REG - Animalcare Group PLC - Interim Results H1 2020
29/09/2020 07:00
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RNS Number : 3709A Animalcare Group PLC 29 September 2020
Animalcare Group plc
Interim Results for the six months ended 30 June 2020
29 September 2020. Animalcare Group plc ("the Company" or "Group") (AIM:
ANCR), the international animal health business, announces its unaudited
interim results for the six months ended 30 June 2020.
The Group is pleased to report a resilient first half performance and remains
well-placed to navigate the challenges due to COVID-19. We entered 2020 in a
strong financial position and this has been maintained throughout the period,
important both in terms of the Group's operational resilience and its ability
to focus on the execution of our growth strategy.
Financial Highlights
· Resilient financial performance at higher end of the Board's range of
pandemic scenario modelling
· Revenue £34.5m (2019: £36.1m), a decline of 4.4% (4.8% at CER)
compared to prior year period due to COVID-19. Production Animals sales
increased by 13.1%, partially offsetting the negative impact of government
pandemic controls on the Companion Animals sector
· Underlying* EBITDA down 2.4% on the prior year, reflecting cost
efficiencies generated in 2019 and decisive realignment of SG&A spend
during Q2 2020
· Cash conversion rate of 56.9% (2019: 92.3%) for first half as a
result of COVID-19 disruption and previously announced strategic stock build
in relation to manufacturing transfers
· Net debt £18.1m as of 30 June 2020 (£17.8m at 1 January 2020),
adversely impacted by currency variations
· Underlying* basic EPS 5.9 pence (6.4 pence for first half 2019)
· Declared interim dividend of 2.0 pence per share, in line with prior
period. Funds initially allocated for 2019 final dividend retained for
investment in growth opportunities
*The Group presents a number of non-GAAP Alternative Performance Measures
(APMs) which exclude non-underlying items as set out in note 3. EBITDA is
defined as underlying earnings before interest, tax, depreciation and
amortisation.
Strategic and Operational Highlights (including post-period)
Despite disruption to Animalcare's markets caused by the COVID-19 pandemic,
the Group has maintained a strong focus on delivery of its long-term growth
strategy.
Business development
· Post-period end, Animalcare signs CA$5 million agreement with Kane
Biotech to form an animal health company to target biofilm-related ailments.
The Group will commercialise Kane Biotech's range of oral care products for
companion animals outside the Americas while the jointly-owned company will
focus on research and development of novel animal treatments based on biofilm
targeting technology.
· The roll-out of Procanicare, the probiotic gastrointestinal treatment
for dogs, progresses across markets despite disruption to operation of
veterinary practices caused by COVID-19.
Pipeline
· Animalcare's novel COX-2 inhibitor pain treatment continues to
progress through the regulatory process. Planned 2021 launch subject to
approval.
Operational Highlights
· Sales and marketing excellence programme initiated to optimise launch
and commercialisation of differentiated products.
· Review of operations to capitalise on the accelerated transition to
digital working by veterinary practices, suppliers, distributors and other
stakeholders.
Animalcare's Chief Executive Officer, Jenny Winter, commented: "Animalcare has
shown exceptional resilience in the face of unprecedented conditions caused by
the pandemic. Our performance across the Group was at the upper end of the
range of our scenario modelling, highlighting the strength of our financial
position as well as the agility, commitment and deep market knowledge of our
people.
"While trading to the end of August was broadly in line with the same period
last year, uncertainty about the economic and market impact of the pandemic
prevails. However, the attractive fundamentals of the animal health sector,
the steady recovery in our markets as veterinary practices adapt to life with
COVID-19, combined with the impressive response of the Group to these
difficult conditions and our maturing pipeline underpin our confidence in the
future and further strengthen our long-term focus on growth.
"Notably, our continuing pursuit of value-creating growth opportunities
resulted in the recently announced agreement with Kane Biotech centred on the
treatment of biofilm-related ailments in companion animals. This is a
significant deal that complements our existing portfolio and is an example of
our focus on developing long-term sustainable commercial relationships."
Analyst briefing
A briefing for analysts will be held at 10:30 BST on Tuesday 29 September via
teleconference. Analysts wishing to join should contact
InvestorRelations@panmure.com (mailto:InvestorRelations@panmure.com) to
register and receive dial-in details. A copy of the analyst presentation will
be made available on the Group website shortly after the analyst briefing.
For further information please contact:
Animalcare Group plc Panmure Gordon (Nominated Adviser & Broker)
Tel: +44 (0)1904 487 687 Tel: +44 (0)20 7886 2500
Jenny Winter, Chief Executive Officer Corporate Finance
Chris Brewster, Chief Financial Officer Freddy Crossley / Emma Earl
Media relations Corporate Broking
communications@animalcaregroup.com Rupert Dearden
About Animalcare www.animalcaregroup.com (http://www.animalcaregroup.com/)
Animalcare Group plc is a UK AIM-listed international veterinary sales and
marketing organisation. Animalcare operates in seven countries and exports to
approximately 32 countries in Europe and a further 16 worldwide. The Group is
focused on bringing new and innovative products to market through its own
development pipeline, partnerships and via acquisition.
This announcement contains inside information for the purposes of Article 7 of
Regulation (EU) 596/2014 (MAR).
Chairman's Statement
Animalcare has demonstrated remarkable resilience and strategic focus during
what has been an extraordinarily testing period for our sector.
That resilience is underlined by our financial performance over the first half
of 2020. To have navigated such challenging trading conditions with a
year-on-year decline in revenue and Underlying EBITDA of 4.4% and 2.4%
respectively - at the higher end of our scenario modelling range - is
testament to the agility of our business and the strength of the platform we
had built coming into 2020. You can read more details about our performance in
the Financial Review of this report.
This platform not only allows us to deal with the economic reverses, the cash
it generates equips us to grow our business. Under our CEO Jenny Winter, the
Group has succeeded in keeping our long-term growth strategy in sharp focus
despite the disruption of COVID-19. The strengthened capability of our
leadership team has enabled us to continue pursuing investment opportunities
that will grow our business and create sustainable value for our shareholders.
Our recently announced agreement with Canada's Kane Biotech is an excellent
example of this approach and the Board is open to use the full range of
appropriate funding options as we deliver on our business development
objectives in the coming months and years.
The Group's internal pipeline has also reached an important phase with our
differentiated COX-2 inhibitor pain treatment progressing in line with our
expectations. We believe this novel drug has significant potential in all our
markets. To maximise that opportunity, we have developed detailed plans to
support a 2021 launch - regulatory approval permitting, of course.
There are many reasons to be optimistic as we execute our growth strategy. But
while the worst of the pandemic may be behind us, the spread of the COVID-19
virus and its economic aftereffects create continued uncertainty.
In March this year the Board decided to defer payment of the second dividend
for 2019, providing a platform to continue progressing opportunities during
the pandemic crisis. In keeping with our undertaking at the time, we have now
reviewed this deferral and have decided to retain the £1.4m initially
allocated for the second 2019 dividend to support investment in growth. A
proportion of these funds will now be directed to support the agreement with
Kane Biotech. Reflecting the resilience of the business over the first half
and post period end, as well as the confidence of the Board, we propose to
resume payment of the dividend for 2020. We strongly believe that this
approach is in the long-term interests of shareholders.
Our Company is in a strong position as a direct result of the hard work,
expertise and market knowledge of our people across the organisation. I'd like
to take this opportunity to thank our employees who have shown exceptional
commitment during these unprecedented times.
Jan Boone, Chairman
Business Review
We continue to make progress on our five clear strategic priorities that are
designed to deliver our goal of above market growth in three to five years.
Strong financial platform
Entering 2020 on a strong financial platform has enabled the Group to weather
the disruption and challenges caused by COVID-19 while continuing to invest in
opportunities for growth. While revenues were down by 4.4% year-on-year over
the first half and underlying EBITDA declined 2.4%, overall performance
metrics were at the upper end of the range in the Group's scenario modelling.
The benefits of the Group's diverse portfolio were visible in the growth in
Production Animals (up 13.1%) partially offsetting the 10.6% decline in the
Companion Animals segment which was more impacted by government measures
designed to combat spread of COVID-19.
Right people and capabilities
The Group continues to strengthen the leadership team and capabilities across
the organisation. The roll-out of our Sales and Marketing excellence programme
is designed to improve the quality and consistency of approach. This will be
particularly important in supporting the market development, launch and
ongoing commercialisation of differentiated products. With the pandemic
accelerating the shift to digital working by veterinary practices, suppliers,
distributors and other stakeholders, the Group has initiated a review of
operations in order to capitalise on the rapidly developing "new normal".
Reinforcing our existing portfolio
We continue to move towards our target of generating 80% of revenue from the
top 20 products by reducing the number of low revenue products and increasing
sales and marketing activities on the largest products with highest margins
and biggest growth prospects. Several products have been delisted or withdrawn
during the period.
Building our pipeline
Animalcare's novel COX-2 inhibitor pain treatment (Enflicoxib E-6087)
continues to progress through the regulatory process. Detailed plans are in
place for a concerted 2021 launch across all direct markets and through
international partners, subject to approval.
Business development
The Group is pursuing a number of opportunities that will reinforce the
existing portfolio, generate increased revenues from a reduced number of
differentiated products and extend geographical reach.
The recently announced CA$5 million agreement with Canadian company Kane
Biotech will form an animal health company to target biofilm-related ailments.
Under the terms of the deal, Animalcare will commercialise Kane Biotech's
range of oral care products for companion animals outside the Americas while
the new jointly-owned company, named STEM Animal Health Inc., will focus on
the research and development of novel animal treatments based on biofilm
targeting technology. Animalcare launches of Kane Biotech's coactiv+™ and
DispersinB® products are planned for the second half of 2021 and the Board
expects the agreement to be earnings enhancing in 2022.
The roll-out of Procanicare, the probiotic gastrointestinal treatment for
dogs, is progressing across markets despite the disruption to the operation of
veterinary practices caused by COVID-19, especially in the first half.
Financial Review
Overview of underlying financial results
The Group is pleased to report a resilient first half trading performance
despite the disruption due to COVID-19. We entered the financial year in a
strong financial position, which has been maintained throughout the period.
A summary of the underlying financial results, which the Directors believe
provides a clearer understanding of business performance, is shown below.
Six Months to 30 June 2020 2019 % Change at AER
£'000 £'000 %
Revenue 34,520 36,121 (4.4%)
Gross Profit 17,937 19,135 (6.3%)
Gross Margin % 52.0% 53.0% (1.0%)
Underlying Operating Profit 4,915 5,178 (5.1%)
Underlying EBITDA 6,606 6,765 (2.4%)
Underlying EBITDA margin % 19.1% 18.7% 0.4%
Basic Underlying EPS (p) 5.9p 6.4p (7.8%)
Revenue
Revenue for the period was £34.5m (2019: £36.1m) a decline of 4.4% (4.8%
decline at CER). Revenue by product category is shown in the table below:
Six Months to 30 June 2020 2019 % Change at AER
£'000 £'000 %
Companion Animals 21,210 23,724 (10.6%)
Production Animals 10,543 9,322 13.1%
Equine & other 2,767 3,075 (10.0%)
Total 34,520 36,121 (4.4%)
Companion Animals revenue declined by 10.6% to £21.2m largely reflecting the
disruption to veterinary activity across Europe caused by the pandemic. As we
entered Q2, while the veterinary market remained open for business, in the
majority of our markets, lock-down and social distancing measures led to
restricted opening hours and consultations. This disruption has reduced the
opportunities for interaction with many veterinary practices with the effect
that launches of new products have been slowed or deferred.
The COVID-19 impact was particularly prevalent within the UK, which was
subject to large-scale closures of veterinary practices, with all but urgent
and emergency cases being seen. Together, these measures resulted in a marked
decline in the number of clients visiting a small animal vet practice.
Evidence of a return to more normal customer activity in some markets was
visible at the end of the first half and has continued to develop post
period-end. However, uncertainty about the shape and extent of a recovery in
demand prevails.
In contrast, Production Animals revenue grew by 13.1% vs prior period to
£10.5m, largely driven by strong growth in Spain, which benefited from the
recent restructuring and partial reversal of the de-stocking observed towards
the end of FY19. Large animal practices were in general less impacted due both
to the requirement to protect the food chain and more industrial nature of
this market. We expect this trend to continue through H2.
Equine and other sales decreased by 10.0% to £2.8m principally due to phasing
of export sales.
Underlying operating results
Underlying EBITDA decreased by 2.4% to £6.6m (2019: £6.8m) principally
reflecting the revenue decrease and higher percentage of lower margin
Production Animals sales. However, Underlying EBITDA margin strengthened to
19.1% versus the prior period driven by the benefits from cost efficiencies
generated during 2019 together with decisive action to realign SG&A spend
during Q2. As a result, adjusted SG&A expenses as a percentage of revenue
were 32.8% compared to 35.7%. Around half of the SG&A savings generated
from deferred or contracted spend related to COVID-19 has been allocated to
support continued investment in drivers of future growth including new product
launches, pipeline projects and business development opportunities, which we
expect to increase during the second half.
The underlying effective tax rate was 24.2% (2019: 20.9%) primarily reflecting
the larger proportion of profits arising, and expected to arise, in higher
rate tax jurisdictions. We continue to optimise research and development tax
credits.
Reflecting the points noted above, underlying basic EPS decreased by 7.8% to
5.8 pence (2019: 6.4 pence).
Non-underlying items
Non-underlying items totalling £3.9m (2019: £6.7m) relating to profit before
tax have been incurred in the period, as set out in note 3. These principally
comprise:
1. Amortisation and impairment of acquisition related intangibles of
£2.9m (2019: £4.5m). The decrease versus 2019 reflects the prior period
non-cash impairment of three projects within the acquired product development
pipeline at a fair value of £1.5m that failed to meet technical, competitive
or commercial milestones.
2. Restructuring, acquisition and integration costs of £0.7m (2019:
£1.9m) largely relating to restructuring of the Production Animals business
unit in Spain and manufacturing transfer costs as we work towards simplifying
our supply chain. The prior period charge primarily relates to the R&D and
Technical & Regulatory team centralisation and associated costs of
implementing headcount reduction.
Dividend
On 25 March 2020, the Group announced the deferral of its final dividend for
2019, preserving cash of £1.4m, with the aim of supporting our financial
strength and providing a platform to continue progressing opportunities during
the global COVID-19 pandemic. We noted that the decision would be reviewed
later in the financial year once we had more clarity about the ongoing
effects of the pandemic on our business, at which time any decision will
consider what actions are in the best interest of long-term shareholder value.
After this review, the Board has decided to waive the final dividend for 2019
and re-allocate the £1.4m cash preserved to invest in growth. A proportion of
these funds will be directed to support investment in the recently announced
agreement with Kane Biotech.
In respect of the interim dividend, and reflecting the resilient first half
trading performance, strong financial position and our more confident outlook,
we are pleased to announce an interim dividend of 2.0 pence per share, in line
with the prior period. The interim dividend will be paid on 20 November 2020
to shareholders whose names are on the Register of Members at close of
business on 23 October 2020. The ordinary shares will become ex-dividend on 22
October 2020.
We strongly believe the above decisions are in the long-term interest of our
stakeholders.
Cash flow, net debt and borrowing facilities
Establishing and maintaining a strong financial platform is at the core of our
strategy. The Group remains committed to generating strong levels of operating
cash and maintaining a solid balance sheet, important in providing capacity to
invest in our business for growth.
Six months to 30 June 2020 Six months to 30 June 2019
£'000 £'000
Underlying EBITDA 6,606 6,765
Net cash flow from operations 3,076 4,831
Non-underlying items 686 1,415
Underlying net cash flow from operations 3,762 6,246
Cash conversion % 56.9% 92.3%
The Group's underlying cash conversion at 56.9% (2019: 92.3%) was impacted by
a £3.7m increase in working capital compared to £1.0m in the prior period,
largely reflecting movement in our inventories since the start of the
financial year. Within our 2019 full year results announcement on 28 May 2020,
we highlighted that, following the £2.5m reduction in FY19, we expected to
increase inventories by approximately £1.5m during 2020 due to strategic
stock build, relating to manufacturing transfers, in certain key brands. At
the half year, such stock build equated to approximately £1.1m of the overall
£2.3m cash increase in our inventories. The balance primarily relates to the
demand disruption in Q2 trading as a result of COVID-19. During the second
half we plan to invest a further £0.9m in stock cover for a Top 5 brand to
protect sales in FY21.
Non-underlying cash items principally relate to the restructuring costs and
post-acquisition and integration costs as noted above. Net debt has increased
in the period by £0.3m to £18.1m. Exchange rate variations adversely
impacted the net debt position by £1.7m.
£'000
Net debt at 1 January 2020 (17,812)
Net cash flow from operations 3,076
Net capital expenditure (961)
Net finance expenses (845)
Foreign exchange on cash and borrowings (1,666)
Movement in IFRS16 lease liabilities 109
Net debt at 30 June 2020 (18,099)
During the period, all non-essential capex was put on hold, in effect
preserving £0.4m. Net capital expenditure of £1.0m largely comprises
investment in our novel pain product developed internally for use in dogs.
This was submitted to the European Regulatory authority in January 2020 and
the regulatory process is progressing in line with expectations. Subject to
regulatory approval, we remain on track to launch during 2021.
The net debt to underlying EBITDA leverage ratio was 1.4 times (2019: 1.9
times) versus the bank covenant of 3.5 times. At 30 June 2020, total
facilities were £47.0m, of which £18.5m, net of cash balances of £3.3m, was
utilised, leaving headroom of £26.8m.
Going Concern
Banking Facilities and Covenants
At 30 June 2020, the Group's financing arrangements consisted of a committed
revolving credit facility of €41.5m, a €10m acquisition line, which cannot
be utilised to fund our operations, and €4.1m 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 30 June 2020, all covenant requirements were met with significant
headroom across all three measures. As at 30 August 2020, the net debt to
underlying EBITDA ratio was approximately 1.2 times. Headroom on the banking
facilities, including cash on balance sheet, was £28.1m.
COVID-19 Scenario Analysis - Update
The Group entered the pandemic period in a strong financial position, which
has been maintained post period end, supported by careful management of both
our SG&A costs and capital expenditure.
In our full year results announced on 28 May 2020, we shared a scenario
analysis, attempting to quantify the potential impact on our business through
to June 2021 of a range of downside revenue estimates with mitigating actions
on cost and cash flow. At that time, 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.
While trading for the first half was down on the prior period, our overall
performance during Q2 was above the higher end of the Company's range of
scenario modelling, leading to, as noted previously, a resilient first half
year.
We have continued to develop and update our scenario analysis as the financial
year progresses. Evidence of a return to more normal customer activity in some
markets was visible at the end of the first half and has continued to develop
post period-end. Uncertainty about the shape and extent of a recovery in
demand prevails. However, we have demonstrated that the Group can and will
take swift mitigating actions to maintain our financial resilience, including
reducing SG&A spend, stopping all non-essential and non-committed capital
expenditure and deferring dividends to preserve cash.
The results of these scenarios indicate that the Group would operate well
within its committed revolving credit facility of €41.5m and maintain
headroom against all covenant obligations for at least the next 12 months.
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 the Interim Report. Accordingly, the
Directors continue to adopt the going concern basis of preparation.
Summary and Outlook
Despite the unprecedented trading conditions caused by COVID-19, Animalcare
has responded well to the challenge with a robust performance over the first
half. The Group entered 2020 in a strong financial position, helping to
protect Animalcare from the worst effects of the pandemic while continuing to
make progress against strategic priorities.
The long-term fundamentals of the animal health market remain attractive:
companion animal ownership and willingness to spend on treatment and wellbeing
are increasing globally and demand for animal protein is growing. In the more
immediate future, our customer base is showing continued signs of recovery
post period as veterinary practices find ways to operate successfully in a
world with COVID-19; in terms of revenue, for the eight months to the end of
August, we traded broadly in line with the previous year.
Strategically, the Group continues to deliver on its growth ambitions with the
post-period end agreement with Canadian company Kane Biotech to jointly target
biofilm-related ailments in animals. Launches by Animalcare of Kane Biotech's
oral care products outside the Americas are planned for the second half of
2021 and the Board expects the agreement to be earnings enhancing in 2022.
The Board acknowledges that a significant level of market and economic
uncertainty remains, predominately due to COVID-19. Marked variations between
different countries and factors such as the slower uptake of new products
caused by disruption to the operation of veterinary practices make it
difficult to forecast performance with any precision.
But whatever challenges the remainder of 2020 present, we are confident that
the Group's strong finances, its proven agility and focus on a clear growth
strategy mean Animalcare will continue to be well placed to take advantage of
opportunities and generate long-term value for our shareholders.
Jenny Winter, Chief Executive Officer
Chris Brewster, Chief Financial Officer
Condensed consolidated income statement
For the six months ended 30 June
Underlying Non-Underlying (note 3) Total Underlying Non-Underlying (note 3) Total
Note 2020 2020 2020 2019 2019 2019
£'000 £'000 £'000 £'000 £'000 £'000
Revenue 4 34,520 − 34,520 36,121 − 36,121
Cost of sales (16,583) − (16,583) (16,986) − (16,986)
Gross profit 17,937 − 17,937 19,135 − 19,135
Research and development expenses (1,163) (547) (1,710) (1,662) (622) (2,284)
Selling and marketing expenses (5,685) − (5,685) (6,222) − (6,222)
General and administrative expenses (6,235) (2,376) (8,611) (6,109) (2,380) (8,489)
Net other operating income / (expenses) 61 (986) (925) 36 (3,711) (3,675)
Operating profit/(loss) 4,915 (3,909) 1,006 5,178 (6,713) (1,535)
4
Financial expenses (488) − (488) (515) − (515)
Financial income 244 − 244 216 − 216
Profit/(loss) before tax 4,671 (3,909) 763 4,879 (6,713) (1,834)
Income tax (1,129) 832 (297) (1,022) 1,268 246
Net Profit/(loss) 4 3,542 (3,077) 466 3,857 (5,445) (1,588)
Net profit/(loss) attributable to:
The owners of the parent 3,542 (3,077) 466 3,857 (5,445) (1,588)
Earnings per share for profit/(loss) attributable to the ordinary equity
holders of the company:
Basic 5.9p 0.8p 6.4p (2.6p)
Diluted 5.9p 0.8p 6.4p (2.6p)
In order to aid understanding of underlying business performance, the
Directors have presented underlying results before the effect of exceptional
and other items. These exceptional and other items are analysed in note 3.
Condensed consolidated statement of comprehensive income
For the six months ended 30 June
2020 2019
£'000 £'000
Net profit/(loss) for the period 466 (1,588)
Other comprehensive income/(expense)
Cumulative translation differences * 672 (90)
Other comprehensive income/(expense), net of tax 672 (90)
Total comprehensive income/(expense) for the period, net of tax 1,138 (1,678)
Total comprehensive income/(expense) attributable to:
The owners of the parent 1,138 (1,678)
* May be reclassified subsequently to profit & loss
Condensed consolidated statement of financial position
30 June 2020 30 June 2019 31 December 2019
unaudited unaudited audited
£'000 £'000 £'000
Assets
Non-current assets
Goodwill 51,135 50,940 50,454
Intangible assets 41,097 47,085 43,000
Property, plant and equipment 292 403 312
Right-of-use assets 1,805 2,194 1,917
Deferred tax assets 1,544 1,925 1,524
Other financial assets 63 60 59
Other non-current assets 49 291 72
Total non-current assets 95,985 102,898 97,338
Current assets
Inventories 13,826 12,895 11,102
Trade receivables 11,852 12,046 10,891
Other current assets 1,032 3,230 2,746
Cash and cash equivalents 3,342 3,887 6,165
Total current assets 30,052 32,058 30,904
Total assets 126,037 134,956 128,242
Liabilities
Current liabilities
Borrowings (328) (324) (612)
Lease liabilities (874) (938) (830)
Trade payables (10,355) (9,581) (10,334)
Tax payables (686) (1,896) (1,288)
Accrued charges and deferred income (2,707) (2,299) (2,063)
Other current liabilities (2,021) (3,371) (2,799)
Total current liabilities (16,971) (18,409) (17,926)
Non-current liabilities
Borrowings (19,286) (24,477) (21,428)
Lease liabilities (952) (1,276) (1,106)
Deferred tax liabilities (5,028) (5,154) (5,176)
Deferred income (600) (606) (599)
Provisions (128) (106) (118)
Total non-current liabilities (25,994) (31,619) (28,427)
Total Liabilities (42,965) (50,028) (46,353)
Net Assets 83,072 84,929 81,889
Equity
Share capital 12,012 12,012 12,012
Share premium 132,729 132,729 132,729
Reverse acquisition reserve (56,762) (56,762) (56,762)
Accumulated losses (8,130) (6,305) (8,640)
Other reserves 3,223 3,255 2,550
Equity attributable to the owners of the parent 83,072 84,929 81,889
Total equity 83,072 84,929 81,889
Condensed consolidated statement of changes in equity
Attributable to the owners of the parents
Share Share Accumulated losses Reverse acquisition reserve Other reserve Total Non- Total
capital
premium
controlling
equity
interest
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2019 12,012 132,729 (4,732) (56,762) 3,345 86,592 − 86,592
Net profit − − (1,588) − − (1,588) − (1,588)
Other comprehensive expense − − − − (90) (90) − (90)
Total comprehensive income/(expense) − − (1,588) − (90) (1,678) − (1,678)
Share-based payments − − 16 − − 16 − 16
At 30 June 2019 12,012 132,729 (6,305) (56,762) 3,255 84,929 − 84,929
Attributable to the owners of the parents
Share Share Accumulated losses Reverse acquisition reserve Other reserve Total Non- Total
capital
premium
controlling
equity
interest
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2020 12,012 132,729 (8,640) (56,762) 2,550 81,889 − 81,889
Net loss − − 466 − − 466 − −
Other comprehensive expense − − − − 672 672 − 672
Total comprehensive expense − − 466 − 672 1,138 − 1,138
Share-based payments − − 43 − − 43 − 43
At 30 June 2020 12,012 132,729 (8,130) (56,762) 3,223 83,072 − 83,072
Condensed consolidated cash flow statements
For the six months ended 30 June
2020 2019
£'000 £'000
Cash flows from operating activities
Profit/(loss) before tax 763 (1,834)
Profit/(loss) before tax 763 (1,834)
Adjustments for:
Depreciation of property, plant and equipment 610 618
Amortisation of intangible assets 4,020 3,968
Impairment of intangible assets − 1,518
Share-based payment expense 43 16
Loss/(gain) on disposal of property, plant and equipment (16) −
Non-cash movement in provisions 300 −
Movement in allowance for bad debt and inventories 362 433
Financial income (148) (72)
Financial expense 467 409
Impact of foreign currencies (79) (46)
Non-cash restructuring expenses − 778
Other (3) (2)
Movements in working capital
(Increase)/decrease in trade receivables (582) 1,550
(Increase)/decrease in inventories (2,342) 1,533
Decrease in payables (797) (4,071)
Income tax received 478 33
Net cash flow from operating activities 3,076 4,831
Investing activities
Purchase of property, plant and equipment (49) (29)
Purchase of intangible assets (961) (1,294)
Proceeds from the sale of property, plant and equipment (net) 49 11
Net cash flow used in investing activities (961) (1,312)
Financing activities
Repayment of loans and borrowings (3,760) (6,508)
Repayment IFRS16 lease liability (526) (491)
Interest paid (264) (327)
Other financial (expense)/income (55) (11)
Net cash flow used in financing activities (4,605) (7,337)
Net decrease in cash and cash equivalents (2,490) (3,819)
Cash and cash equivalents at beginning of period 6,165 8,035
Exchange rate differences on cash and cash equivalents (333) (329)
Cash and cash equivalents at end of period 3,342 3,887
Reconciliation of net cash flow to movement in net debt
Net decrease in cash and cash equivalents in the period (2,490) (3,819)
Cash flow from decrease in debt financing 3,760 6,508
Foreign exchange differences on cash and borrowings (1,666) (14)
Movement in net debt in the period (396) 2,675
Net debt at the start of the period (17,812) (23,588)
Movement in lease liabilities during the period 109 (2,214)
Net debt at the end of the period (18,099) (23,127)
Notes to the consolidated interim report
1 General information
Animalcare Group plc ("Animalcare" or "the Company") is a public company
incorporated in England and Wales under the Companies Act 2006 and is
domiciled in the United Kingdom. The condensed set of financial statements as
at, and for, the six months ended 30 June 2020 comprises the Company and its
subsidiaries (together referred to as the "Group"). The nature of the Group's
operations and its principal activities are set out in the latest Annual
Report.
2 Basis of preparation and significant accounting policies
This interim financial information for each of the six month periods ended 30
June 2020 and 30 June 2019 has not been audited and does not constitute
statutory accounts as defined in Section 43s of the Companies Act 2006. The
comparative information for the year ended 31 December 2019 does not
constitute statutory accounts however is based on the statutory accounts for
that year, on which the Group's auditors issued an unqualified report and
which have been filed with the Register of Companies.
The Interim Report for the six months ended 30 June 2020 was approved by the
Board of Directors and authorised for issue on 29 September 2020.
Except as described below, the condensed consolidated interim financial
information for the six months ended 30 June 2020 has been prepared using
accounting policies consistent with those of the Company's annual accounts for
the year ended 31 December 2019 which were prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by the
European Union ("adopted IFRSs") and the amendment to IFRS 16 -
Covid-19-related rent concessions, which will form the basis of the 2020
Annual Report.
Taxes on income in the interim periods are accrued using the estimated tax
rate that would be applicable for the full financial year.
Several amendments and interpretations apply for the first time in 2020, but
do not have an impact on the Interim Report of the Company:
- Amendments to References to the Conceptual Framework in IFRS
Standards
- IFRS 3 Business Combinations - Amendments to clarify the
definition of a business
- IAS 1 Presentation of Financial Statements - Amendments regarding
the definition of material
- IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors - Amendments regarding the definition of material
- IFRS 9, IAS 39 and IFRS 7 - Amendments regarding the Interest Rate
Benchmark Reform
- IFRS 16 amendment - Covid-19-related rent concessions.
Going Concern
Banking Facilities and Covenants
At 30 June 2020, the Group's financing arrangements consisted of a committed
revolving credit facility of €41.5m, a €10m acquisition line, which cannot
be utilised to fund our operations, and €4.1m 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 30 June 2020, all covenant requirements were met with significant
headroom across all three measures.
As at 30 August 2020, the net debt to underlying EBITDA ratio was
approximately 1.2 times. Headroom on the banking facilities, including cash on
balance sheet, was £28.1m.
COVID-19 Scenario Analysis - Update
The Group entered the pandemic period in a strong financial position, which
has been maintained post period end, supported by careful management of both
our SG&A costs and capital expenditure.
In our full year results announced on 28 May 2020, we shared a scenario
analysis, attempting to quantify the potential impact on our business through
to June 2021 of a range of downside revenue estimates with mitigating actions
on cost and cash flow. At that time, 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.
While trading for the first half was down on the prior period, our overall
performance during Q2 was above the higher end of the Company's range of
scenario modelling, leading to, as noted previously, a resilient first half
year.
We have continued to develop and update our scenario analysis as the financial
year progresses. Evidence of a return to more normal customer activity in some
markets was visible at the end of the first half and has continued to develop
post period-end. Uncertainty about the shape and extent of a recovery in
demand prevails. However, we have demonstrated that the Group can and will
take swift mitigating actions to maintain our financial resilience, including
reducing SG&A spend, stopping all non-essential and non-committed capital
expenditure and deferring dividends to preserve cash.
The results of these scenarios indicate that the Group would operate well
within its committed revolving credit facility of €41.5m and maintain
headroom against all covenant obligations for at least the next 12 months.
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 the Interim Report. Accordingly, the
Directors continue to adopt the going concern basis of preparation.
3 Non-underlying items
For the six months ended 30 June
2020 2019
£'000 £'000
Amortisation and impairment of acquisition related intangibles
Classified within Research and development expenses 547 622
Classified within General and administrative expenses 2,376 2,380
Classified within net other operating expenses − 1,518
Total amortisation and impairment of acquisition related intangibles 2,923 4,520
Restructuring costs 351 1,823
Acquisition and integration costs 304 77
Divestments and business disposals 49 −
Brexit-related costs 2 118
Other non-underlying items 280 175
Total non-underlying items before taxes 3,909 6,713
Tax impact (832) (1,268)
Total non-underlying items after taxes 3,077 5,445
The amortisation charge of acquisition related intangibles largely relates to
the Esteve acquisition £1,001k (30 June 2019: £1,005k) and the reverse
acquisition of Animalcare Group plc £1,740k (30 June 2019: £1,814k).
Restructuring, acquisition and integration costs of £0.7m (2019: £1.9m)
largely relating to restructuring of the Production Animals business unit in
Spain and manufacturing transfer costs as we work towards simplifying our
supply chain. The prior period charge primarily relates to the R&D and
Technical & Regulatory team centralisation and associated costs of
implementing headcount reduction.
In 2019, the Group recorded an impairment charge of £1,518k for acquisition
related intangibles that related 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.
4 Segment information
The Group reports one business segment, being "Pharmaceuticals". This
reporting segment is used for management purposes. The Pharmaceutical segment
is active in the development and marketing of innovative pharmaceutical
products that provide significant benefits to animal health.
The measurement principles used by the Group in preparing this segment
reporting are also the basis for segment performance assessment. The Board of
Directors of the Group acts as the Chief Operating Decision Maker. The Chief
Operating Decision Maker assesses performance based on the Key Performance
Indicators set out on page 14 of the latest Annual Report which include
revenue and underlying EBITDA, excluding the effect of non-underlying items.
The following table shows an analysis of the segment reporting from continuing
operations. As management's controlling instrument is mainly revenue-based,
the reporting information does not include assets and liabilities by segment
and is as such not presented per segment.
For the six months ended 30 June
2020 2019
Pharma Pharma
£'000 £'000
Revenues 34,520 36,121
Gross Margin 17,936 19,135
Gross Margin % 52.0% 53.0%
Segment underlying EBITDA 6,606 6,765
Segment underlying EBITDA % 19.1% 18.7%
Segment EBITDA 5,634 4,573
Segment EBITDA % 16.3% 12.7%
The segment EBITDA is reconciled with the consolidated net profit of the year
as follows:
For the six months ended 30 June
2020 2019
£'000 £'000
Segment EBITDA 5,634 4,573
Depreciation, amortisation and impairment (4,628) (6,108)
Operating profit/(loss) 1,006 (1,535)
Financial expenses (488) (515)
Financial income 244 216
Income taxes (402) (346)
Deferred taxes 106 592
Net profit/(loss) 466 (1,588)
Revenue by product category:
For the six months ended 30 June
2020 2019
£'000 £'000
Companion animals 21,210 23,724
Production animals 10,543 9,322
Equine 2,758 2,970
Pet food, Instrumentation and Services − 105
Total 34,520 36,121
Revenue by geographical area:
For the six months ended 30 June
2020 2019
£'000 £'000
Belgium 4,840 4,351
The Netherlands 659 1,090
United Kingdom 4,255 7,211
Germany 5,209 5,081
Spain 9,650 9,771
Italy 3,895 2,857
Portugal 2,379 2,575
European Union - other 2,608 2,612
Asia 603 238
Middle East Africa 26 23
Other 396 312
Total 34,520 36,121
Revenue by category:
For the six months ended 30 June
2020 2019
£'000 £'000
Product sales 34,000 35,551
Services sales 520 570
Total 34,520 36,121
Product revenue is recognised when the performance obligation is satisfied at
a point in time. Service revenue is recognised by reference to the stage of
completion.
5 Earnings per share
Basic earnings per share amounts are calculated by dividing the net profit for
the period attributable to ordinary equity holders of the parent company by
the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit
attributable to ordinary equity holder of the parent company by the weighted
average number of ordinary shares outstanding during the year plus the
weighted average number of ordinary shares that would be issued on conversion
of all potential dilutive ordinary shares.
The following income and share data were used in the earnings per share
computations:
For the six months ended 30 June
Underlying Underlying Total Total
2020 2019 2020 2019
£'000 £'000 £'000 £'000
Net profit/(loss) 3,542 3,857 466 (1,588)
Net profit/(loss) attributable to ordinary equity holders of the parent 3,542 3,857 466 (1,588)
adjusted for the effect of dilution
Average number of shares (basic and diluted):
For the six months ended 30 June
Underlying Underlying Total Total
2020 2019 2020 2019
Number Number Number Number
Weighted average number of ordinary shares for basic 60,057,161 60,057,161 60,057,161 60,057,161
earnings per share
Dilutive potential ordinary shares 256,510 - 256,510 -
Weighted average number of ordinary shares adjusted for effect of dilution 60,313,671 60,057,161 60,313,671 60,057,161
Basic earnings/(loss) per share:
For the six months ended 30 June
Underlying Underlying Total Total
2020 2019 2020 2019
Pence Pence Pence Pence
Basic earnings/(loss) per share attributable to the ordinary equity holders of 5.9 6.4 0.8 (2.6)
the company
Diluted earnings/(loss) per share:
For the six months ended 30 June
Underlying Underlying Total Total
2020 2019 2020 2019
Pence Pence Pence Pence
Diluted earnings/(loss) per share attributable to the ordinary equity holders 5.9 6.4 0.8 (2.6)
of the company
6 Dividends
On 25 March 2020, the Group announced the deferral of its final dividend for
2019, preserving cash of £1.4m, with the aim of supporting our financial
strength and providing a platform to continue progressing opportunities during
the global COVID-19 pandemic. We noted that the decision would be reviewed
later in the financial year once we had more clarity about the ongoing effects
of the pandemic on our business, at which time any decision will consider what
actions are in the best interest of long-term shareholder value.
After this review, the Board has decided to waive the final dividend for 2019
and re-allocate the £1.4m cash preserved to invest in growth.
In respect of the interim dividend, and reflecting the resilient first half
trading performance, strong financial position and our more confident outlook,
we are pleased to announce an interim dividend of 2.0 pence per share, in line
with the prior period. The interim dividend will be paid on 20 November 2020
to shareholders whose names are on the Register of Members at close of
business on 23 October 2020. The ordinary shares will become ex-dividend on 22
October 2020.
We strongly believe the above decisions are in the long-term interest of our
stakeholders.
As the dividend was declared after the end of the period being reported, it
has not been included as a liability as at 30 June 2020 in accordance with IAS
10 'Events after the Balance Sheet date'.
7 Contingent Liabilities
On 3 September 2018, Ecuphar NV sold the wholesale business Medini NV to
Vetdis Holding NV under a Share Purchase Agreement (SPA). In June 2019,
Vetdis sent a letter to Ecuphar claiming that Ecuphar had breached the SPA.
Ecuphar disputed the basis and the value of the claim. Following various
discussions and correspondence, during which the parties have been unable to
reach any agreement, Vetdis issued formal court papers on 29 May 2020. A
preliminary court hearing took place on 3 September 2020 and a procedural
calendar has been set by the court up to 31 January 2021 to submit legal
briefs. The Company strongly disagrees with the claim and has not made any
provision in respect of this matter in the financial statements. As part of
our defence we have counter-claimed for the outstanding amounts due to Ecuphar
under the SPA.
8 Related part transactions
There have been no new related party transactions that have taken place in the
six months ended 30 June 2020.
9 Subsequent events
On 28 September 2020 the Group announced that it has entered into an agreement
with Canada-based biotech company Kane Biotech Inc. (TSX-V:KNE; OTCQB:KNBIF)
under which the parties will form STEM Animal Health Inc. ("STEM"), a company
dedicated to treating biofilm-related ailments in animals. Animalcare will
invest CA$5 million, consisting of CA$3 million to acquire a one-third stake
in STEM, and a further CA$2 million for rights to commercialise products in
global veterinary markets outside of the Americas.
10 Cautionary statement
This Interim Management Report ("IMR") consists of the Chairman's Statement
and the Business Review, which have been prepared solely to provide additional
information to shareholders to assess the Group's strategies and the potential
for those strategies to succeed. The IMR should not be relied upon by any
other party or for any other purpose.
The IMR contains a number of forward-looking statements. These statements are
made by the Directors in good faith based upon the information available to
them up to the time of their approval of this report and such statements
should be treated with caution due to the inherent uncertainties, including
both economic and business risk factors, underlying any such forward looking
information.
This IMR has been prepared for the Group as a whole and therefore emphasises
those matters which are significant to Animalcare Group plc and its
subsidiaries when viewed as a whole.
11 Interim report
The Group's Interim Report for the six months ended 30 June 2020 was approved
and authorised for issue on 29 September 2020. Copies will be available to
download on the Company's website at: www.animalcaregroup.com
(http://www.animalcaregroup.com) .
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