6,246 2,227 9,423
------------ ------------ -------------
Cash conversion % 92.3% 36.6% 79.9%
------------------------------- ------------ ------------ -------------
The Group's underlying cash conversion significantly increased
vs prior period and improved on the 79.9% delivered in 2018.
Working capital increased by GBP1.0m (2018: GBP3.3m increase),
largely relating to decreased trade payables. The main drivers of
the significant progress versus 2018 is twofold. Firstly we have
reduced inventory by GBP1.5m since the year end and are on track to
deliver our stated target of a GBP1.0m reduction by the end of
2019. Secondly, cash taxes were GBP1.0m lower due to a combination
of phasing and increased cash receipts in respect of R&D tax
credits.
GBP'000
Net debt at 1 January 2019 (23,588)
---------
Net cash generated from operations 4,831
---------
Net capital expenditure (1,312)
---------
Net finance expenses (829)
---------
Foreign exchange on cash and borrowings (14)
---------
Other cash movements (1)
---------
Net debt excluding IFRS16 lease liabilities
at 30 June 2019 (20,913)
---------
Recognition of lease liabilities (2,214)
---------
Net debt at 30 June 2019 (23,127)
---------
Net capital expenditure of GBP1.3m largely comprises investment
in a novel pain product within our product development
pipeline.
The net borrowing position at the end of the period was
GBP20.9m, a GBP2.7m reduction versus the 2018 year end. At 30 June
2019, total facilities were GBP46.2m, of which GBP23.1m, net of
cash balances, was utilised. These bank facilities, together with
the Group's operational cash flow, indicate that the Group has
sufficient facilities available to fund its operations and allow
for future investment.
Summary and outlook
We reiterate our outlook as set out at the time of our full year
results in May and continue to expect trading for the full year
2019 to be in line with market expectations. We are building an
effective and focussed organisation that is fit for the future and
we have a clear strategy to grow over the next three to five years.
Looking forward, we expect the supply issues which have been
impacting revenue to be largely resolved by the end of the year,
and will continue to drive cash generation for investing, rewarding
our shareholders and reducing our debt. Success will be driven by
the five pillars of our strategy and we will continue to report our
progress against these.
Condensed consolidated income statement
For the six months ended 30 June
--------------------------------------------------------------------------
Non-Underlying Non-Underlying
(note (note
Underlying 3) Total Underlying 3) Total
Notes 2019 2019 2019 2018 2018 2018
---------- -------------- -------- ---------- -------------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 36,121 - 36,121 36,057 - 36,057
Cost of sales (16,986) - (16,986) (16,766) - (16,766)
Gross profit 19,135 - 19,135 19,291 - 19,291
---------- -------------- -------- ---------- -------------- --------
Research and
development
expenses (1,662) (622) (2,284) (1,598) (647) (2,245)
Selling and marketing
expenses (6,222) - (6,222) (6,591) - (6,591)
General and
administrative
expenses (6,109) (2,380) (8,489) (5,974) (2,387) (8,361)
Net other operating
income
/ (expenses) 36 (3,711) (3,675) 26 (719) (693)
Operating
profit/(loss) 5,178 (6,713) (1,535) 5,155 (3,754) 1,402
---------- -------------- -------- ---------- -------------- --------
Financial expenses (515) - (515) (475) - (475)
Financial income 216 - 216 250 - 250
Profit/(loss) before
tax 4,879 (6,713) (1,834) 4,930 (3,754) 1,177
---------- -------------- -------- ---------- -------------- --------
Income tax (1,022) 1,268 246 (1,246) 809 (437)
---------- -------------- -------- ---------- -------------- --------
Net profit/(loss)
from
continuing
operations 3,857 (5,445) (1,588) 3,684 (2,945) 740
---------- -------------- -------- ---------- -------------- --------
Result from
discontinued
operations 8 - - - 36 (719) (683)
Net Profit/(loss) 3,857 (5,445) (1,588) 3,720 (3,664) 57
========== ============== ======== ========== ============== ========
Net profit/(loss)
attributable
to:
The owners of the
parent 3,857 (5,445) (1,588) 3,720 (3,664) 57
========== ============== ======== ========== ============== ========
Earnings per share
for
profit/(loss) from
continuing
operations
attributable
to the ordinary
equity
holders of the
company:
Basic 6.4p (2.6p) 6.1p 0.1p
Diluted 6.4p (2.6p) 6.1p 0.1p
Earnings per share
for
profit/(loss)
attributable
to the ordinary
equity
holders of the
company:
Basic 6.4p (2.6p) 6.2p 0.1p
Diluted 6.4p (2.6p) 6.2p 0.1p
In order to aid understanding of underlying business
performance, the Directors have presented underlying results before
the effect of exceptional and other items. These exceptional and
other items are analysed in note 3.
Condensed consolidated statement of comprehensive income
For the six months
ended 30 June
--------------------
2019 2018
--------- ---------
GBP'000 GBP'000
Net (loss)/profit for the period (1,588) 57
Other comprehensive expense
Cumulative translation differences * (90) (20)
--------- ---------
Other comprehensive expense, net of tax (90) (20)
--------- ---------
Total comprehensive (expense)/income for the period,
net of tax (1,678) 37
========= =========
Total comprehensive (expense)/income attributable
to:
The owners of the parent (1,678) 37
========= =========
* May be reclassified subsequently to profit & loss
Condensed consolidated statement of financial position
Notes 30 June 31 December
2019 2018
-------- -----------
GBP'000 GBP'000
Assets
Non-current assets
Goodwill 50,940 50,937
Intangible assets 47,085 51,334
Property, plant and equipment 403 477
Right-of-use assets 9 2,194 -
Deferred tax assets 1,925 1,699
Other financial assets 60 59
Other non-current assets 291 294
Total non-current assets 102,898 104,800
-------- -----------
Current assets
Inventories 12,895 14,891
Trade receivables 12,046 13,084
Other current assets 3,230 2,736
Cash and cash equivalents 3,887 8,035
Total current assets 32,058 38,746
-------- -----------
Total assets 134,956 143,546
-------- -----------
Liabilities
Current liabilities
Borrowings (324) (648)
Lease liabilities 9 (938) -
Trade payables (9,581) (11,907)
Tax payables (1,896) (1,016)
Accrued charges and deferred income (2,299) (2,325)
Other current liabilities (3,371) (3,864)
Total current liabilities (18,409) (19,760)
-------- -----------
Non-current liabilities
Borrowings (24,477) (30,975)
Lease liabilities 9 (1,276) -
Deferred tax liabilities (5,154) (5,521)
Deferred income (606) (617)
Provisions (106) (81)
Total non-current liabilities (31,619) (37,194)
-------- -----------
Total Liabilities (50,028) (56,954)
-------- -----------
Net Assets 84,929 86,592
======== ===========
Equity
Share capital 12,012 12,012
Share premium 132,729 132,729
Reverse acquisition reserve (56,762) (56,762)
Accumulated losses (6,305) (4,732)
Other reserves 3,255 3,345
Equity attributable to the owners of the parent 84,929 86,592
-------- -----------
Total equity 84,929 86,592
======== ===========
Condensed consolidated statement of changes in equity
Attributable to the owners of the parents
------------------------------------------------------------
Reverse Non-
Share Share Accumulated acquisition Other controlling Total
capital premium losses reserve reserve Total interest equity
------- ------- ----------- ----------- ------- ------- ----------- -------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2018 11,983 132,588 (1,347) (56,762) 3,180 89,642 2 89,644
Net profit - - 57 - - 57 - 57
Other comprehensive
expense - - - - (20) (20) - (20)
Total comprehensive
income/(expense) - - 57 - (20) 37 - 37
------- ------- ----------- ----------- ------- ------- ----------- -------
Share-based payments - - 28 - - 28 - 28
Share capital issued 21 90 - - - 111 - 111
At 30 June 2018 12,004 132,678 (1,262) (56,762) 3,160 89,818 2 89,820
======= ======= =========== =========== ======= ======= =========== =======
Attributable to the owners of the parents
------------------------------------------------------------
Reverse Non-
Share Share Accumulated acquisition Other controlling Total
capital premium losses reserve reserve Total interest equity
------- ------- ----------- ----------- ------- ------- ----------- -------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2019 12,012 132,729 (4,732) (56,762) 3,345 86,592 - 86,592
Net loss - - (1,588) - - (1,588) - -
Other
comprehensive
expense - - - - (90) (90) - (90)
Total
comprehensive
expense - - (1,588) - (90) (1,678) - (1,678)
------- ------- ----------- ----------- ------- ------- ----------- -------
Share-based
payments - - 16 - - 16 - 16
At 30 June 2019 12,012 132,729 (6,305) (56,762) 3,255 84,929 - 84,929
======= ======= =========== =========== ======= ======= =========== =======
Condensed consolidated cash flow statements
For the six months
ended 30 June
--------------------
Notes 2019 2018
--------- ---------
GBP'000 GBP'000
Operating activities
(Loss)/profit before tax from continuing operations (1,834) 1,177
Loss before tax from discontinued operations 8 - (683)
(Loss)/profit before tax (1,834) 494
--------- ---------
Adjustments for:
Depreciation of property, plant and equipment 618 180
Amortisation of intangible assets 3,968 3,961
Impairment of intangible assets 1,518 -
Share-based payment expense 16 28
Loss/(gain) on disposal of property, plant and equipment - (1)
Non-cash impairment on assets held for sale - 664
Movement in allowance for bad debt and inventories 433 234
Financial income (72) (238)
Financial expense 409 484
Impact of foreign currencies (46) -
Non-cash restructuring expenses 778 -
Other (2) (9)
Movements in working capital
Decrease in trade receivables 1,550 1,938
Decrease /(increase) in inventories 1,533 (1,627)
Decrease in payables (4,071) (3,618)
Income tax received/(paid) 33 (932)
Net cash flow from operating activities 4,831 1,558
--------- ---------
Condensed consolidated cash flow statements (continued)
For the six months
ended 30 June
--------------------
Notes 2019 2018
--------- ---------
GBP'000 GBP'000
Investing activities
Purchase of property, plant and equipment (29) (147)
Purchase of intangible assets (1,294) (1,825)
Proceeds from the sale of property, plant and equipment
(net) 11 4
Proceeds from sale of available for sale financial
investments - 459
Net cash flow used in investing activities (1,312) (1,509)
--------- ---------
Financing activities
Proceeds from loans and borrowings and convertible
debt - 521
Repayment of loans and borrowings (6,508) (287)
Principal elements of lease payments (491) -
Receipts from issue of share capital - 111
Interest paid (327) (356)
Other financial (expense)/income (11) 110
Net cash flow (used)/from financing activities (7,337) 99
--------- ---------
Net (decrease)/increase in cash and cash equivalents (3,819) 148
========= =========
Cash and cash equivalents at beginning of period 8,035 7,579
Exchange rate differences on cash and cash equivalents (329) 2
Cash and cash equivalents reclassified as held for
sale - (10)
Cash and cash equivalents at end of period 3,887 7,719
========= =========
Reconciliation of net cash flow to movement in net
debt
Net (decrease)/increase in cash and cash equivalents
in the period (3,819) 148
Cash flow from decrease/(increase) in debt financing 6,508 (234)
Foreign exchange differences on cash and borrowings (14) 11
Movement in net debt in the period 2,675 (75)
--------- ---------
Net debt at the start of the period (23,588) (25,908)
Net debt reclassified as held for sale - (1)
Lease liabilities at end of period 9 (2,214) -
Net debt at the end of the period (23,127) (25,984)
========= =========
Notes to the consolidated interim report
1 General Information
Animalcare Group plc ("Animalcare" or "the Company") is a public
company incorporated in England and Wales under the Companies Act
2006 and is domiciled in the United Kingdom. The condensed set of
financial statements as at, and for, the six months ended 30 June
2019 comprises the Company and its subsidiaries (together referred
to as the "Group"). The nature of the Group's operations and its
principal activities are set out in the latest Annual Report.
2 Basis of preparation and significant accounting
policies
Basis of preparation and accounting policies
This interim financial information for each of the six month
periods ended 30 June 2019 and 30 June 2018 has not been audited
and does not constitute statutory accounts as defined in Section
43s of the Companies Act 2006. The comparative information for the
year ended 31 December 2018 does not constitute statutory accounts
however is based on the statutory accounts for that year, on which
the Group's auditors issued an unqualified report and which have
been filed with the Register of Companies.
The Interim Report for the six months ended 30 June 2019 was
approved by the Board of Directors and authorised for issue on 24
September 2019.
Except as described below, the condensed consolidated interim
financial information for the six months ended 30 June 2019 has
been prepared using accounting policies consistent with those of
the Company's annual accounts for the year ended 31 December 2018
which were prepared in accordance with International Financial
Reporting Standards ("IFRS") as adopted by the European Union
("adopted IFRSs"), and which will form the basis of the 2019 Annual
Report.
Taxes on income in the interim periods are accrued using the
estimated tax rate that would be applicable for the full financial
year.
The following standards and amendments were adopted from 1
January 2019, the start of the new financial year:
- IFRIC 23 Uncertainty over income tax treatments
- IFRS 16 Leases
The Group has adopted IFRS 16 retrospectively from 1 January
2019, but has not restated comparatives for the 2018 reporting
period, as permitted under the specific transitional provisions in
the standard. The reclassifications and the adjustments arising
from the new leasing rules are therefore recognised in the opening
balance sheet on 1 January 2019.
The impact of the adoption of IFRS 16 "Leases" on the Group's
financial statements is set out in note 9.
Going Concern
The principal risks and uncertainties facing the Group remain
those set out in the latest Annual Report on pages 26, 27 and
28.
For the purposes of their assessment of the appropriateness of
the preparation of the interim financial information on a going
concern basis, the Directors have considered the current cash
position and forecasts of future trading including working capital
and investment requirements.
The Group meets its day-to-day general corporate and working
capital requirements through existing cash and bank facilities.
The Group's forecasts and projections, taking account of
reasonable possible changes in trading performance, show that the
Group should be able to operate within the level of its current
facilities for at least the next 12 months. Accordingly, the
adoption of the going concern basis in preparing the condensed
interim financial information remains appropriate.
3 Non-Underlying items
For the six months
ended 30 June
--------------------
2019 2018
--------- ---------
GBP'000 GBP'000
Amortisation and impairment of acquisition related
intangibles
Classified within Research and development expenses 622 647
Classified within General and administrative expenses 2,380 2,387
Classified within net other operating expenses 1,518 -
Total amortisation and impairment of acquisition related
intangibles 4,520 3,034
--------- ---------
Restructuring costs 1,823 -
Acquisition and integration costs 77 156
Brexit-related costs 118 -
Other non-underlying items 175 563
Total non-underlying items before taxes 6,713 3,753
--------- ---------
Tax impact (1,268) (809)
Total non-underlying items after taxes from continuing
operations 5,445 2,945
--------- ---------
Other non-underlying items from discontinued operations - 55
Impairment on disposal - 664
Total non-underlying items after taxes 5,445 3,664
========= =========
The amortisation charge of acquisition related intangibles
largely relates to the Esteve acquisition GBP1,005k (30 June 2018:
GBP1,012k) and the reverse acquisition of Animalcare Group plc
GBP1,814k (30 June 2018: GBP1,838k).
The impairment charge of GBP1,518k for acquisition related
intangibles relate to an impairment of projects within the R&D
pipeline which are deemed no longer economically viable due to
technical difficulties in the development process (30 June 2018:
GBPnil).
During the period the Group incurred restructuring costs of
GBP1,823k. This principally relates to the R&D and Technical
& Regulatory team centralisation which resulted in a headcount
reduction of nine employees in the UK and Spain.
During the prior period, an impairment loss of GBP664k was
recognised relating to discontinued operations representing the
estimated difference between the fair value of the consideration
either received or receivable (as described in note 8) and the
original book value of assets including allocated goodwill.
4 Segment information
Following the sale of the wholesale business on 4 September
2018, the Group will only report one segment, being
"Pharmaceuticals". This reporting segment is used for management
purposes.
The Pharmaceutical segment is active in the development and
marketing of innovative pharmaceutical products that provide
significant benefits to animal health.
The measurement principles used by the Group in preparing this
segment reporting are also the basis for segment performance
assessment. The Board of Directors of the Group acts as the Chief
Operating Decision Maker. The Chief Operating Decision Maker
assesses performance based on the Key Performance Indicators set
out on page 14 of the latest Annual Report which include revenue
and underlying EBITDA, excluding the effect of non-underlying
items.
The following table shows an analysis of the segment reporting
from continuing operations. As management's controlling instrument
is mainly revenue-based, the reporting information does not include
assets and liabilities by segment and is as such not presented per
segment.
For details on the impact of the adoption of IFRS 16, please see
note 9.
For the six
months ended
30 June
----------------
2019 2018
------- -------
Pharma Pharma
------- -------
GBP'000 GBP'000
Revenues 36,121 36,057
Gross Margin 19,135 19,281
Gross Margin % 53.0% 53.5%
Segment underlying EBITDA 6,765 6,227
Segment underlying EBITDA % 18.7% 17.3%
Segment EBITDA 4,573 5,508
Segment EBITDA % 12.7% 15.3%
The segment EBITDA is reconciled with the consolidated net
profit for the period as follows:
For the six months
ended 30 June
--------------------
2019 2018
--------- ---------
GBP'000 GBP'000
Segment EBITDA 4,573 5,508
Depreciation, amortisation and impairment (6,108) (4,106)
Operating (loss)/profit (1,535) 1,402
--------- ---------
Financial expenses (515) (475)
Financial income 216 250
Income taxes (346) (1,215)
Deferred taxes 592 778
Net (loss)/profit (1,588) 740
========= =========
Revenue by product category:
For the six months
ended 30 June
--------------------
2019 2018
--------- ---------
GBP'000 GBP'000
Companion animals 23,724 23,924
Production animals 9,322 9,270
Horses 2,970 2,821
Petfood, Instrumentation and Services 105 42
Total 36,121 36,057
========= =========
Revenue by geographical area:
For the six months
ended 30 June
--------------------
2019 2018
--------- ---------
GBP'000 GBP'000
Belgium 4,351 3,801
The Netherlands 1,090 716
United Kingdom 7,211 8,879
Germany 5,081 5,052
Spain 9,771 9,953
Italy 2,857 2,500
Portugal 2,575 2,549
European Union - other 2,612 2,145
Asia 238 197
Middle East Africa 23 22
Other 312 243
Total 36,121 36,057
========= =========
Revenue by category:
For the six months
ended 30 June
--------------------
2019 2018
--------- ---------
GBP'000 GBP'000
Product sales 35,551 35,535
Services sales 570 522
Total 36,121 36,057
========= =========
Product revenue is recognised when the performance obligation is
satisfied at a point in time. Service revenue is recognised by
reference to the stage of completion.
5 Earnings per share
Basic earnings per share amounts are calculated by dividing the
net profit for the period attributable to ordinary equity holders
of the parent company by the weighted average number of ordinary
shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing
the net profit attributable to ordinary equity holder of the parent
company by the weighted average number of ordinary shares
outstanding during the year plus the weighted average number of
ordinary shares that would be issued on conversion of all potential
dilutive ordinary shares.
The following income and share data was used in the earnings per
share computations:
For the six months ended 30
June
----------------------------------------
Underlying Underlying Total Total
---------- ---------- ------- -------
2019 2018 2019 2018
---------- ---------- ------- -------
GBP'000 GBP'000 GBP'000 GBP'000
Net profit/(loss) from continuing operations 3,857 3,684 (1,588) 740
Net profit/(loss) from discontinuing operations - 36 - (683)
Net profit/(loss) attributable to ordinary
equity holders of the parent adjusted for the
effect of dilution 3,857 3,720 (1,588) 57
========== ========== ======= =======
Average number of shares (basic and diluted):
For the six months ended 30
June
----------------------------------------------
Underlying Underlying Total Total
---------- ---------- ---------- ----------
2019 2018 2019 2018
---------- ---------- ---------- ----------
Number Number Number Number
Weighted average number of ordinary shares
for basic
earnings per share 60,057,161 59,986,095 60,057,161 59,986,095
Dilutive potential ordinary shares - 43,241 - 43,241
Weighted average number of ordinary shares
adjusted for effect of dilution 60,057,161 60,029,336 60,057,161 60,029,336
========== ========== ========== ==========
Basic earnings/(loss) per share:
For the six months ended 30
June
------------------------------------
Underlying Underlying Total Total
---------- ---------- ----- -----
2019 2018 2019 2018
---------- ---------- ----- -----
Pence Pence Pence Pence
Basic earnings/(loss) per share attributable
to ordinary owners of the parent
From continuing operations 6.4 6.1 (2.6) 0.1
From discontinued operations - 0.1 - (0.1)
Total basic earnings/(loss) per share attributable
to the ordinary equity holders of the company 6.4 6.2 (2.6) 0.1
========== ========== ===== =====
Diluted earnings/(loss) per share:
For the six months ended 30
June
------------------------------------
Underlying Underlying Total Total
---------- ---------- ----- -----
2019 2018 2019 2018
---------- ---------- ----- -----
Pence Pence Pence Pence
Diluted earnings/(loss) per share attributable
to ordinary owners of the parent
From continuing operations 6.4 6.1 (2.6) 0.1
From discontinued operations - 0.1 - (0.1)
Total diluted earnings/(loss) per share attributable
to the ordinary equity holders of the company 6.4 6.2 (2.6) 0.1
========== ========== ===== =====
6 Dividends
The final dividend for the year ended 31 December 2018 of 2.4
pence per share was paid by the company on 5 July 2019 hence is not
included in the results for the six months ended 30 June 2019.
The directors have declared an interim dividend of 2.0 pence per
share (2018: 2.0 pence per share) costing GBP1,201k. It is payable
on 22 November 2019 to shareholders whose names are on the Register
of Members at close of business on 25 October 2019. The ordinary
shares will become ex-dividend on 24 October 2019.
As the dividend was declared after the end of the period being
reported, it has not been included as a liability as at 30 June
2019 in accordance with IAS 10 'Events after the Balance Sheet
date'
7 Related party transactions
There have been no new related party transactions that have
taken place in the six months ended 30 June 2019.
8 Business Combinations
Disposal of subsidiaries
On 4 September 2018, the Group announced and completed the
disposal of its Wholesale business Medini NV registered in Belgium,
for an initial cash consideration of GBP2,413k and total estimated
consideration, including deferred consideration, of GBP2,989k. Full
details regarding the disposal are disclosed in note 4 of the
latest Annual Report.
For the period ended 30 June 2018, and in accordance with IFRS
5, the Wholesale business was classified as held for sale and
presented as discontinued within the income statement. An
impairment charge of GBP664k was recognised as shown in note 3. An
analysis of the discontinued loss of GBP683k, which includes the
impairment charge, is shown below:
For the six months ended 30 June 2018:
Total
continuing
Continuing Discontinued Consolidation and discontinued
operations operations adjustments operations
----------- ------------ ------------- -----------------
2018 2018 2018 2018
GBP'000 GBP'000 GBP'000 GBP'000
Revenue 36,057 12,429 (718) 47,769
Cost of sales (16,766) (11,232) 689 (27,309)
Gross Profit 19,291 1,197 (29) 20,459
----------- ------------ ------------- -----------------
Research and development expenses (2,245) - - (2,245)
Selling and marketing expenses (6,591) (833) 46 (7,378)
General and administrative expenses (8,361) (290) (18) (8,669)
Net other operating income / (expenses) (693) (736) 1 (1,427)
Operating profit/(loss) 1,402 (662) - 740
----------- ------------ ------------- -----------------
Financial expenses (475) (29) 20 (484)
Financial income 250 7 (20) 238
Profit/(loss) before tax 1,177 (683) - 494
----------- ------------ ------------- -----------------
Income tax (437) - - (437)
Net profit/(loss) 740 (683) - 57
=========== ============ ============= =================
The net cash flow by discontinued operations can be found
below:
For the
six months
ended
30 June
-----------
2018
GBP'000
Net cash flow from operating activities 133
Net cash flow used in investing activities (94)
Net cash flow from financing activities (28)
Net increase of cash & cash equivalents 11
===========
9 Changes to accounting policies
This note explains the impact of the adoption of IFRS 16 Leases
on the group's financial statements and discloses the new
accounting policies that have been applied from 1 January 2019. On
adoption of IFRS 16, the group recognised lease liabilities in
relation to leases which had previously been classified as
'operating leases' under the principles of IAS 17 Leases.
The Group leases various offices, vehicles and IT equipment.
Rental contracts are typically made for fixed periods of 3 to 9
years, possibly with extension options; one contract has a lease
term of more than 10 years. Lease terms are negotiated on an
individual basis and contain a range of different terms and
conditions. The lease agreements do not impose any covenants, but
leased assets may not be used as security for borrowing
purposes.
Until 1 January 2019, the Group recognised operating lease
expenses on a straight-line basis over the term of the lease, and
recognised assets and liabilities only to the extent that there was
a timing difference between actual lease payments and the expense
recognised.
From 1 January 2019, leases are recognised as a right-of-use
asset and a corresponding liability at the date at which the leased
asset is available for use by the Group. Each lease payment is
allocated between the liability and finance cost. The finance cost
is charged to profit or loss over the lease period. The
right-of-use asset is depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially
measured on a present value basis. The lease payments are
discounted using the lessee's incremental borrowing rate. The
Group's weighted average incremental borrowing rate applied to the
lease liabilities on 1 January 2019 was 3.2%.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a
lease term of 12 months or less. Low-value assets comprise
IT-equipment and small items of office furniture.
A reconciliation between IAS 17 and IFRS 16 is shown below for
the position at 1 January 2019:
GBP'000
Non-cancellable operating lease commitments disclosed
as at 31 December 2018 2,760
Weighted average incremental borrowing rate at 1 January
2019 3.2%
Discounted using the Group's incremental borrowing
rate 2,606
Add: finance lease liabilities recognised as at 31
December 2018 22
Lease liability recognised as at 1 January 2019 2,628
=======
Of which are:
Current lease liabilities 910
Non-current lease liabilities 1,718
All right-of-use assets were measured at the amount equal to the
lease liability. There were no onerous lease contracts that would
have required an adjustment to the right-of-use assets at the date
of initial application.
The recognised right-of-use assets relate to the following types
of assets:
30 June 1 January
2019 2019
------- ---------
GBP'000 GBP'000
Buildings 1,085 1,275
Vehicles 1,044 1,269
Other 65 84
Total right-of-use assets 2,194 2,628
======= =========
Current lease liabilities 938 910
Non-current lease liabilities 1,276 1,718
Total lease liabilities 2,214 2,628
======= =========
Cash flows relating to leases are presented as follows:
- Cash payments for the principal portion of the lease
liabilities as cash flows from financing activities;
- Cash payments for the interest portion consistent with
presentation of interest payments chosen by the Group, and;
- Short-term lease payments, payments for leases of low-value
assets and variable lease payments that are not included in the
measurement of the lease liabilities as cash flows from operating
activities.
(I) Impact on EBITDA and earnings per share
EBITDA and underlying EBITDA increased by GBP530k for the six
months to 30 June 2019 as a result of the change in accounting
policy. There is no material impact on net result and earnings per
share in the period.
(ii) Practical expedients applied
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
- The use of a single discount rate to a portfolio of leases
with reasonably similar characteristics;
- Reliance on previous assessments on whether leases are onerous;
- The accounting for operating leases with a remaining lease
term of less than 12 months as at 1 January 2019 as short-term
leases;
- The exclusion of initial direct costs for the measurement of
the right-of-use asset at the date of initial application; and
- The use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
10 Cautionary statement
This Interim Management Report ("IMR") consists of the
Chairman's Statement and the Business Review, which have been
prepared solely to provide additional information to shareholders
to assess the Group's strategies and the potential for those
strategies to succeed. The IMR should not be relied upon by any
other party or for any other purpose.
The IMR contains a number of forward looking statements. These
statements are made by the Directors in good faith based upon the
information available to them up to the time of their approval of
this report and such statements should be treated with caution due
to the inherent uncertainties, including both economic and business
risk factors, underlying any such forward looking information.
This IMR has been prepared for the Group as a whole and
therefore emphasises those matters which are significant to
Animalcare Group plc and its subsidiaries when viewed as a
whole.
11 Interim report
The Group's Interim Report for the six months ended 30 June 2019
was approved and authorised for issue on 24 September 2019. Copies
will be available to download on the Company's website at:
www.animalcaregroup.com.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FMGZLMFZGLZZ
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