TIDMANCR
RNS Number : 1945O
Animalcare Group PLC
28 May 2020
Animalcare Group plc
("Animalcare", the "Company" or the "Group")
Full Year Results for the 12 months ended 31 December 2019
28 May 2020. Animalcare Group plc (AIM: ANCR), the international
animal health business, announces its unaudited full year results
for the year ended 31 December 2019.
Financial Highlights
-- Revenue for the year at GBP71.1m (2018: GBP72.5m), a decline
of 1.9%; revenue impacted by supply challenges
-- Underlying* EBITDA increased by 1 1.3% to GBP13.1m (2018: GBP11.8m)
o Up 1.7% on a comparable IAS17 basis
-- Statutory loss before tax, which incorporates non-underlying
items, increased to GBP1.6m (2018: GBP0.4m loss) with reported
basic loss per share at 2.2p (2018: 1.7p loss per share)
-- Significantly improved underlying* cash conversion to 118.4% (2018: 79.9%)
-- Net debt (before recognition of IFRS16 lease liabilities of
GBP1.9m) reduced by GBP7.7m to GBP15.9m. Net debt to underlying*
EBITDA leverage ratio at 1.4 times (2018: 2.0 times)
Strategic and Operational Highlights
-- Strengthened capability in strategically important areas of
business development and marketing
-- Significant progress towards goal of generating 80% of
revenue from top 20 products in pursuit of a more profitable
portfolio
-- Newly introduced Companion Animal products contributing to
sales with GBP1.5m generated in the year. Four 2019 product
launches expected to show sales benefit in 2020
-- Internal pipeline progressing with completion of clinical
studies and regulatory submission post year end for Enflicoxib
E6087 for treatment of pain in dogs
-- Partnering efforts yield new distribution deals that
strengthen treatment options in growth segments of Companion
Animals and Equine
* Underlying measures are before the effect of non-underlying
items which excludes fair value adjustments on acquired inventory,
amortisation of acquired intangibles and acquisition and
integration costs. A reconciliation to statutory measures is
provided in the Chief Financial Officer's Review.
Commenting on the full year results, Chief Executive Officer,
Jenny Winter said: "Our positive 2019 performance enabled the
Animalcare Group to enter 2020 in a strong financial position with
a solid platform from which to drive our growth strategy.
"We delivered in line with market expectations, improving cash
conversion, increasing underlying EBITDA and reducing net debt
despite a decline in revenues due to now-resolved product supply
issues.
"Strategically, we boosted our capability in key areas such as
business development and marketing while we made significant
progress towards our goal of generating 80 per cent of revenues
from the top 20 products in a more optimised portfolio. Our
internal pipeline continued to progress with the regulatory
submission in early 2020 of our candidate COX-2 inhibitor pain
treatment for dogs. On the business development front the Group
struck deals to support our Companion Animals and Equine
segments.
"Since the turn of the year the importance of employee safety
and balance sheet strength has been thrown into even sharper relief
by COVID-19. Of course, we are not alone in facing this challenge,
but I am satisfied that we were able to take early and decisive
action to safeguard our people and protect our cash position.
"Performance over the first three months of the year was strong
with the expected downturn in demand coming into view from Q2. The
Companion Animals sector, where public health measures have often
restricted veterinary activity to emergency treatments, has been
the most affected. By contrast, the Production Animals segment has
shown real resilience, helping to offset some of the decline in
demand.
"Forecasting the exact shape and speed of the recovery will be
difficult, though judging by the countries, like Germany, that have
operated more normally through this period it is clear that the
driver of the recovery in demand will be the speed with which vets
return to work. We have noted the early signs of a return in some
other countries more recently and continue to monitor the situation
closely.
"What I can say with certainty is that our ambition to establish
the Group as a leading company in the animal healthcare sector is
unchanged by the current circumstances. We continue to pursue
business development opportunities that can reinforce the
competitiveness of our existing portfolio or add differentiated
products with the potential for longer term returns and more
sustainable margins.
"I'm immensely proud of our employees, not just for what they
achieved in 2019, but also for responding to the rapidly evolving
needs of vets while planning for a future that is certain to look
different. It's this commitment and organisational agility - backed
by our strong balance sheet - that equip us for success in a
dynamic market with attractive fundamentals."
CHAIRMAN'S STATEMENT
I am pleased to report another year of solid progress for
Animalcare Group as we continue to build a strong platform that
will deliver sustainable, profitable growth.
Underlying group earnings for 2019 were in line with market
expectations despite the impact on revenue of previously reported
supply challenges and the continuing reduction in antibiotic usage
for production animals. Consistent with our financial priorities,
we reported a strong cash performance versus last year reflected in
improved cash conversion and a reduction in net debt of more than
30%. We also demonstrated a notable improvement in operating
efficiency. After underlying adjustments totalling GBP10.8m, the
loss before tax on a reported basis was GBP1.6m (2018: GBP0.4m
loss).
Our long-term goal is to become a leading animal health company.
Through delivery of our strategy we are better able to leverage our
strong base to drive future business growth. This will be achieved
through a focus on current key brands as well as new products,
particularly higher margin differentiated products within core
therapy areas. Alongside this we will continue to work with high
calibre partners to further build a pipeline of products that meets
our criteria for growth.
Since joining Animalcare in October 2018, our CEO Jenny Winter
has charted a clear path for the business based upon delivery
against five strategic pillars. A key part of this strategy has
been to build our capability in functions that will drive growth,
most notably within business development and marketing where we
have made some excellent additions to the team.
The Group's performance in 2019 means we entered 2020 in a
strong financial position. This has never been more important as
the world faces an unprecedented challenge posed by the coronavirus
pandemic. Our financial strength will help maintain the Group's
operational resilience while enabling us to remain focused on our
long-term growth strategy. With this in mind, spending and
overheads are being minimised while capital expenditure, where
appropriate, has been frozen. And, as announced in March 2020, the
Board has decided to defer payment of the final dividend, thereby
preserving approximately GBP1.4 million in cash in the Group.
Our overarching priority is, as always, the safety and wellbeing
of our employees. We were rapid adopters of home working to
safeguard our people, their families and the wider community while
allowing us to continue serving the needs of our customers.
At time of publication, it is too early to forecast the extent
of any economic impact on the Group. After a strong performance in
the first three months, it is clear, however, that significant
disruption to the animal health sector is unavoidable with a
resulting downturn in demand visible from the second quarter of
2020.
I'm confident that our agility, an intimate knowledge of our
markets and a clear strategic focus - combined with our financial
strength - positions us to emerge successfully from these
unprecedented circumstances.
All this underlines the crucial importance of the people whose
enthusiasm, expertise and skill drive this business forward every
day. On behalf of the Board I want to offer a huge thanks to our
staff for their continued dedication to Animalcare, particularly
during this period of uncertainty.
I would also like to thank you, our shareholders, for your
ongoing support and faith in this great business. We will keep you
updated on our progress during the course of the year.
Jan Boone
Non-Executive Chairman
CHIEF EXECUTIVE OFFICER'S REVIEW
In 2019 we set ourselves five clear strategic priorities to
deliver our goal of above market growth in three to five years. We
have made significant progress against these objectives.
Establishing a strong financial platform so we can invest in our
future
Establishing a strong financial platform is at the heart of our
strategy and we set ourselves the target of identifying
opportunities for revenue growth, improving cash conversion and
reducing debt. We are pleased with our progress, recognising that
our future growth is dependent on a solid financial base and
efficient use of cash to invest in the business. In the Companion
Animal segment our revenue grew by 1.0% versus 2018, with growth
from new and recently launched products offset by the impact of
supply interruptions by third party manufacturers, including one of
our most significant Companion Animal products, isoflurane, which
impacted our revenue by GBP1.5m. In Production Animals, we
continued to see an expected decline, which was 9.4% in 2019 (2018:
15.0%), primarily driven by the global focus on reducing the use of
antibiotics in this segment.
The right people, capabilities and behaviours for success
At Animalcare we are creating a high performing business driven
by a skilled, committed team unified by a shared sense of purpose
and common culture.
We have continued to strengthen our leadership team and our
capabilities across the organisation. Compensation is now aligned
with performance across the leadership team, with the
implementation of a new bonus structure based on revenue and EBITDA
targets and a new long-term incentive plan ('LTIP') from June 2019.
We have actively built capabilities through internal and external
recruitment and have strengthened our Business Development and
Sales and Marketing capabilities to drive commercial excellence. We
have established the values for the organisation and rolled out
group-wide policies to strengthen them, creating solid foundations
for sustainable growth.
As the veterinary market evolves with the introduction of
corporate ownership of practices, we are continuing to build the
right team and capabilities to work with this emerging stakeholder
group across Europe. The pace of change in veterinary practice has
increased and we continue to work closely with veterinary
professionals and other stakeholders to ensure we are aligned with
their changing needs.
Prioritising our existing portfolio for growth
The Animalcare portfolio of products was broad and fragmented.
This is being addressed, and in 2019 we made good progress towards
our goal of reducing the fragmentation and generating 80% of
revenue from the top 20 products. We successfully reduced the
number of low revenue products and increased the sales and
marketing activities on the largest products with highest margins
that are sustainable for the future. We will maintain this focus
and we have already seen sustained growth in some of our top five
brands, including Danilon and Orozyme.
From a market segment perspective, our strategy is to grow in
Companion Animals and Equine and maintain our existing and
important presence in Production Animals. To support these
objectives, we are focusing our future investment and research to
achieve our growth ambitions in Companion Animal and Equine
products, while sustaining our profitable Production Animal
business in the key markets through both our own channels and
distribution products.
Companion Animals
Growth from newly introduced products contributed GBP1.5m of
sales. The internal pipeline progressed with four new product
launches: Cortacare, Butazocare, Doxycare and Metrocare. The sales
benefit from these will be observable in 2020. In addition, post
period end we gained regulatory approval for one product and expect
a further approval late in 2020.
These recent and expected launches will complete the roll-out of
the branded generics pipeline.
Equine
We have increased our focus on the Equine segment and, while
small, it grew at 2.8% as a result. Danilon is a leading product
for us in this segment and sales increased by 10.0% versus 2018. We
intend to further strengthen our presence in this important growth
area.
Production Animals
The decline of antibiotics in Production Animals has been
evident in the market for some time now, driven by the link between
use of antibiotics in these animals and the increase in resistant
bacteria. Governments are closely monitoring the situation and have
established targets. Our antibiotic portfolio includes some
products that are still recommended and we will continue to support
these as long as they are viable. However the rest of this
portfolio will continue to decline in line with the market as
strategically we reduce focus on these products.
Building our pipeline of differentiated products
Critical to our future growth is the further development of our
pipeline to achieve our goal of generating 80% of our revenue from
novel and differentiated products from external and internal
sources. With this objective in mind we have strengthened our
business development team and are engaging in discussions with
potential partners to in-licence and co-develop exciting and new
products. In 2019 we completed significant distribution deals with
Vetcare
for Procanicare (the first "For Dogs, From Dogs" GI support) and
with American Regent for the European rights to sell Adequan (an
intramuscular treatment of lameness due to degenerative aseptic
joint disease in horses).
Our internal pipeline also progressed significantly with the
completion of the clinical studies for Enflicoxib (E-6087), a novel
product developed internally for the treatment of pain in dogs.
This product was submitted to the European regulatory authority in
January 2020 for a planned launch in 2021.
We have defined the criteria for R&D investment to align
with our strategy in Companion Animals and Equine and in 2019 we
ceased development of three assets that did not meet these
criteria, for either technical or commercial reasons.
COVID-19
The most significant post-period event is, of course, the
COVID-19 pandemic. While it's too early to accurately assess the
economic impact on the Group, given the social restrictions that
have affected most of our European markets, it is inevitable that
the animal health sector will experience significant disruption in
2020. Our strong trading performance over the first three months
was followed by the expected downturn in demand from the second
quarter. The timing and extent of the recovery is harder to predict
though I'm sure that the driver of that recovery will be vets
returning to normal working.
The primary concern of management and the Board will always be
the safety and wellbeing of our people, their families and the
communities in which we live and work. The pandemic throws this
responsibility into sharper relief. We have adopted a number of
measures, including adherence to official guidelines. A switch to
home working, for example, was made possible by our common,
cloud-based IT platform and rapidly became the norm across the
Group. Operationally, we have focused on supporting veterinary
professionals as their needs and priorities evolve through the
crisis. With this in mind we are working closely with suppliers to
secure the availability of key products.
As our Chairman points out, we entered 2020 in a strong
financial position, thanks in part to our solid performance in
2019. To maintain that strength, we have taken a number of steps,
such as cutting overheads, careful management of inventory and a
capital expenditure freeze for all but key development programmes
and manufacturing transfers. This will limit cash outflows, thereby
protecting our operational resilience and ability to pursue growth
opportunities.
This pandemic will pass and we will return to some form of new
normality. When that happens I believe Animalcare will be well
placed to succeed through a combination of financial strength,
knowledge of our markets and close relationships with our
customers, operational agility and a clear strategic direction.
Summary and outlook
I am pleased with the progress we made in 2019, especially the
strengthening of our financial position, creating a strong platform
for growth. We have also made good progress in ensuring that we
have the right capabilities in place for the future. The regulatory
submission for Enflicoxib represents a major step forwards, as does
the two new contracts for Adequan and Procanicare. Notwithstanding
the effect of the COVID-19 pandemic, I am looking forward to
leveraging our stronger base to drive growth in the coming
years.
Jennifer Winter
Chief Executive Officer
CHIEF FINANCIAL OFFICER'S REVIEW
Underlying and Statutory Results
To provide comparability across reporting periods, the Group
presents its results on both an underlying and statutory (IFRS)
basis. The Directors believe that presenting our financial results
on an underlying basis, which exclude non underlying items,
provides a clearer understanding of business performance. IFRS
results include these items to provide the statutory results. All
figures are reported at actual exchange rates (AER) unless
otherwise stated. Commentary will include references to constant
exchange rates (CER) to identify the impact of foreign exchange
movements. A reconciliation between underlying and statutory
results is provided at the end of this financial review.
The Group adopted IFRS 16 'Leases' on 1 January 2019, the impact
of which is set out in note 22. Comparative financial measures have
not been restated. Commentary has been made upon both an IFRS16 and
IAS17 (the previous accounting standard) basis to allow meaningful
comparison to prior periods.
Overview of Underlying financial results -
Continuing Operations
% Change
2019 2018 at AER
GBP'000 GBP'000 %
------------------------- -------- -------- --------
Revenue 71,124 72,470 (1.9%)
Gross Profit 36,972 37,339 (1.0%)
Gross Margin % 52.0% 51.5% 0.5%
Underlying Operating
Profit 9,462 9,604 (1.5%)
Underlying EBITDA 13,137 11,798 11.3%
Underlying EBITDA margin
% 18.5% 16.3% 2.2%
Underlying Basic EPS
(p) 12.0p 11.7p 2.6%
------------------------- -------- -------- --------
Revenue for the year from continuing operations was GBP71.1m
(2018: GBP72.5m) a decline of 1.9% (1.0% decline at CER). Revenue
by product category is shown in the table below:
2018 % Change
2019 (restated*) at AER
GBP'000 GBP'000 %
------------------- -------- ------------ --------
Companion Animals 46,464 46,018 1.0%
Production Animals 18,844 20,793 (9.4%)
Equine & other 5,816 5,659 2.8%
------------------- -------- ------------ --------
Total 71,124 72,470 (1.9%)
------------------- -------- ------------ --------
*Restated as per note 2, basis of preparation
Companion Animals revenue increased by 1.0% to GBP46.4m. Growth
from new product launches and annualised sales of products launched
in 2018 partly compensated for previously reported supply issues
with certain contract manufacturers, which impacted sales by
GBP1.5m versus prior year. While a number of these supply
challenges have been mitigated post year end, work continues to
resolve the remaining specific anaesthesia supply issue where the
API source was moved to China, including the potential transfer of
manufacture.
Production Animals revenue declined by 9.4% on prior year to
GBP18.8m primarily driven by the GBP1.0m (15.2%) lower demand for
antibiotics and distributor destocking in Spain. Equine and other
sales increased by 2.8% to GBP5.8m due to growth within our
existing export portfolio.
Underlying EBITDA increased by 11.3% to GBP13.1m (2018:
GBP11.8m). However on a comparable IAS17 basis, adjusted underlying
EBITDA was GBP12.0m, 1.7% higher than prior year. On an adjusted
basis, EBITDA margin at 16.9% has strengthened by 0.6% versus 2018,
reflecting the higher margin sales mix, observed in our gross
margin improvement, together with our maintained focus on
operational leverage. As a result, notwithstanding the revenue
decline noted earlier, adjusted SG&A expenses as a percentage
of revenue at 35.2% remain in line with prior year (2018:
35.2%).
The underlying effective tax rate was 21.5% (2018: 22.3%)
primarily reflecting our tax planning initiatives to optimise
research and developments tax credits, and utilisation of tax
losses.
Reflecting the points noted above, underlying basic EPS
increased by 2.6% to 12.0 pence (2018: 11.7 pence).
Overview of reported financial results
Reported Group loss after tax for the year (after accounting for
the non-underlying items shown in the table and discussed below)
was GBP1.3m (2018: GBP1.0m). The reported basic loss per share
increased to 2.2 pence (2018: 1.7 pence).
Acquisition,
restructuring,
2019 Amortisation integration 2019 2018
Underlying and impairment and other Reported Reported
results of intangibles costs results results
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ----------- --------------- --------------- --------- ---------
Revenue 71,124 - - 71,124 72,470
Gross Profit 36,972 - - 36,972 37,339
Selling, general
and administrative
expenses (24,585) (4,771) - (29,356) (29,101)
Research and
development
expenses (2,922) (1,171) - (4,093) (4,762)
Net other operating
expenses (3) (1,619) (3,192) (4,814) (3,259)
------------------------ ----------- --------------- --------------- --------- ---------
Operating profit/(loss) 9,462 (7,561) (3,192) (1,291) 217
Net finance
expenses (317) - - (317) (574)
------------------------ ----------- --------------- --------------- --------- ---------
Profit/(loss)
before tax 9,145 (7,561) (3,192) (1,608) (357)
Taxation (1,966) 1,479 757 270 135
Profit/(loss)
after tax 7,179 (6,082) (2,435) (1,338) (222)
Loss/(profit)
from discontinued
operations - - - - (776)
------------------------ ----------- --------------- --------------- --------- ---------
Profit/(loss)
for the year 7,179 (6,082) (2,435) (1,338) (998)
Basic EPS (p) 12.0p (2.2p) (1.7p)
Non-underlying items totalling GBP10.8m (2018: GBP9.4m) relating
to profit before tax have been incurred in the year, as set out in
note 5. These principally comprise:
1. Amortisation and impairment of acquisition related
intangibles of GBP7.6m (2018: GBP6.6m). This charge primarily
comprises amortisation in relation to the reverse acquisition of
Ecuphar NV and previous acquisitions made by Ecuphar NV. The
increase versus prior year 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: GBP1.2m) 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.
3. Post-acquisition and integration costs of GBP0.6m (2018:
GBP0.5m). This includes the integration costs associated with the
acquisition of Ecuphar NV, including manufacturing transfer costs
as we work towards simplifying our supply chain.
4. Brexit-related costs of GBP0.2m (2018: GBPnil) - this
represents regulatory transfer and other supply-chain costs
incurred in advance of Brexit.
Dividends
An interim dividend of 2.0 pence per share was paid in November
2019. On 25 March 2020, the Group announced that payment of the
final dividend had been deferred with the aim of supporting our
financial strength and providing a platform to continue progressing
opportunities during the global COVID-19 pandemic. This decision by
the Board, which had the effect of retaining an additional
approximately GBP1.4m in cash, will be reviewed later in 2020. At
that point, the Board will consider what actions are in the best
interests of shareholders. More broadly, the Board continues to
closely monitor the dividend policy, recognising the Group's need
for investment to drive future growth and dividend flow to deliver
overall value to our shareholders.
Cash flow, net debt and borrowing facilities
The Group committed to improving its cash performance and
reducing net debt during 2019, a key component of our 'strong
finances' strategic objective, in order to provide the funds we
need to invest in growth. In line with the first objective, the
Group has significantly improved its underlying cash conversion to
118.4% versus 79.9% achieved in 2018 as set out in the table
below:
2019 2018
GBP'000 GBP'000
------------------------------ -------- --------
Underlying EBITDA 13,137 11,798
Net cash flow from operations 13,071 7,430
Non-underlying items 2,485 1,993
Underlying net cash flow from
operations 15,556 9,423
Cash conversion % 118.4% 79.9%
------------------------------ -------- --------
Net cash flow generated by our operations increased to GBP13.1m
(2018: GBP7.4m). Working capital decreased by GBP1.7m, largely
driven by the GBP2.5m reduction in our inventory levels, well ahead
of the planned GBP2.0m reduction by the end of 2020. We expect
inventories to increase by approximately GBP1.5m during 2020 due to
strategic stock build of three key brands as part of their
lifecycle management. Net cash tax income was GBP0.1m versus an
outflow of GBP2.2m in 2018 mainly due to a combination of phasing
of payments in Spain, increased cash receipts in respect of R&D
tax credits and the settlement of prior year taxes in Belgium
during 2018. It is anticipated that cash taxes will be circa
GBP0.5m in 2020. Non-underlying cash items principally relate to
the restructuring costs and post-acquisition and integration costs
as noted in the overview of reported results.
Net debt (before recognition of IFRS16 lease liabilities of
GBP1.9m) reduced by GBP7.7m to GBP15.9m as at 31 December 2019, the
reduction largely driven by the higher cash conversion noted
above.
GBP'000
-------------------------------------------- --------
Net debt at 1 January 2019 (23,588)
Net cash generated from operations 13,071
Net capital expenditure (2,391)
Net finance expenses (1,696)
Dividends paid (2,643)
Foreign exchange on cash and borrowings 1,336
Other cash movements 35
-------------------------------------------- --------
Net debt excluding IFRS16 lease liabilities
at 31 December 2019 (15,876)
Recognition of lease liabilities (1,936)
-------------------------------------------- --------
Net debt at 31 December 2019 (17,812)
-------------------------------------------- --------
Net capital expenditure of GBP2.4m (2018: GBP4.8m) largely
comprises investment in our product development pipeline of
GBP1.8m, the most significant being the completion of the clinical
studies for Enflicoxib (E-6087) which was submitted to the European
Regulatory authority in January 2020 for a planned launch during
2021. Regulatory approval for one new product is expected later in
2020, completing the roll out of the branded generics pipeline. The
balance of expenditure largely relates to continuing investment in
our IT infrastructure to deliver our objective of common platforms
across the Group.
The net debt to underlying EBITDA leverage ratio was 1.4 times
(2018: 2.0 times) versus the bank covenant of 3.5 times.
At 31 December 2019, total facilities were GBP43.8m, of which
GBP20.7m, net of cash balances, was utilised, leaving headroom of
GBP24.6m. 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.
Going Concern
Banking Facilities and Covenants
At 31 December 2019, the Group's financing arrangements
consisted of a committed revolving credit facility of EUR41.5m, a
EUR10m acquisition line, which cannot be utilised to fund our
operations, and EUR4.1m investment loans. All facilities mature in
March 2022.
The facilities are subject to the following covenants which are
in operation at all times:
-- Net debt to underlying EBITDA ratio of 3.5 times
-- Underlying EBITDA to interest ratio of minimum 4 times
-- Solvency (total assets less goodwill/total equity less goodwill) greater than 25%
As at 31 December 2019, all covenant requirements were met with
significant headroom across all three measures.
As at 30 April 2020, the net debt to underlying EBITDA ratio was
approximately 1.3 times (31 December 2019: 1.4 times). Headroom on
the banking facilities, including cash on balance sheet, was
GBP25.8m (31 December 2019: GBP24.6m)
COVID-19 Scenario Analysis
The Group entered the pandemic period in a strong financial
position. In recent weeks we have seen an inevitable impact on the
markets where we operate and a resulting downturn in demand
starting in the second quarter.
While it's too early to accurately assess the economic impact on
the Group, the uncertain future impact of COVID-19 has been
considered as part of the Group's adoption of the going concern
basis.
The Group has run a series of future trading scenarios to June
2021 to factor in a range of downside revenue estimates with
mitigating actions on cost and cash flow. On revenue we modelled a
rolling 12-month downturn of between 13% and 22% compared to 2019,
with the most significant impact during a quarter in which lockdown
measures are enforced. In the downside scenarios, a prolonged
lockdown of six months, or a second wave mirroring Q2 2020, both
with subsequent slower recovery, were considered.
To maintain our operational and financial resilience, we have
already taken a number of steps to reduce or defer costs to align
with revenue, carefully manage inventory in light of demand shifts
and implement a capital expenditure freeze for all but essential
projects, including key development programmes and manufacturing
transfers.
As announced in our trading update of 25 March 2020, the Board
deferred the payment of the final dividend. This decision will be
reviewed later in the year once we have more clarity about the
ongoing effects of the pandemic on our business. At that point the
Board will consider what actions are in the best interests of all
shareholders.
The results of these scenarios indicate that the Group would
operate well within its committed revolving credit facility of
EUR41.5m and maintain headroom against all covenant obligations
throughout the period to June 2021.
The Directors do, however, note the inherent uncertainty as to
the future effect of COVID-19. A potential more prolonged impact
outside of those modelled in our future trading scenarios could
result in a potential breach of the leverage covenant. In the event
that a covenant test is breached, we would need to work with our
banking syndicate to obtain a covenant relaxation or waiver in
order for the borrowing facilities to continue to be available. The
Directors note that this could represent a material uncertainty
that may cast significant doubt about the Group's ability to
continue as a going concern. However, the Directors are confident
that they would be able to obtain this covenant waiver if required
and, therefore, the Directors have a reasonable expectation that
the Group will have sufficient cash flow and available resources to
continue operating for at least 12 months from the approval date of
these Financial Statements. Accordingly, the Directors continue to
adopt the going concern basis of preparation.
Summary and outlook
We have made strong progress against our strategic objective of
strengthening our financial base and are pleased to report a
significant improvement in cash performance, improving operating
margins and substantial reduction in net debt versus 2018. Our
business is becoming more agile and efficient, giving us confidence
to increase investment to leverage our stronger base to deliver
future growth.
In reflecting on the advances made in 2019, we could not have
anticipated the economic uncertainty that would be caused by
COVID-19. Performance over the first three months of the year was
strong, helped by customer stockpiling ahead of the pandemic. The
anticipated downturn in demand became visible from April,
particularly in the Companion Animal sector where government
measures restricted both veterinary practice and the mobility of
owners. By contrast, the Production Animal sector has been
relatively resilient, partially offsetting the rate of decline in
demand. Forecasting the economic impact across 2020 with any
accuracy is difficult, but data from countries that have been
operating with fewer restrictions through the pandemic, such as
Germany, clearly show that the driver of recovery will be vets
returning to normal working patterns. We have noted the early start
of a return in some other countries more recently.
As announced in our trading update of 25 March 2020, we have
taken steps to protect our employees as we continue to support our
customers during this period. We've also moved quickly to preserve
cash and to re-align SG&A spending to reflect the rapidly
changing trading environment, maintaining the Group's financial
resilience and preserving the ability to invest as we progress
towards a recovery. At 30 April 2020, both net debt and the net
debt to underlying EBITDA leverage ratio were at similar levels to
31 December 2019.
Whatever challenges 2020 presents, we are confident that the
Group's strong finances and its focus on a clear growth strategy
means Animalcare will continue to be well placed to take advantage
of opportunities in a market with attractive fundamentals.
Chris Brewster
Chief Financial Officer
consolidated income statement (unaudited)
Year ended 31 December 2019
For the year ended 31 December
----------------------------
Non-Underlying Non-Underlying
Underlying (note 4) Total Underlying (note 4) Total
2019 2019 2019 2018 2018 2018
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ----- ---------- -------------- -------- ---------- -------------- --------
Revenue 3 71,124 - 71,124 72,470 - 72,470
Cost of sales (34,152) - (34,152) (35,131) - (35,131)
---------------------------- ----- ---------- -------------- -------- ---------- -------------- --------
Gross profit 36,972 - 36,972 37,339 - 37,339
Research and development
expenses (2,922) (1,171) (4,093) (3,466) (1,296) (4,762)
Selling and marketing
expenses (11,862) - (11,862) (12,435) - (12,435)
General and administrative
expenses (12,723) (4,771) (17,494) (11,877) (4,789) (16,666)
Net other operating
(expense)/income (3) (4,811) (4,814) 43 (3,302) (3,259)
---------------------------- ----- ---------- -------------- -------- ---------- -------------- --------
Operating profit/(loss) 9,462 (10,753) (1,291) 9,604 (9,387) 217
Financial expenses 6 (1,856) - (1,856) (840) - (840)
Financial income 7 1,539 - 1,539 266 - 266
---------------------------- ----- ---------- -------------- -------- ---------- -------------- --------
Profit/(loss) before
tax 9,145 (10,753) (1,608) 9,030 (9,387) (357)
Income tax 8 (1,966) 2,236 270 (2,016) 2,151 135
---------------------------- ----- ---------- -------------- -------- ---------- -------------- --------
Net profit/(loss)
from continuing operations 7,179 (8,517) (1,338) 7,014 (7,236) (222)
Net profit/(loss)
from discontinuing
operations 3 - - - 40 (816) (776)
---------------------------- ----- ---------- -------------- -------- ---------- -------------- --------
Net profit/(loss) 7,179 (8,517) (1,338) 7,054 (8,052) (998)
Net profit/(loss)
attributable to:
The owners of the
parent 7,179 (8,517) (1,338) 7,056 (8,052) (996)
Non-controlling interest - - - (2) - (2)
---------------------------- ----- ---------- -------------- -------- ---------- -------------- --------
Earnings per share
for profit/(loss)
from continuing operations
attributable to the
ordinary equity holders
of the Company:
Basic earnings per
share 9 12.0p (2.2p) 11.7p (0.4p)
Diluted earnings per
share 9 12.0p (2.2p) 11.7p (0.4p)
Earnings per share
for profit/(loss)
attributable to the
ordinary equity holders
of the Company:
Basic earnings per
share 9 12.0p (2.2p) 11.8p (1.7p)
Diluted earnings per
share 9 12.0p (2.2p) 11.8p (1.7p)
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 detail in note 4 to these financial
statements. The accompanying notes form an integral part of these
consolidated financial statements.
consolidated statement of comprehensive income (unaudited)
Year ended 31 December 2019
For the year ended
31 December
--------------------
2019 2018
GBP'000 GBP'000
--------------------------------------------------- --------- ---------
Net (loss)/profit for the year (1,338) (998)
Other comprehensive income
Cumulative translation differences* (795) 165
Other comprehensive income, net of tax (795) 165
--------------------------------------------------- --------- ---------
Total comprehensive (expense)/income for the year,
net of tax (2,133) (833)
--------------------------------------------------- --------- ---------
Total comprehensive (expense)/income attributable
to:
The owners of the parent (2,133) (831)
Non-controlling interest - (2)
--------------------------------------------------- --------- ---------
* May be reclassified subsequently to profit & loss
Consolidated statement of financial position (unaudited)
Year ended 31 December 2019
For the year ended
31 December
------------------------------------------------ ----- --------------------
2019 2018
Notes GBP'000 GBP'000
------------------------------------------------ ----- --------- ---------
Assets
Non-current assets
Goodwill 10 50,454 50,937
Intangible assets 11 43,000 51,334
Property, plant and equipment 312 477
Right-of-use assets 1,917 -
Deferred tax assets 8 1,524 1,699
Other financial assets 59 59
Other non-current assets 72 294
------------------------------------------------ ----- --------- ---------
Total non-current assets 97,338 104,800
------------------------------------------------ ----- --------- ---------
Current assets
Inventories 11,102 14,891
Trade receivables 10,891 13,084
Other current assets 2,746 2,736
Cash and cash equivalents 6,165 8,035
------------------------------------------------ ----- --------- ---------
Total current assets 30,904 38,746
------------------------------------------------ ----- --------- ---------
Total assets 128,242 143,546
------------------------------------------------ ----- --------- ---------
Liabilities
Current liabilities
Borrowings 12 (612) (648)
Lease liabilities 15 (830) -
Trade payables (10,334) (11,907)
Tax payables (1,288) (1,016)
Accrued charges and deferred income 13 (2,063) (2,325)
Other current liabilities (2,799) (3,864)
------------------------------------------------ ----- --------- ---------
Total current liabilities (17,926) (19,760)
------------------------------------------------ ----- --------- ---------
Non-current liabilities
Borrowings 12 (21,428) (30,975)
Lease liabilities 15 (1,106) -
Deferred tax liabilities 8 (5,176) (5,521)
Deferred income 13 (599) (617)
Provisions (118) (81)
------------------------------------------------ ----- --------- ---------
Total non-current liabilities (28,427) (37,194)
------------------------------------------------ ----- --------- ---------
Total liabilities (46,353) (56,954)
------------------------------------------------ ----- --------- ---------
Net assets 81,889 86,592
------------------------------------------------ ----- --------- ---------
Equity
Share capital 14 12,012 12,012
Share premium 132,729 132,729
Reverse acquisition reserve (56,762) (56,762)
Accumulated losses (8,640) (4,732)
Other reserves 2,550 3,345
Equity attributable to the owners of the parent 81,889 86,592
Non-controlling interest - -
------------------------------------------------ ----- --------- ---------
Total equity 81,889 86,592
------------------------------------------------ ----- --------- ---------
Consolidated statement of changes in equity (unaudited)
Year ended 31 December 2019
Attributable to the owners of the parent
Retained
earnings/ 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 - - (1,338) - - (1,338) - (1,338)
Other comprehensive
income - - - - (795) (795) - (795)
--------------------- -------- -------- ------------ ------------ -------- -------- ------------ --------
Total comprehensive
expense - - (1,338) - (795) (2,133) - (2,133)
--------------------- -------- -------- ------------ ------------ -------- -------- ------------ --------
Dividends paid - - (2,642) - - (2,642) - (2,642)
Share-based payments - - 72 - - 72 - 72
--------------------- -------- -------- ------------ ------------ -------- -------- ------------ --------
At 31 December 2019 12,012 132,729 (8,640) (56,762) 2,550 81,889 - 81,889
--------------------- -------- -------- ------------ ------------ -------- -------- ------------ --------
Attributable to the owners of the parent
Retained
earnings/ 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 loss - - (996) - - (996) (2) (998)
Other comprehensive
income - - - - 165 165 - 165
--------------------- -------- -------- ------------ ------------ -------- -------- ------------ --------
Total comprehensive
expense - - (996) - 165 (831) (2) (833)
--------------------- -------- -------- ------------ ------------ -------- -------- ------------ --------
Dividends paid - - (2,401) - - (2,401) - (2,401)
Exercise of share
options 29 141 - - - 170 - 170
Share-based payments - - 12 - - 12 - 12
--------------------- -------- -------- ------------ ------------ -------- -------- ------------ --------
At 31 December 2018 12,012 132,729 (4,732) (56,762) 3,345 86,592 - 86,592
--------------------- -------- -------- ------------ ------------ -------- -------- ------------ --------
Reverse acquisition reserve
Reverse acquisition reserve represents the reserve that has been
created upon the reverse acquisition of Animalcare Group plc.
Other reserve
Other reserve mainly relates to currency translation
differences. These exchange differences arise on the translation of
subsidiaries with a functional currency other than sterling.
Consolidated cash flow statement (unaudited)
Year ended 31 December 2019
For the year ended 31
December
-----------------------
2019 2018
Notes GBP'000 GBP'000
-------------------------------------------------- ----- ----------- ----------
Operating activities
Loss before tax from continuing operations (1,608) (357)
Loss before tax from discontinued operations 3 - (776)
-------------------------------------------------- ----- ----------- ----------
(Loss)/profit before tax (1,608) (1,133)
-------------------------------------------------- ----- ----------- ----------
Non-cash and operational adjustments
Depreciation of property, plant and equipment 1,270 333
Amortisation of intangible assets 11 8,222 7,965
Impairment of intangible assets 11 1,632 852
Impairment of goodwill 10 - 456
Share-based payment expense 72 12
(Gain)/loss on disposal of fixed assets 35 (2)
Non-cash movement in provisions 694 -
Loss on disposal of subsidiary 3 - 682
Doubtful debts and inventories written off 648 620
Financial income (608) (254)
Financial expense 1,250 879
Impact of foreign currencies (330) 16
Non-cash movement on transition to IFRS 16 3 -
Other (21) 2
Movements in working capital
Decrease/(Increase) in trade receivables 3,098 (540)
Decrease/(Increase) in inventories 2,492 (1,207)
(Decrease)/increase in payables (3,842) 904
Income tax received/(paid) 99 (2,155)
-------------------------------------------------- ----- ----------- ----------
Net cash flow from operating activities 13,106 7,430
-------------------------------------------------- ----- ----------- ----------
Investing activities
Purchase of property, plant and equipment (48) (213)
Purchase of intangible assets 10 (2,343) (4,568)
Proceeds from the sale of property, plant
and equipment (net) - 6
Proceeds from sale of subsidiary 3 - 2,403
Sale/(purchase) of available-for-sale financial
investments - 459
-------------------------------------------------- ----- ----------- ----------
Net cash flow used in investing activities (2,391) (1,913)
-------------------------------------------------- ----- ----------- ----------
Financing activities
Repayment of loans and borrowings (8,100) (2,257)
Repayment of IFRS 16 lease liability (1,053) -
Receipts from issue of share capital - 170
Dividends paid (2,642) (2,401)
Interest paid (617) (637)
Other financial (expense)/income (27) 11
-------------------------------------------------- ----- ----------- ----------
Net cash flow (used in)/from financing activities (12,439) (5,114)
-------------------------------------------------- ----- ----------- ----------
Net (decrease)/increase of cash and cash
equivalents (1,724) 403
Cash and cash equivalents at beginning of
year 8,035 7,579
Exchange rate differences on cash and cash
equivalents (146) 53
-------------------------------------------------- ----- ----------- ----------
Cash and cash equivalents at end of year 6,165 8,035
-------------------------------------------------- ----- ----------- ----------
Reconciliation of net cash flow to movement
in net debt
Net increase in cash and cash equivalents
in the year (1,724) 403
Cash flow from decrease/(increase) in debt
financing 8,100 2,257
Foreign exchange differences on cash and
borrowings 1,336 (349)
-------------------------------------------------- ----- ----------- ----------
Movement in net debt in the year 7,712 2,311
-------------------------------------------------- ----- ----------- ----------
Net debt at the start of the year (23,588) (25,908)
Debt transferred on sale of subsidiary 3 - 9
Lease liabilities at end of the year 15 (1,936) -
-------------------------------------------------- ----- ----------- ----------
Net debt at the end of the year (17,812) (23,588)
-------------------------------------------------- ----- ----------- ----------
Notes to the consolidated financial statements
1. Financial information
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2019
and 31 December 2018. The financial information for 2018 is derived
from the statutory accounts for 2018 which have been delivered to
the Registrar of Companies. The Auditor has reported on the 2018
accounts; their report was (i) unqualified, (ii) did not include a
reference to any matters to which the auditor drew attention by way
of emphasis without qualifying their report and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006. The audit of the statutory accounts for the year ended 31
December 2019 is not yet complete and the audit report is expected
to include reference to a material uncertainty related to going
concern. The statutory accounts for 2019 will be finalised on the
basis of the financial information presented by the directors in
this preliminary announcement and will be delivered to the
registrar of companies in due course.
2. Basis of preparation
The Group financial statements have been prepared and approved
by the Directors under the historical cost convention, except for
the revaluation of certain financial instruments, in accordance
with International Financial Reporting Standards ("IFRS") as
adopted by the European Union ("adopted IFRSs") and interpretations
issued by the IFRS interpretations committee and the Companies Act
2006 as applicable to companies reporting under IFRS. They have
also been prepared in accordance with the requirements of the AIM
Rules.
This is the first set of the Group's annual financial statements
in which IFRS 16 Leasing has been applied.
The consolidated financial statements cover the year ended 31
December 2019 and compromise the consolidated results of the
Group.
The notes to this preliminary announcement are unaudited in
relation to 2019 and extracted from the audited financial
statements in relation to 2018.
Going concern
Accounting standards require that the Directors satisfy
themselves that it is reasonable for them to conclude whether it is
appropriate to prepare the financial statements on a going concern
basis. The uncertainty as to the future impact on the Group of the
recent COVID-19 outbreak has been considered as part of the Group's
adoption of the going concern basis.
At 31 December 2019, the Group's financing arrangements
consisted of a committed revolving credit facility of EUR41.5m, a
EUR10m acquisition line, which cannot be utilised to fund our
operations, and EUR4.1m investment loans. All facilities mature in
March 2022.
The facilities are subject to the following covenants which are
in operation at all times:
-- Net debt to underlying EBITDA ratio of maximum 3.5 times
-- Underlying EBITDA to interest ratio of minimum 4 times
-- Solvency (total assets less goodwill/total equity less goodwill) greater than 25%
As at 31 December 2019, all covenant requirements were met with
significant headroom across all three measures.
As at 30 April 2020, the net debt to underlying EBITDA ratio was
approximately 1.3 times (31 December 2019: 1.4 times). Headroom on
the banking facilities, including cash on balance sheet, was
GBP25.8m (31 December 2019: GBP24.6m)
The Group entered the pandemic period in a strong financial
position. In recent weeks we have seen an inevitable impact on the
markets where we operate and a resulting downturn in demand
starting in the second quarter.
While it's too early to accurately assess the economic impact on
the Group, the uncertain future impact of COVID-19 has been
considered as part of the Group's adoption of the going concern
basis.
The Group has run a series of future trading scenarios to June
2021 to factor in a range of downside revenue estimates with
mitigating actions on cost and cash flow. On revenue we modelled a
rolling 12-month downturn of between 13% and 22% compared to 2019,
with the most significant impact during a quarter in which lockdown
measures are enforced. In the downside scenarios, a prolonged
lockdown of six months, or a second wave mirroring Q2 2020, both
with subsequent slower recovery, was considered.
To maintain our operational and financial resilience, we have
already taken a number of steps to reduce or defer costs to align
with revenue, carefully manage inventory in light of demand shifts
and implement a capital expenditure freeze for all but essential
projects, including key development programmes and manufacturing
transfers.
As announced in our trading update of 25 March 2020, the Board
deferred the payment of the final dividend. This decision will be
reviewed later in the year once we have more clarity about the
ongoing effects of the pandemic on our business. At that point the
Board will consider what actions are in the best interests of all
shareholders.
The results of these scenarios indicate that the Group would
operate well within its committed revolving credit facility of
EUR41.5m and maintain headroom against all covenant obligations
throughout the period to June 2021.
The Directors do, however, note the inherent uncertainty as to
the future effect of COVID-19. A potential more prolonged impact
outside of those modelled in our future trading scenarios could
result in a potential breach of the leverage covenant. In the event
that a covenant test is breached, we would need to work with our
banking syndicate to obtain a covenant relaxation or waiver in
order for the borrowing facilities to continue to be available. The
Directors note that this could represent a material uncertainty
that may cast significant doubt about the Group's ability to
continue as a going concern. However, the Directors are confident
that they would be able to obtain this covenant waiver if required
and, therefore, the Directors have a reasonable expectation that
the Group will have sufficient cash flow and available resources to
continue operating for at least 12 months from the approval date of
these Financial Statements. Accordingly, the Directors continue to
adopt the going concern basis of preparation.
The financial statements do not include the adjustments that
would result if the Group were unable to continue as a going
concern.
Reverse acquisition of Animalcare Group plc in 2017
As explained in depth in the Financial Statements of 2017 and
2018, on 13 July 2017 the Group completed the reverse acquisition
of Ecuphar NV ("Ecuphar"). The accounting policy adopted by the
Directors applied the principles of IFRS 3 (Revised) 'Business
Combinations' in identifying the accounting parent as Ecuphar NV
and the presentation of the Group consolidated statements of the
Company (the legal parent) as a continuation of financial
statements of the accounting parent or legal subsidiary (Ecuphar
NV).
Wholesale divestment 2018
Following the divestment of the Wholesaling business Medini NV
registered in Belgium, Legeweg 157i, 8020 Oostkamp on 4 September
2018, the 2018 financial information has been presented in
accordance with IFRS 5, to show continuing operations separately
from discontinued operations. Both continuing and discontinued
operations have been presented to include elements relating to
transactions between entities which were previously eliminated in
the consolidation as intra-group.
Restatement of segment information
Following review of the revenue by product category disclosures
in the 2018 Annual Report, the 2018 comparative segmental
information required by IFRS 8 has been restated to better align
the classification of a small number of products to the markets in
which they operate and are managed by the Group. As a result,
Companion Animals revenue has increased by GBP1.5m, Production
Animals decreased by GBP2.0m and Equine & other increased by
GBP0.5m. There is no impact on total revenues.
3. Business combinations and disposals of subsidiaries
Disposal of subsidiaries
On 4 September 2018, the Group announced and completed the
disposal of its Wholesale business Medini NV registered in Belgium,
Legeweg 157i, 8020 Oostkamp.
The Group recognised a loss including expenses in relation to
the disposal of GBP682k during the year ended 31 December 2018.
This is based on the total consideration of GBP2,989k and unaudited
net asset value of GBP3,622k, excluding intercompany debt.
The Group received an initial cash consideration of GBP2,413k
including intercompany loan balances due from the Wholesale
Division to other Animalcare Group plc companies. A further GBP362k
was payable to the Group on 30 June 2019 in relation to the
remaining intercompany balance owned.
In accordance with IFRS 5, the income statement for the twelve
months ended 31 December 2018 has been presented to show continuing
operations separately from discontinued operations. Both continuing
and discontinued operations have been presented to include elements
relating to transactions between entities which were previously
eliminated in the consolidation as intra-group. The effect of
including these elements is shown as consolidation adjustments.
Total continuing
Continuing Discontinued Consolidation and discontinued
operations operations adjustments operations
2018 2018 2018 2018
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ ----------- ------------ ------------- -----------------
Revenue 72,470 16,572 (719) 88,323
Cost of sales (35,131) (15,059) 689 (49,501)
------------------------------------ ----------- ------------ ------------- -----------------
Gross profit 37,339 1,513 (30) 38,822
Research and development expenses (4,762) - - (4,762)
Selling and marketing expenses (12,435) (1,111) 46 (13,500)
General and administrative expenses (16,666) (387) (18) (17,071)
Net other operating expenses (3,259) (761) 2 (4,018)
------------------------------------ ----------- ------------ ------------- -----------------
Operating profit/(loss) 217 (746) - (529)
Financial expenses (840) (39) 20 (859)
Financial income 266 9 (20) 255
------------------------------------ ----------- ------------ ------------- -----------------
Loss before tax (357) (776) - (1,133)
Income tax 135 - - 135
------------------------------------ ----------- ------------ ------------- -----------------
Net loss (222) (776) - (998)
------------------------------------ ----------- ------------ ------------- -----------------
The net cash flow by discontinued operations can be found
below:
For the
year ended
31 December
2018
GBP'000
----------------------------------------------------- ------------
Net cash flow from operating activities 133
Net cash flow used in investing activities (94)
Net cash flow used in financing activities (28)
----------------------------------------------------- ------------
Net increase/(decrease) of cash and cash equivalents 11
----------------------------------------------------- ------------
The major classes of assets and liabilities of the Wholesale
business at the disposal date can be found below:
GBP'000
---------------------------------------------------------- -------
Non-current assets
Goodwill 106
Intangible assets 2
Property, plant and equipment 244
---------------------------------------------------------- -------
Current assets
Inventories 2,669
Trade receivables 2,451
Other current assets 77
Cash and cash equivalents 10
---------------------------------------------------------- -------
Total assets classified as held for sale 5,559
Current liabilities
Borrowings (9)
Trade payables (1,690)
Tax payables (52)
Accrued charges and deferred income (12)
Other current liabilities (169)
---------------------------------------------------------- -------
Non-current liabilities
Deferred tax liabilities (5)
---------------------------------------------------------- -------
Liabilities associated with assets classified as held for
sale (1,937)
Total net assets 3,622
Consideration received or receivable:
Cash 2,413
Receivable 576
Total disposal consideration 2,989
---------------------------------------------------------- -------
Carrying amount of net assets sold (3,622)
Loss on sale before reclassification of foreign currency
translation reserve (633)
Reclassification of foreign currency translation reserve (49)
---------------------------------------------------------- -------
Loss on sale (682)
Loss attributable to minority (2)
Loss attributable to owners of the parent (680)
Selling price received in cash 2,413
Cash and cash equivalents transferred (10)
---------------------------------------------------------- -------
Total cash flow 2,403
---------------------------------------------------------- -------
4. Non-underlying items
For the year ended
31 December
--------------------
2019 2018
GBP'000 GBP'000
--------------------------------------------------------- --------- ---------
Amortisation and impairment of acquisition related
intangibles
Classified within research and development expenses 1,171 1,296
Classified within general and administrative expenses 4,771 4,789
Classified within net other operating expenses 1,619 513
--------------------------------------------------------- --------- ---------
Total amortisation and impairment of acquisition-related
intangibles 7,561 6,598
--------------------------------------------------------- --------- ---------
Restructuring costs 1,795 1,235
Acquisition and integration costs 550 485
Impairment on goodwill and intangibles - 796
Brexit-related costs 243 -
Divestments and business disposals 173 -
Other non-underlying items 431 273
--------------------------------------------------------- --------- ---------
Total non-underlying items before taxes 10,753 9,387
--------------------------------------------------------- --------- ---------
Tax impact (2,236) (2,151)
--------------------------------------------------------- --------- ---------
Total non-underlying items after taxes from continuing
operations 8,517 7,236
--------------------------------------------------------- --------- ---------
Other non-underlying items from discontinued operations - 134
Loss on disposal - 682
--------------------------------------------------------- --------- ---------
Total non-underlying items after taxes 8,517 8,052
--------------------------------------------------------- --------- ---------
The amortisation charge of acquisition-related intangibles
largely relates to the Esteve acquisition of GBP2,020k (2018:
GBP2,037k), the Riemser acquisition of GBP369k (2018: GBP372k) and
the reverse acquisition of Animalcare Group plc of GBP3,629k (2018:
GBP3,676k).
During the year the Group incurred restructuring costs of
GBP1,795k. This principally relates to the R&D and technical
and regulatory team centralisation which resulted in a headcount
reduction in the UK and Spain.
The impairment charge of GBP1,619k for acquisition related
intangibles relates to an impairment of projects within the R&D
pipeline who are deemed no longer economically viable due to
technical difficulties in the development process.
5. Segment information - from continuing operations
Following the sale of the wholesale business on 4 September
2018, the Group now only reports 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. As a performance indicator, the Chief
Operating Decision Maker controls performance by the Group's
revenue, gross margin, Underlying EBITDA and EBITDA. EBITDA is
defined by the Group as net profit plus finance expenses, less
financial income, plus income taxes and deferred taxes, plus
depreciation, amortisation and impairment. Underlying EBITDA equals
EBITDA plus non-underlying items.
The following table summarises the segment reporting from
continuing operations for 2019 and 2018. 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 15.
Pharma
GBP'000
------------------------------------ --------
For the year ended 31 December 2019
Revenues 71,124
Gross Margin 36,972
Gross Margin % 52%
Segment underlying EBITDA 13,137
Segment underlying EBITDA % 18%
Segment EBITDA 9,925
------------------------------------ --------
Segment EBITDA % 14%
------------------------------------ --------
For the year ended 31 December 2018
Revenues 72,470
Gross Margin 37,339
Gross Margin % 52%
Segment underlying EBITDA 11,798
Segment underlying EBITDA % 16%
Segment EBITDA 9,805
------------------------------------ --------
Segment EBITDA % 14%
------------------------------------ --------
The segment EBITDA is reconciled with the consolidated net
profit of the year as follows:
For the year ended
31 December
--------------------
2019 2018
GBP'000 GBP'000
------------------------------------------ --------- ---------
Segment EBITDA 9,925 9,805
Depreciation, amortisation and impairment (11,216) (9,588)
------------------------------------------ --------- ---------
Operating profit (1,291) 217
Financial expenses (1,856) (840)
Financial income 1,539 266
Income taxes 36 (869)
Deferred taxes 234 1,004
------------------------------------------ --------- ---------
Net (loss)/profit (1,338) (222)
------------------------------------------ --------- ---------
Segment assets excluding deferred tax assets and financial
instruments located in Belgium, Spain, Portugal, the United Kingdom
and other geographies are as follows:
For the year ended
31 December
--------------------
2019 2018
GBP'000 GBP'000
------------------------------------------------- --------- ---------
Belgium 14,325 18,423
Spain 2,424 2,127
Portugal 3,997 4,122
UK 70,572 73,913
Other 4,496 4,379
------------------------------------------------- --------- ---------
Non-current assets excluding deferred tax assets
and financial instruments 95,814 102,964
------------------------------------------------- --------- ---------
Revenue by product category
For the year ended
31 December
---------------------
2018
2019 (Restated)
GBP'000 GBP'000
-------------------------------------- -------- -----------
Companion animals 46,464 46,018
Production animals 18,844 20,793
Horses 5,681 5,212
Petfood, Instrumentation and Services 135 447
-------------------------------------- -------- -----------
Total 71,124 72,470
-------------------------------------- -------- -----------
At 31 December 2019, the figures for the year ended 31 December
2018 have been restated (see note 2).
Revenue by geographical area
For the year ended
31 December
--------------------
2019 2018
GBP'000 GBP'000
----------------------- --------- ---------
Belgium 9,303 8,260
The Netherlands 2,106 1,719
United Kingdom 14,137 16,802
Germany 10,337 9,784
Spain 18,644 20,706
Italy 6,142 4,984
Portugal 4,598 4,600
European Union - other 4,925 4,652
Asia 471 558
Middle East Africa 44 139
Other 417 266
----------------------- --------- ---------
Total 71,124 72,470
----------------------- --------- ---------
Revenue by category
For the year ended
31 December
--------------------
2019 2018
GBP'000 GBP'000
--------------- --------- ---------
Product sales 69,946 71,025
Services sales 1,178 1,445
--------------- --------- ---------
Total 71,124 72,470
--------------- --------- ---------
Product revenue is recognised when the performance obligation is
satisfied at a point in time. Service revenue is recognised by
reference of the stage of completion.
6. Financial expenses - from continuing operations
Financial expenses include the following elements:
For the year ended
31 December
--------------------
2019 2018
GBP'000 GBP'000
------------------------- --------- ---------
Interest expense 618 637
Foreign currency losses 1,120 119
Other financial expenses 118 84
------------------------- --------- ---------
Total 1,856 840
------------------------- --------- ---------
7. Financial income - from continuing operations
Financial income includes the following elements
For the year ended
31 December
--------------------
2019 2018
GBP'000 GBP'000
-------------------------------- --------- ---------
Foreign currency exchange gains 1,509 192
Income from financial assets 30 -
Other financial income - 74
-------------------------------- --------- ---------
Total 1,539 266
-------------------------------- --------- ---------
8. Income tax - from continuing operations
Income tax
The following table shows the breakdown of the tax expense for
2019 and 2018:
For the year ended
31 December
--------------------
2019 2018
GBP'000 GBP'000
----------------------------------------------------- --------- ---------
Current tax charge (617) (963)
Tax adjustments in respect of previous years 653 94
----------------------------------------------------- --------- ---------
Total current tax charge 36 (869)
Deferred tax - origination and reversal of temporary
differences 272 597
Deferred tax - adjustments in respect of previous
years (38) 407
Total deferred tax credit 234 1,004
----------------------------------------------------- --------- ---------
Total tax income/(expense) for the year 270 135
----------------------------------------------------- --------- ---------
The total tax expense can be reconciled to the accounting profit
as follows:
For the year ended
31 December
--------------------
2019 2018
GBP'000 GBP'000
--------------------------------------------------- --------- ---------
Loss before tax (1,608) (357)
Tax at 19.00% (2018: 19.00%) 305 68
Effect of:
Overseas tax rates (181) (64)
Non-deductible expenses (146) (156)
Income not subject to tax 31 215
Derecognition of formerly recognised deferred
tax assets (3) -
Other permanent tax differences - (133)
Other taxes (60) (38)
Use of tax losses previously not recognised 109 -
Changes in statutory enacted tax rate 27 (15)
Tax adjustments in respect of previous year 615 501
Non-recognition of deferred tax on current year
losses (429) (195)
Share-based deductions (6) (48)
Other 8 -
--------------------------------------------------- --------- ---------
Income tax expense as reported in the consolidated
income statement 270 135
--------------------------------------------------- --------- ---------
The tax credit of GBP2,236k (2018: GBP2,151k) shown within
"non-underlying items" on the face of the consolidated income
statement, which forms part of the overall tax credit of GBP270k
(2018: GBP135k) relates to the items in note 4.
The tax rates used for the 2019 and 2018 reconciliation above
are the corporate tax rates of 29.58% (Belgium), 25.00% (the
Netherlands), 30.70% (Germany), 33.00% (France), 25.00% (Spain),
24.00% (Italy), 21.00% (Portugal) and 19.00% (the United Kingdom).
These taxes are payable by corporate entities in the above
mentioned countries on taxable profits under tax law in that
jurisdiction.
Changes to the UK corporation tax rate were substantially
enacted as part of the Finance Bill 2017 (on 6th September
2016).
They include reductions to the main rate to reduce the rate to
17.00% from 1 April 2020.
A similar tax reform in Belgium was substantially enacted in
December 2017. The tax rate will gradually decrease from 33.99%
(2017) to 29.58% in 2018 and 2019 and to 25.00% from 2020
onwards.
Deferred taxes at the balance sheet date have been measured
using the enacted tax rates and reflected in these financial
statements.
Deferred tax
(a) Recognised deferred tax assets and liabilities
Assets Liabilities Total
------------------------------------- ------------------ ------------------ ------------------
2019 2018 2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- -------- -------- -------- -------- -------- --------
Goodwill (7) 23 (765) (632) (772) (609)
Intangible assets 719 834 (4,490) (4,969) (3,771) (4,135)
Property, plant and
equipment (244) 45 (155) (43) (399) 2
Financial fixed assets 1 1 - - 1 1
Inventory (8) 3 (21) (21) (29) (18)
Trade and other payables/receivables 3 3 (1) 43 2 46
Borrowings 295 - 112 - 407 -
Accruals and deferred
income 6 - - - 6 -
Tax losses carried forward 759 790 144 101 903 891
------------------------------------- -------- -------- -------- -------- -------- --------
Total 1,524 1,699 (5,176) (5,521) (3,652) (3,822)
------------------------------------- -------- -------- -------- -------- -------- --------
(b) Movements during the year
Movement of deferred taxes during 2019:
Balance Balance
at Foreign at
1 January Recognised Disposal exchange 31 December
2019 in income of subsidiaries adjustments 2019
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ---------- ---------- ---------------- ------------ ------------
Goodwill (609) (197) - 34 (772)
Intangible assets (4,135) 405 - (41) (3,771)
Property, plant and equipment 2 (411) - 10 (399)
Financial fixed assets 1 - - - 1
Inventory (18) (13) - 2 (29)
Trade and other payables/receivables 46 (44) - - 2
Accruals and deferred income - 6 - - 6
Borrowings - 420 - (13) 407
Tax losses carry forward and
other tax benefits 891 68 - (56) 903
------------------------------------- ---------- ---------- ---------------- ------------ ------------
Net deferred tax (3,822) 234 - (64) (3,652)
------------------------------------- ---------- ---------- ---------------- ------------ ------------
Movement of deferred taxes during 2018:
Balance Balance
at Foreign at
1 January Recognised Disposal exchange 31 December
2018 in income of subsidiaries adjustments 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ---------- ---------- ---------------- ------------ ------------
Goodwill (369) (234) - (6) (609)
Intangible assets (5,603) 1,458 - 10 (4,135)
Property, plant and equipment 3 (1) - - 2
Financial fixed assets 1 - - - 1
Inventory 26 (50) 5 1 (18)
Trade and other payables/receivables 298 (250) - (2) 46
Accruals and deferred income 94 (94) - - -
Tax losses carry forward and
other tax benefits 699 175 - 17 891
------------------------------------- ---------- ---------- ---------------- ------------ ------------
Net deferred tax (4,851) 1,004 5 20 (3,822)
------------------------------------- ---------- ---------- ---------------- ------------ ------------
Tax losses
The Group has unused tax losses, tax credits and notional
interest deduction available in an amount of GBP3,014k for 2019
(2018: GBP3,141k).
Deferred tax assets have been recognised on available tax losses
carried forward for some legal entities, resulting in amounts
recognised of GBP759k (2018: GBP788k). This was based on
management's estimate that sufficient positive taxable basis will
be generated in the near future for the related legal entities with
fiscal losses.
9. Earnings per share
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:
Profit/(loss) from continuing and discontinuing operations
For the year ended 31 December
--------------------------------------------- --------------------------------------------
2019 2018 2019 2018
Underlying Underlying Total Total
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- ----------- ----------- -------- --------
Net profit/(loss) from continuing operations 7,179 7,014 (1,338) (222)
Net profit/(loss) from discontinuing
operations - 40 - (774)
--------------------------------------------- ----------- ----------- -------- --------
Net profit attributable to ordinary
equity holders of the parent
adjusted for the effect of dilution 7,179 7,054 (1,338) (996)
--------------------------------------------- ----------- ----------- -------- --------
Average number of shares (basic and diluted)
For the year ended 31 December
---------------------------------------- ------------------------------------------------
2019 2018 2019 2018
Number of shares Underlying Underlying Total Total
---------------------------------------- ----------- ----------- ---------- ----------
Weighted average number of ordinary
shares for basic earnings per share 60,057,161 60,008,714 60,057,161 60,008,714
Dilutive potential ordinary shares - 5,452 - 5,452
---------------------------------------- ----------- ----------- ---------- ----------
Weighted average number of ordinary
shares adjusted for effect of dilution 60,057,161 60,014,166 60,057,161 60,014,166
---------------------------------------- ----------- ----------- ---------- ----------
Basic earnings/(loss) per share
For the year ended 31 December
-------------------------------------------- ----------------------------------------------
2019 2018 2019 2018
Underlying Underlying Total Total
in pence in pence in pence in pence
-------------------------------------------- ----------- ----------- --------- ---------
From continuing operations attributable
to the ordinary equity holders
of the Company 12.0 11.7 (2.2) (0.4)
From discontinued operation 0.0 0.1 0.0 (1.3)
-------------------------------------------- ----------- ----------- --------- ---------
Total basic earnings per share attributable
to the ordinary equity holders of the
Company 12.0 11.8 (2.2) (1.7)
-------------------------------------------- ----------- ----------- --------- ---------
Diluted earnings/(loss) per share
For the year ended 31 December
-------------------------------------------- ----------------------------------------------
2019 2018 2019 2018
Underlying Underlying Total Total
in pence in pence in pence in pence
-------------------------------------------- ----------- ----------- --------- ---------
From continuing operations attributable
to the ordinary equity holders
of the Company 12.0 11.7 (2.2) (0.4)
From discontinued operation 0.0 0.1 0.0 (1.3)
-------------------------------------------- ----------- ----------- --------- ---------
Total basic earnings per share attributable
to the ordinary equity holders of the
Company 12.0 11.8 (2.2) (1.7)
-------------------------------------------- ----------- ----------- --------- ---------
10. Goodwill
On acquisition, goodwill acquired in a business combination is
allocated to the cash-generating units which are expected to
benefit from that business combination. Following the disposal of
the wholesale division during 2018, there is now only one
cash-generating unit to allocate the acquired goodwill to, being
the pharmaceuticals division. The goodwill has been allocated to
the cash-generating unit ("CGU") as follows:
For the year ended
31 December
--------------------
2019 2018
GBP'000 GBP'000
--------------------- --------- ---------
CGU: Pharmaceuticals 50,454 50,937
--------------------- --------- ---------
Total 50,454 50,937
--------------------- --------- ---------
The changes in the carrying value of the goodwill can be
presented as follows for the years 2019 and 2018:
2018
GBP'000
--------------------- --------
At 1 January 2018 51,413
Disposals (106)
Other (456)
Currency translation 86
At 31 December 2018 50,937
Currency translation (483)
--------------------- --------
At 31 December 2019 50,454
--------------------- --------
During 2018 the goodwill balance decreased as a result of the
disposal of Medini in 2018 by GBP106k (see note 3) and the
impairment of goodwill relating to the non-core Orthopaedics
business by GBP456k.
Goodwill allocated to the Pharmaceuticals CGU includes goodwill
recognised as a result of past business combinations of Esteve,
Equipharma NV, Ecuphar BV, Cardon Pharmaceuticals NV and the
reverse acquisition of Animalcare Group plc in 2017.
The discount rate and growth rate (in perpetuity) used for value
in use calculations are as follows:
2019 2018
------------------------------ ---- ----
Discount rate (pre-tax) % 11.8 10.5
------------------------------ ---- ----
Growth rate (in perpetuity) % 2.0 2.0
------------------------------ ---- ----
Cash flow forecasts are prepared using the current operating
budget approved by the Directors, which covers a five-year period
and an appropriate extrapolation of cash flows beyond this. The
cash flow forecasts assume revenue and profit growth in line with
our strategic priorities.
The Group's impairment review is sensitive to change in
assumptions used, most notably the discount rates and the
perpetuity growth rates.
A 1.0% increase in discount rates would cause the value in use
of the CGU to reduce by GBP17 million but would not give rise to an
impairment. A 1.0% reduction in perpetuity growth rates would cause
the value in use of the CGU to reduce by GBP12.7million, but would
not give rise to an impairment.
The CGU is robust to small reductions in short-term cash flows,
whether driven by lower sales growth, lower operating profits or
lower cash conversion. A 44.0% reduction in total annual cash flows
would give rise to an impairment of GBP100k. An increase in
discount rates to 17.1% or a reduction in perpetuity growth rates
to 2.6% would each give rise to an impairment in the CGU of
GBP100k.
11. Intangible assets
The changes in the carrying value of the intangible assets can
be presented as follows for the years 2019 and 2018:
Product
Patents, portfolios
distribution and product
In-Process rights development Capitalized
R&D and licences costs software Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ ---------- ------------- ------------ ----------- --------
Acquisition value
------------------------------------ ---------- ------------- ------------ ----------- --------
At 1 January 2018 13,518 17,685 39,875 717 71,795
------------------------------------ ---------- ------------- ------------ ----------- --------
Additions 3,525 1,340 670 452 5,987
Change due to business combinations - (29) (5) - (34)
Currency translation 36 104 128 12 280
Other - 8 - - 8
------------------------------------ ---------- ------------- ------------ ----------- --------
At 31 December 2018 17,079 19,108 40,668 1,181 78,036
------------------------------------ ---------- ------------- ------------ ----------- --------
Additions 1,582 251 208 302 2,343
Disposals (1,830) (62) (46) - (1,938)
Transfers (88) (136) (3) 88 (139)
Currency translation (217) (723) (826) (61) (1,827)
Other 1,395 - (1,395) 6 6
------------------------------------ ---------- ------------- ------------ ----------- --------
At 31 December 2019 17,921 18,438 38,606 1,516 76,481
------------------------------------ ---------- ------------- ------------ ----------- --------
Amortisation
------------------------------------ ---------- ------------- ------------ ----------- --------
At 1 January 2018 (1,241) (4,990) (11,241) (286) (17,758)
------------------------------------ ---------- ------------- ------------ ----------- --------
Amortisation charge (1,423) (2,716) (3,504) (322) (7,965)
Change due to business combinations - 29 3 - 32
Impairments (852) - - - (852)
Transfers - - - (15) (15)
Currency translation (10) (64) (76) (6) (156)
Other (10) 20 2 - 12
------------------------------------ ---------- ------------- ------------ ----------- --------
At 31 December 2018 (3,536) (7,721) (14,816) (629) (26,702)
------------------------------------ ---------- ------------- ------------ ----------- --------
Amortisation charge (1,546) (2,851) (3,490) (335) (8,222)
Disposals 1,828 62 13 - 1,903
Impairments (1,632) - - - (1,632)
Currency translation - 136 3 - 139
Transfers 72 405 521 39 1,037
Other 1 - - (5) (4)
------------------------------------ ---------- ------------- ------------ ----------- --------
At 31 December 2019 (4,813) (9,969) (17,769) (930) (33,481)
------------------------------------ ---------- ------------- ------------ ----------- --------
Net carrying value
At 31 December 2019 13,108 8,469 20,837 586 43,000
At 31 December 2018 13,543 11,387 25,852 552 51,334
------------------------------------ ---------- ------------- ------------ ----------- --------
In-process research and development relates to acquired
development projects as part of the Esteve business combination in
2015, the reverse acquisition of Animalcare Group plc in 2018 and
external and internal in-process R&D costs for which the
capitalisation criteria are met. Patents, distribution rights and
licences include amounts paid for exclusive distribution rights as
well as distribution rights acquired as part of the Esteve business
combination in 2015 and the reverse acquisition of Animalcare Group
plc in 2018.
Product portfolios and product development costs relate to
amounts paid for acquired brands as well as external and internal
product development costs capitalised on the development projects
in the pipeline for which the capitalisation criteria are met.
The total amortisation charge for 2019 is GBP8,222k (2018:
GBP7,965k) which is included in lines cost of sales, research and
development expenses, sales and marketing expenses and general and
administrative expenses of the consolidated income statement.
Included in the total amortisation and impairment charge is
GBP7,561k (2018: GBP6,598k) relating to acquisition related
intangibles.
In 2019, Animalcare Group plc recorded an impairment charge of
GBP1,632k (2018: GBP852k).
In the total additions of GBP2,343k in 2019 (2018: GBP5,987k),
an amount of GBP237k (2018: GBP1,419k) is included for the expected
contractual pay-outs under a licence agreement over a two-year
period starting on 1 January 2019.
12. Borrowings
The loans and borrowings include the following:
For the year ended
31 December
--------------------
Interest 2019 2018
rate Maturity GBP'000 GBP'000
------------------------------ -------- -------- --------- ---------
Other loans 1.56% 9 22
Euribor
Revolving credit facilities +1.50% March 22 16,845 25,513
Euribor
Roll over investment facility +1.50% March 22 1,358 2,063
Euribor
Acquisition loan +1.75% March 22 3,828 4,025
See note
Lease liabilities 15 1,936 -
Total loans and borrowings 23,976 31,623
------------------------------ -------- -------- --------- ---------
Of which:
Non-current 22,534 30,975
Current 1,442 648
------------------------------ -------- -------- --------- ---------
Revolving credit facilities and roll over investment
facilities
In mid-2016, the Group refinanced all of its outstanding
investment loans with different banks. Financing arrangements were
entered into with four Belgian banks. These financing arrangements
have been split equally amongst these four banks. The current
agreements consist of:
-- EUR41.5 million revolving credit facilities
-- EUR10 million available acquisition financing
-- EUR4.08 million investment loans
The loans have a variable, EURIBOR based interest rate,
increased with a margin of 1.50% or 1.75%. The revolving credit
facilities and the acquisition financing have a bullet maturity in
March 2022. The investment loans are repaid in 23 monthly
instalments.
13. Accrued charges and deferred income
Accrued charges and deferred income consists of the
following:
For the year ended
31 December
--------------------
2019 2018
GBP'000 GBP'000
-------------------------------------- --------- ---------
Accrued charges 1,898 2,133
Deferred income - due within one year 173 190
Other (8) 2
-------------------------------------- --------- ---------
Total due within one year 2,063 2,325
-------------------------------------- --------- ---------
Deferred income - due after one year 599 617
-------------------------------------- --------- ---------
Accrued charges mainly relate to accrued product development
expenses of GBP790k (2018: GBP1,188k) and several accrued charges
relating to commissions and bonuses in Ecuphar Veterinaria for an
amount of GBP294k (2018: GBP255k) and GBP261k (2018: GBP181k) for
Belphar.
Deferred income are contract liabilities that arise from certain
services sold by the Group's subsidiary Animalcare Ltd. In return
for a single upfront payment, Animalcare Ltd commits to a fixed
term contract to provide certain database, pet reunification and
other support services to customers. There is no contractual
restriction on the amount of times the customer makes use of the
services. At the commencement of the contract, it is not possible
to determine how many times the customer will make use of the
services, nor does historical evidence provide indications of any
future pattern of use. As such, income is recognised evenly over
the term of the contract, currently between 8 and 14 years.
Movements in the Group's deferred income liabilities during the
current year are as follows:
For the year ended
31 December
--------------------
2019 2018
GBP'000 GBP'000
----------------------------------------------- --------- ---------
Balance at the beginning of the year 807 999
Income deferred to following years 160 139
Release of income deferred from previous years (195) (331)
----------------------------------------------- --------- ---------
Balance at the end of the year 772 807
----------------------------------------------- --------- ---------
The deferred income liabilities fall due as follows:
For the year ended
31 December
--------------------
2019 2018
GBP'000 GBP'000
------------------------------- --------- ---------
Within one year 173 190
After one year 599 617
------------------------------- --------- ---------
Balance at the end of the year 772 807
------------------------------- --------- ---------
14. Equity
Share capital
For the year ended
31 December
----------------------
2019 2018
Number of shares GBP'000 GBP'000
------------------------------------------------------ ---------- ----------
Allotted, called up and fully paid Ordinary Shares of
20p each 60,057,161 60,057,161
------------------------------------------------------ ---------- ----------
For the year ended
31 December
--------------------
2019 2018
Number of shares GBP'000 GBP'000
------------------------------------------------------ --------- ---------
Allotted, called up and fully paid Ordinary Shares of
20p each 12,012 12,012
------------------------------------------------------ --------- ---------
The following share transactions have taken place during the
year ended 31 December 2019:
For the year ended
31 December 2019
--------------------
GBP'000 GBP'000
-------------------------- ----------- -------
At 1 January 2019 60,057,161 12,012
Exercise of share options - -
-------------------------- ----------- -------
At 31 December 2019 60,057,161 12,012
-------------------------- ----------- -------
Dividends
For the year ended
31 December
--------------------
2019 2018
GBP'000 GBP'000
----------------------------------------------------- --------- ---------
Ordinary final dividend paid for the year ended 31
December 2017 of 2.0p per share - 1,200
Ordinary interim dividend paid for the period ended
30th June 2018 of 2.0 per share - 1,201
Ordinary final dividend paid for the period ended 31
December 2018 of 2.4p per share 1,441 -
Ordinary interim dividend paid for the period ended
30th June 2019 of 2.0 per share 1,201 -
----------------------------------------------------- --------- ---------
2,642 2,401
----------------------------------------------------- --------- ---------
15. 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 the 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 3.20%.
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:
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 contracts that would have
required an adjustment to the right-of-use assets at the date of
initial application.
The balance sheet shows the following amounts relating to leases
as at 31 December 2019:
31 December 1 January
2019 2019
GBP'000 GBP'000
------------------------------ ----------- ---------
Buildings 893 1,275
Vehicles 989 1,269
Other 35 84
------------------------------ ----------- ---------
Total right-of-use assets 1,917 2,628
------------------------------ ----------- ---------
Current lease liabilities 830 910
Non-current lease liabilities 1,106 1,718
------------------------------ ----------- ---------
Total lease liabilities 1,936 2,628
------------------------------ ----------- ---------
Below are the carrying amounts of right-of-use assets recognised
and the movements during the year:
Land and
buildings Vehicles Other Total
------------------------------------- ---------- -------- ----- -------
Acquisition value
------------------------------------- ---------- -------- ----- -------
At 31 December 2018 - - - -
------------------------------------- ---------- -------- ----- -------
Initial measurement at 1 January 1,275 1,269 84 2,628
Additions 28 424 - 452
Disposals and contract modifications - (56) - (56)
Currency Translation (32) (50) (3) (85)
------------------------------------- ---------- -------- ----- -------
At 31 December 2019 1,271 1,587 81 2,939
------------------------------------- ---------- -------- ----- -------
Depreciation
------------------------------------- ---------- -------- ----- -------
At 31 December 2018 - - - -
------------------------------------- ---------- -------- ----- -------
Depreciation charge for the year (387) (634) (47) (1,068)
Disposals and contract modifications - 20 - 20
Currency translation 9 16 1 26
------------------------------------- ---------- -------- ----- -------
At 31 December 2019 (378) (598) (46) (1,022)
------------------------------------- ---------- -------- ----- -------
Net book value 893 989 35 1,917
------------------------------------- ---------- -------- ----- -------
Below are the values for the movements in lease liability during
the year:
Lease Liability
GBP'000
-------------------- ---------------
At 1 January 2019 2,628
Additions 452
Disposals (33)
Interest expense 74
Payments (1,127)
CTA (58)
-------------------- ---------------
At 31 December 2019 1,936
-------------------- ---------------
The following amounts are recognised in the income
statement:
For the
year ended
31 December
2019
GBP'000
----------------------------------------------------------- ------------
Depreciation expense of right-of-use assets (1,068)
Interest expense on lease liabilities (74)
(Loss)/gain on disposal of IFRS 16 assets (3)
Expense relating to short-term leases and low-value assets (119)
----------------------------------------------------------- ------------
Total amount recognised in the income statement (1,264)
----------------------------------------------------------- ------------
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.
Impact on EBITDA and earnings per share
EBITDA and underlying EBITDA increased by GBP1,127k for the year
2019 as a result of the change in accounting policy. There is no
material impact on net result and earnings per share for the
year.
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 assets 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.
16. Events after balance sheet date
The Directors consider the Covid-19 pandemic to be a material
non-adjusting post balance sheet event. The circumstances
surrounding the pandemic and the subsequent economic impact did not
arise until after 31 December 2019, and therefore no adjustment to
the Group's financial statements as at 31 December 2019 has been
made. The estimated potential effect on the Group's future
financial results and financial position is considered in the Chief
Financial Officer's Review and within note 2.
17. Annual Report
This Preliminary financial information is not being sent to
Shareholders.
A further announcement will be made when the Annual Report and
Accounts for the year ended 31 December 2019 will be made available
on the Company's website and copies sent to shareholders.
Further copies will be available to download on the Company's
website at: www.animalcaregroup.com and will also be available from
the Company's registered office address: 10 Great North Way, York
Business Park, Nether Poppleton, York, YO26 6RB
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
FR KKFBDPBKKCPB
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