REG - Animalcare Group PLC - Final Results
Animalcare Group plc
("Animalcare", the "Company" or the "Group")
Final Results
Animalcare Group plc (AIM: ANCR), the pan-European Animal Health business, announces its preliminary results for the Group's first financial period ended 31st December 2017. Following the acquisition of Ecuphar NV ('Ecuphar') in July 2017, Animalcare has performed well demonstrating double digit growth, generating cash, rewarding investors with a dividend and has a solid pipeline of new products for future growth.
The Group is focussed on the development and sale of veterinary products in the companion animal, production animal and equine markets, and is divided into two segments: Pharmaceuticals and Wholesale.
Financial Highlights
· Revenue up 22.4% to £83.7m (2016: £68.4m) at AER
§ Up by 9.6% to £91.9m on a proforma basis
· Underlying* EBITDA up 11.9% to £10.0m (2016: £8.9) at AER
· Underlying* basic earnings per share down 24.6% to 12.6p (2016: 16.7p)
· Total recommended dividend 6.7p per share since the reverse acquisition
Operational Highlights
· Distribution contracts ended to bring cross selling opportunities in house from Q4 2018
· Integration is wide-ranging and in progress, with priority focus on supply chain, systems (HR & IT) and product development
· NPD projects have been prioritised to maximise return on investment
· Personnel reorganisation underway, with internal promotions made to lead Technical and Commercial Development and Export late in the year
Post year-end Highlight
· New Country Managers have been recruited into the UK and Spanish operations
Financial Summary
2017
£'000
2016
£'000
% change at AER
Revenue
83,676
68,361
22.4%
Underlying*
Operating profit
7,759
6,720
15.4%
Reported
Operating profit
1,200
6,039
(80.1%)
*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
Jan Boone, Chairman of Animalcare Group plc, said: "2017 was a transformational year for Animalcare Group plc. Whilst characterised by continued strong organic revenue growth, the most dominant factor during the year was the reverse acquisition of Ecuphar NV. It has positioned the Group to take advantage of the opportunities arising from the significantly enlarged footprint and sales network to deliver profitable, cash-generative growth enabling the Company to deliver long-term shareholder value."
Animalcare Group plc
Tel: 01904 487 687
Christiaan Cardon, Chief Executive Officer
Chris Brewster, Chief Financial Officer
Panmure Gordon (Nominated Adviser & Broker)
Tel: 020 7886 2500
Freddy Crossley / Peter Steel (Corporate Finance)
James Stearns (Corporate Broking)
Walbrook PR Ltd
Tel: 020 7933 8780 or animalcare@walbrookpr.com
Paul McManus
Mob: 07980 541 893
Lianne Cawthorne
Mob: 07584 391 303
Chairman's Statement
"2017 was a transformational year for Animalcare Group plc. Whilst characterised by continued organic growth, the most dominant factor during the year was the reverse acquisition of Ecuphar NV ("Ecuphar"). The transaction completed on 13th July 2017 and our statutory results for the year ended December 2017 reflect a full 12 months contribution from Ecuphar and five and a half months of Animalcare Group plc ("Animalcare"), as previously constituted. 2016 comparatives are only for the Ecuphar business.
Financial Trading
Group revenue increased by 22.4% to £83.7m (2016: £68.4m) with 11.3% organic growth within the Ecuphar business which contributed £76.1m to overall Group revenues and £7.6m from the original Animalcare business. Underlying EBITDA (which excludes fair value adjustments on acquired inventory, amortisation of acquired intangibles and acquisition and integration costs) increased by 11.9% to £10.0m (2016: £8.9m) with £1.6m contributed by the Animalcare business. This performance primarily reflects the impact of lower gross margins, investments to support future growth and the disposal of Nutriscience which Ecuphar sold in October 2016. Including non-underlying items, the Group's profit before tax decreased to £0.5m (2016: £5.1m). The Group generated £2.4m (2016: £9.3m) net cash from operations which included a cash outflow from non-underlying items totalling £3.8m.
Further details on business performance can be found in the CEO Review and CFO Review respectively.
Board
Following the acquisition, the executive Directors comprised Chris Cardon, who took on the role of Chief Executive Officer for the enlarged group, supported by Iain Menneer as Chief Operating Officer and Walter Beyers as Chief Financial Officer. In September 2017 Chris Brewster, who at the time of the acquisition stood down as a Board Director but remained within the business, was re-appointed to the Board as Chief Financial Officer, replacing Walter Beyers who resigned to pursue other interests. More recently Iain Menneer stood down as Chief Operating Officer. I would like to take the opportunity to recognise both Iain and Walter's contributions and we wish them well for the future.
Dividend
The Board is proposing a final dividend of 2.0 pence per share, which when added to the second interim dividend of 4.7 pence per shares gives a total dividend of 6.7 pence per share since the reverse acquisition. This final dividend is subject to shareholder approval at the Annual General Meeting on 27th June 2018 and will be paid on 6th July 2018 to shareholders on the register at the close of business on 8th June 2018.
Product Development
A key strategy for growth remains the continued cultivation of a strong new product development pipeline. In 2017 we launched Acecare, a sedative, from Animalcare's original UK pipeline and sales have performed in line with internal forecasts. We have deliberately focused the development team on 17 active projects and we have a steady flow of products that are going through the registration and are expected to launch in 2018 and 2019.
Summary and Outlook
Having brought together two highly complementary businesses, in particular with regard to our respective geographic markets, product portfolios and product development pipelines, we are growing a successful pan-European animal health business. We have the opportunity to continue this growth through further strategic acquisitions, but also through organic growth focused on existing products and our product development pipeline, as well as the synergies and benefits of cross-selling which we expect to see impacting our Q4 2018 performance and more meaningfully in 2019. We believe we have created a platform for strong future growth and I look forward to updating on our progress.
Jan Boone
Non-Executive Chairman
chief executive officer's review
Introduction & Summary of the Group
The key aim for our business is to create a cash-generative, growing pan-European animal health company and in July 2017 Animalcare Group plc completed the acquisition of Ecuphar NV ('Ecuphar'), an acquisition that constituted a reverse takeover. This brought together two businesses to create an enlarged group focussed on the development and marketing of innovative products providing significant benefits to animal health.
The business now has a considerably enlarged footprint and sales network with direct sales teams in seven European countries and an export network that covers over 38 countries across Europe, Asia, Australasia, Africa and South America through 86 different distribution partners. Within our product portfolio we have 50 licensed drugs, eight vaccines and over 100 care and nutraceutical products employing around 100 sale representatives and 28 agents marketing these products to our global customer base.
Shareholders in Animalcare are now invested in a substantially increased pan-European animal health platform with the following characteristics and strategic objectives:
· Delivering double digit profit growth: we expect to deliver further incremental organic growth across revenues, EBITDA and underlying net earnings with the potential to achieve double-digit profit growth
· Cash generative: continuing focus on cash generation allows us to maintain dividend payments as well as invest in our business to drive future growth
· Strong organic growth potential: we now have an increased geographic footprint for cross-selling, we expect to extract further synergies taking effect in 2018 but with a more meaningful impact in 2019, and we expect to deliver further growth through our new product development pipeline
· Acquisitive growth potential: our strong balance sheet and scale also opens opportunities for value-accretive acquisitions which would allow us to target direct sales in other geographical territories
Business Review
The Group is focussed on the development and sale of veterinary products in the companion animal, production animal and equine markets and is divided into two segments: Pharmaceuticals and Wholesale.
Pharmaceuticals
The Pharmaceuticals segment develops and markets veterinary pharmaceutical products which are supplied to animal health professionals both directly and through our international distribution network. Our products fall into two categories: regulated pharmaceuticals and over the counter products. Products are either owned by the Group or licensed on long-term distribution agreements with third parties. We have a very broad portfolio of over 300 products including pharmaceuticals, vaccines, biocides and nutraceuticals and the Group focuses on certain niche therapy areas including odontology, dermatology, otology and surgery/anaesthesia. As a Group we invest significantly in our in-house development pipeline which I discuss later on in my report.
Following the acquisition this segment now includes the products that were previously categorised as Licenced Veterinary Medicines, Animal Welfare and Companion Animal Identification.
Based on the statutory results for the year ended 31st December 2017, sales in this division (net of intercompany sales) increased by 28.4% to £59.7m (2016: £46.5m), which now accounts for 71.4% of total revenues. The £13.2m year-on-year increase is attributable to an additional £7.6m of sales derived from acquisition growth, with the balance generated through organic growth within the Ecuphar business.
Organic growth was driven by a number of factors including a very strong performance from sales into the Production Animals market, as well as strong growth from Companion Animals.
In the division our top 20 pharmaceutical products, which account for 51% of this division's total sales grew by 15.1% in 2017. Looking at our direct sales markets, Orozyme, the first product of the company that was developed, continues to hold a strong position in the Oro-dental area. Direct sales for this product grew by 11% and we expect to see further growth in this area through the launch of new innovative products in 2018.
Leisguard, our treatment against leishmaniosis in dogs, showed strong sales across our Mediterranean footprint and we expect to see future growth for this product in 2018 in Scandinavia. Prazitel and Caniquantel, which both play an important role in the area of anti-parasitic treatment, also grew well in 2017.
We were pleased with the performance across our export network. Our key core export markets of France, the Nordics and UK and Ireland showed significant growth and we expect to benefit from ongoing direct sales in the UK now following the acquisition. During the period we signed new distribution agreements to cover New Zealand and Taiwan and both regions granted regulatory approval to sell Aqupharm (intravenous fluid range) and Isocare (anaesthesia), our recently launched products for use in surgery.
This contributed to the growth of Aqupharm and Isocare sales, which were ahead of management expectations, and sales of core established brands such as Danilon (anti-inflammatory), Otoclean (dermatology) and Caniquantel (anti-parasitics) all showed double digit growth. Dinalgen (anti-inflammatory) sales were behind prior year but this was largely down to phasing of purchasing patterns in major markets.
The positive impact of the cross-selling opportunity was minimal during the year. We expect to see this contribute to our organic growth during Q4 2018, later than originally anticipated, with a more meaningful contribution in 2019.
The underlying EBITDA performance of our Pharmaceuticals division increased by 15.1% to £9.7m (97.1% of the Group's underlying EBITDA) with reported EBITDA reducing to £7.5m (2016: £10.2m). Whilst this underlying growth was driven by the contribution of the acquisition, the organic performance in this division was impacted by lower gross margins, mainly due to a changing sales mix following higher growth from lower margin Production Animal products and export sales, as well as pricing pressures in a competitive market and the disposal of Nutriscience in 2016 which generated £1.3m of sales at margins in excess of 50%.
Whilst the impact of a changing sales mix and competitive pricing pressures are likely to persist over the rest of 2018 we expect to deliver at least double digit growth in underlying EBITDA in this division and to see further strong sales growth driven by a growing portfolio of products and a wider geographical sales reach for these products.
Wholesale
Our Wholesale division focuses on the sale of third-party veterinary pharmaceuticals, supplies and instruments in Belgium. Based close to Bruges, in the North West of Belgium, this business supplies veterinary professionals across the country and has been trading for 25 years and is well established in a stable market.
The extensive range of over 5,000 products includes own label and branded items ranging from small disposable items to larger capital equipment to diagnostic instruments. The division also specialises in the supply of surgical instruments.
Revenues increased by 9.7%, entirely through organic growth, to £23.9m (2016: £21.8m) with this division representing 28.6% of total Group sales. This division delivered underlying and reported EBITDA of £0.3m (2016: £0.5m) reflecting the investment made in sales staff to drive future growth. Growth was driven by the addition of new customers, as well as expanding the range of products sold to existing customers.
Product Development Pipeline
The focus on building value within our product development pipeline continues. As an enlarged business our development team is located across a number of sites providing extensive skills and capabilities across Belgium, Germany, Spain and UK. Karolyn Tapper, previously Director of Business Development for Animalcare Ltd, has been appointed to the new role of Group Head of Technical and Commercial Development to structure and integrate the teams to ensure that we continue to grow through investing in and attracting new product opportunities.
A project rationalisation and prioritisation process for all projects across the Group has been undertaken. Within the context of the enlarged Group, technical feasibility, development costs and commercial forecasts have been reviewed thoroughly to determine which projects would be continued. The Company is currently focused on 17 active new product development pipeline projects within Spain and UK.
In 2017 we launched Acecare, a sedative, from the original UK pipeline. Sales have been in-line with the original project forecast. One centralised registration was submitted in 2017 and launch of this product is planned in late 2018. Progress of the pipeline continues and in 2018 three new products have already been registered across Europe with additional submissions planned throughout the year.
Alongside the new product development pipeline, a number of product improvement and product maintenance projects are ongoing. Several registrations to expand the global presence of our products were made in 2017 and launch within new territories is planned at the end of 2018 and during 2019.
New products through strategic alliances & partnerships
In addition to broadening our product portfolio through our own development pipeline we are aware that our wide geographical footprint is attractive to similar companies in the US and Asia who are seeking routes to market for their products across Europe. During the period we have seen the first result of this strategy with an agreement with US-based Nutramax, to provide European-wide distribution of their nutritional supplement Cosequin, which promotes canine joint health.
People
We currently have 100 sales representatives and 28 agents across Europe having invested in an additional 6 sales representatives and support roles during the year.
As a result of changes in senior and executive management in the Company it was necessary to find and appoint new Country Managers in Spain and the UK, the two key territories in the Group. This has been completed with the new recruits now in post in the weeks following the year end.
Internal appointments have also been made in the important areas of Technical and Product Development and Export. These new roles will progress the integration of the Group and help us to realise commercial opportunities more quickly.
It is clear that an appointment in supply chain management will be required in the near future to ensure the operational efficiencies of the Group within this area are achieved.
In addition, we announced at the end of April that Iain Menneer has stood down from his role as Chief Operating Officer. We are very grateful for all of Iain's work on the integration of Animalcare and Ecuphar and we wish him well for the future. Iain's role as COO will not be replaced and has been redistributed within the senior management team that he was accountable for, who will take on further responsibilities and report directly to myself.
The key component to ensuring we continue to deliver on our long-term growth strategy is to continue to attract and retain the highest calibre people to drive forward our development. I would like to extend my thanks to all of our staff for their hard work.
Brexit
The details of how the UK pharmaceutical regulations will be extracted from the current harmonised European structure are not yet clear. The Veterinary Medicines Directorate (UK Government agency) is looking for close cooperation to enable a smooth transition to ensure animal welfare and food safety. The recent acquisition has enabled the new Group to start restructuring its pharmaceutical licence ownership with legal entities in the UK and Europe post-Brexit to allow uninterrupted commercial supply of product. We will continue to monitor the situation and take the necessary action to ensure business continuity.
Post-period end - Le Vet purchase by Dechra
On 13th February, Dechra plc acquired Le Vet Beheer B.V. ("Le Vet"), a business which has developed a portfolio of products, and established a network of marketing partners across Europe. Le Vet have been a long-term partner of Animalcare and Ecuphar with distribution agreements in four territories. Whilst certain distribution arrangements will not change it is clear that this will not be the case across all of them. We are taking action now to mitigate against any material change which could adversely impact trading part way through 2019.
Strategy & Outlook
The strategy of the business remains focused on building long term shareholder value by creating a growing, profitable and highly cash generative pan-European animal health platform, capable of investing in a steady flow of new products and rewarding shareholders with dividend payments.
Further growth is expected through the execution of a clear strategy for growth via both organic sales growth and through targeted acquisitions. Our strategy for growth includes:
· Cross-selling opportunities across customers and distribution channels
· More synergies delivered through further integration of the businesses
· Enhancing geographic footprint and sales, marketing and distribution network
· Developing network of partnerships / strategic alliances to increase exposure to new opportunities
· Identifying selective value-accretive acquisitions
· Diversifying the portfolio of products into additional therapeutic areas within companion animal, as well as production animal and equine markets
· Broadening the product development pipeline to include novel therapies
We expect growth in revenues to be driven by the launch of new products from our development pipeline, additional regulatory approvals for our existing products in new territories and the distribution of new products for US or Asia based third parties across our European footprint. We also expect margin improvement to be seen as the opportunity to cross-sell products fully impacts as existing distribution agreements held by our UK business for Germany, Spain, Portugal, Italy and Belgium are exited and replaced by our own direct sales network.
We believe we are on track to deliver double digit profit growth during 2018 and enhancement to profit margins will be driven by further synergies and cross-selling opportunities, which will start to take effect late in 2018 as integration progresses, but will deliver a more meaningful impact on profit margins during 2019 as the full effect of these changes are felt.
We believe the business is well positioned for future growth and the Directors remain confident of delivering long-term shareholder value.
Chris Cardon
Chief Executive Officer
chief financial officer's review
Presentation of Results
On 13th July 2017, Animalcare Group plc completed the acquisition of Ecuphar NV, a European Animal Health Company headquartered in Belgium. The acquisition constituted a reverse takeover for the purposes of Rule 14 of the AIM Rules for Companies.
This business combination has been treated as a reverse acquisition in accordance with IFRS3. Under the provisions of IFRS3 the results for the year ended 31st December 2017 are reported as a continuation of Ecuphar NV with the results of Animalcare Group plc consolidated from the date of acquisition.
Accordingly the statutory results for the year end 31st December 2017 reflect twelve months of Ecuphar NV and approximately five and a half months of Animalcare Group plc as previously constituted.
To help Shareholders to assess the Group, an unaudited Proforma Consolidated Income Statement has been provided, which reflects twelve months of trading from both entities. The Board believes that these statements provide the most appropriate basis for future comparison of operating performance.
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 prior to the pro- forma information as described above.
Overview of Underlying Results
2017
Continuing
£'000
2017
Acquisition
£'000
2017
Total
£'000
2016
Total
£'000
% Change at AER
Continuing
%
Total
%
Revenue
76,118
7,558
83,676
68,361
11.3%
22.4%
Underlying Gross Profit
30,408
4,256
34,664
28,275
7.5%
22.6%
Gross Margin %
39.9%
56.3%
41.4%
41.4%
(1.2%)
-
Underlying Operating Profit
6,229
1,530
7,759
6,720
(7.3%)
15.5%
Underlying EBITDA
8,415
1,572
9,987
8,914
(4.2%)
11.9%
Underlying EBITDA margin %
11.1%
20.8%
11.9%
13.0%
(1.9%)
(1.3%)
Underlying Profit after tax
3,824
1,460
5,284
3,964
(3.5%)
33.3%
Basic Underlying EPS (p)
-
-
12.6p
16.7p
-
(24.6%)
To assist with the understanding of our underlying financial results, the Group results presented above are split between continuing operations (Ecuphar NV) and acquisition, being Animalcare Group plc from 13th July 2017.
The Group delivered total revenue of £83.7m, an increase of 22.4% versus the prior year. This included £76.1m from the continuing Ecuphar business, an increase of 11.3% (3.8% at CER) and £7.6m contribution from the acquired Animalcare operations.
Underlying EBITDA increased by 11.9% to £10.0m (2016: £8.9m) including a £1.6m contribution from acquisition business. Ecuphar's continuing business underlying EBITDA decreased by 5.6% to £8.4m primarily reflecting the lower gross margins, investments in our infrastructure and people to support future growth and the disposal of NutriScience which Ecuphar sold in October 2016 which contributed profits of approximately £0.2m. More details regarding operational performance are provided within the Trading Performance section.
Basic underlying EPS decreased by 24.6% to 12.6 pence (2016: 16.7 pence). The 33.3% increase in profit after tax was offset by the significant increase in the weighted average number of shares from 23.8 million (which has been adjusted for the merger ratio of 63:37 as described in note 9) to 42.0 million.
Trading Performance
The following table sets out Group underlying trading performance by operating segment (see note 5 for more detail) analysed between continuing and acquisition businesses. This analysis will evolve over time as we integrate the two businesses.
2017
Continuing
£'000
2017
Acquisition
£'000
2017
Total
£'000
2016
Total
£'000
% Change at AER
Continuing
%
Total
%
Revenue by Segment
Pharma
52,180
7,558
59,738
46,530
12.1%
28.4%
Wholesale
23,938
-
23,938
21,831
9.7%
9.7%
Total
76,118
7,558
83,676
68,361
11.3%
22.4%
Underlying Gross Profit by Segment
Pharma
27.993
4,256
32,249
26,003
7.7%
24.0%
Wholesale
2,415
-
2,415
2,272
6.3%
5.8%
Total
30,408
4,256
34,664
28,275
7.5%
22.6%
Underlying EBITDA
Pharma
8,126
1,572
9,698
8,429
(3.6%)
15.1%
Wholesale
289
-
289
485
(40.4%)
(40.4%)
Total
8,415
1,572
9,987
8,914
(5.6%)
11.9%
Pharma segment
Revenue in our pharma segment grew by 28.4%, 12.1% of which was delivered by the continuing Ecuphar business. This growth was primarily driven by very strong growth in Production Animals revenue which as an overall category increased by 25.2% versus prior year to £28.4m together with a strong contribution from the Companion Animals category. Further detail on revenue by product category is given below.
Underlying EBITDA improved by 15.1% to £9.7m however declined by 3.6% from continuing business to £8.1m (2016: £8.4m), representing an EBITDA margin of 15.6% (2016:18.1%). This decline was driven by a combination of lower gross margins which fell by 2.3% to 53.6% and a £2.3m increase in operating costs.
Gross margins in our continuing business have fallen for three main reasons:
· Lower margin sales mix primarily reflecting higher growth in our Production Animal product category and export markets.
· Maintaining market share in a competitive environment, at some expense to margins.
· Disposal of NutriScience in October 2016 which generated £1.3m sales at margins in excess of 50%.
Operating costs have increased by £2.3m to £19.9m (2016: £17.6m) representing 38.2% (2016:37.8%) of sales. Approximately £1.5m of this increase relates to investment in our infrastructure (in particular IT and R&D), people and marketing to position the business for future growth. The balance of £0.8m reflects higher distribution costs as a result of significantly increased vaccine sales together with higher inventory write offs.
Reported EBITDA, which includes £2.2m non-underlying items as analysed in note 5, reduced to £7.5m (2016: £10.2m).
Wholesale segment
Our wholesale segment, which comprises the purchase and re-sale of veterinary pharmaceuticals, supplies and instruments in Belgium, delivered revenue of £23.9m, representing an increase of 9.7% on the prior year. Whilst gross margins at 10.1% remained broadly comparable with prior year (2016: 10.4%), underlying and reported EBITDA reduced from £0.5m to £0.3m mainly due to increased employee costs to drive product sales and services growth.
Revenue by Product Category
2017
£'000
2016
£'000
% Change
at AER%
Companion Animals
42,791
30,799
38.9%
Production Animals
28,390
22,668
25.2%
Equine
4,718
5,567
(15.3%)
Other products and services
7,777
9,327
(16.6%)
Total
83,676
68,361
11.3%
Companion Animals revenue increased by 38.9% to £42.8m, and following the reverse acquisition of Animalcare Group plc, now represents 51.1% of total business, up from 45.1% in the prior year. Animalcare revenues generated 24.5% of the growth with the balance of 14.4% delivered by existing business, primarily driven by increased export sales, increased wholesale sales and market penetration of core pharmaceuticals.
Production Animals revenue grew by 25.2% on prior year despite ongoing pressure on antibiotic usage. This growth largely came from full year sales of new products launched in 2016, in particular rabbit vaccines, continued growth of core products in both our established markets as well as newer geographies such as Italy.
Equine revenues reduced to £4.7m due to the prior year one-off benefit of horse vaccine sales in Germany as a result of competitor supply issues.
Reported Financial Results
Given the significant changes to the Group following the reverse acquisition the financial results contain a number of non - underlying items comprising the fair value uplift of inventory acquired, amortisation and impairment of acquired intangibles and acquisition and integration costs.
A reconciliation of underlying results to reported results is provided below:
2017 Underlying results
£'000
Fair value adjustment
on acquired inventory
£'000
Amortisation and impairment of acquired intangibles
£'000
Acquisition
and integration costs
£'000
2017
Reported results
£'000
2016
Reported results
£'000
Revenue
83,676
-
-
-
83,676
68,361
Gross Profit
34,664
(401)
-
-
34,263
28,275
Selling, general & administrative expenses
(24,912)
-
(3,590)
-
(28,502)
(22,347)
Research & development expenses
(2,048)
-
(751)
-
(2,799)
(1,776)
Net other operating income (expenses)
55
-
-
(1,817)
(1,762)
1,887
Operating Profit
7,759
(401)
(4,341)
(1,817)
1,200
6,039
Net finance expenses
(656)
-
-
-
(656)
(891)
Profit before tax
7,103
(401)
(4,341)
(1,817)
544
5,148
Taxation
(1,819)
76
972
411
(360)
(1,632)
Profit after tax
5,284
(325)
(3,369)
(1,406)
184
3,516
Basic EPS (p)
12.6p
-
-
-
0.4p
14.8p
Including non-underlying items, the Group's profit after tax fell to £0.2m (2016: £3.5m). Non-underlying items incurred in the year are summarised below (all figures are pre-tax):
· Fair value adjustment of acquired inventory of £0.4m - this is a non-cash uplift to the value of acquisition inventory as a result of the fair value exercise carried out in accordance with IFRS3 'Business Combinations'.
· Amortisation and impairment of acquired intangibles totalling £4.3m - this comprises £1.7m charge arising on the acquired intangibles relating to the Animalcare reverse acquisition and £2.6m in relation to previous acquisitions made by Ecuphar NV, principally Esteve SA which was acquired on 30th April 2015.
· Acquisition and integration costs of £1.8m - this principally includes the transaction costs borne by Ecuphar NV in relation to the reverse acquisition of Animalcare Group plc and post-acquisition integration costs including the internal transfer of Animalcare Ltd to Ecuphar NV and the set-up of a new long-term incentive plan which the Board is seeking to implement during 2018.
Earnings per share and dividend
Basic underlying EPS decreased by 24.6% to 12.6 pence (2016: 16.7 pence). The 33.3% increase in profit after tax was offset by the significant increase in the weighted average number of shares from 23.8 million (which has been adjusted for the merger ratio of 63:37 as described in note 8) to 42.0 million.
The reported basic EPS, which incorporates non-underlying items, decreased to 0.4 pence (2016: 14.8 pence).
The Board is proposing a final dividend of 2.0 pence per share, added to the second interim dividend of 4.7 pence per share paid in November 2017, giving a total dividend of 6.7 pence per share since the reverse acquisition. This final dividend is subject to shareholder approval at the Annual General Meeting on 27th June 2017. The Board will continue to maintain the current dividend policy and timing of payments whilst continuing to invest for future growth.
Cash flow, net debt and borrowing facilities
£'000
Net debt at 1st January 2017
(23,782)
Net cash generated from operations
2,425
Net capital expenditure
(2,532)
Acquisition of subsidiaries net of cash acquired
(26,852)
Receipts from issue of share capital
29,402
Net finance expenses
(657)
Dividends paid
(2,816)
Other cash movements
(45)
Foreign exchange on cash and borrowings
(1,051)
Net debt at 31st December 2017
(25,908)
The Group generated £2.4m net cash from operations (2016: £9.3m) which includes a cash outflow from non-underlying items totalling £3.8m. Working capital increased by £5.6m principally reflecting the payment of £2.5m non-underlying items which were recognised (accrued) at the time of the reverse acquisition, £2.0m increase in trade receivables due to strong growth in the final quarter and £1.4m investment in stock. This stock increase was mainly within our wholesale operation due to anticipated further antibiotic restrictions with the balance largely in our high-growth territories.
Net capital expenditure of £2.5m largely comprises investment in our product development pipeline from which a significant number of new products launches are expected in 2019 and 2020.
The £33.1m cash consideration for the acquisition of Ecuphar NV was funded using £4.0m of cash held by Animalcare Group plc and £29.1m of equity raised through a placing net of £0.9m expenses.
As part of the reverse acquisition, the Group agreed to maintain the existing Ecuphar NV borrowing facilities (the Facilities) through four banks which comprised (i) €41.5m revolving credit facility (RCF), (ii) €10m term facility to finance permitted acquisitions (Term Loan A) and (iii) €4.08m quarterly amortising term facility (Term Loan B).
There are three covenants governing the facilities:
i. a minimum adjusted solvency ratio of 30% measured as consolidated adjusted equity to consolidated adjusted total assets,
ii. a maximum leverage ratio of 3.5 times measured as consolidated net debt to consolidated EBITDA
iii. a minimum interest coverage ratio of 4 times measured as consolidated EBITDA to consolidated interest expenses.
Based on the twelve months unaudited pro-forma underlying EBITDA of £11.8m (see below), the Group's net debt underlying EBITDA leverage ratio was 2.2 times. At 31st December 2017, total facilities were £48.4m, of which £33.5m, net of cash balances, was being utilised leaving headroom of £14.9m. 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 expansion.
Summary
The transformational reverse acquisition of Ecuphar has created critical scale for the Group within the European animal health market, providing a strengthened position to capitalise on growth in the market to deliver long-term shareholder value.
To support this value creation, and to maximise the commercial, operational and financial synergies, the Group must deliver a wide-ranging and comprehensive integration. The historical growth of Ecuphar was complemented by a series of acquisitions including the largest and most significant acquisition of Esteve in 2015. Prior to the reverse, limited integration of these operations was undertaken. This has presented additional challenges resulting in the current process to integrate the businesses taking longer than expected.
From a financial performance perspective, we have delivered strong revenue growth however this has not translated through to our operating profit as we have experienced competitive market pressures and changing sales mix, leading to margin decline in the second half of 2017.
Against this backdrop, our priorities for the current year are:
· Increasing sales of new products from our distribution network and expanding our geographic footprint
· Focusing on gross margin and EBITDA development in order to deliver anticipated profit growth
· Improving operating cash generation, important in providing the business with the funds to continue the momentum in our product development pipeline together with dividend flow
· Delivering integration to unlock scale benefits and support EBITDA
We remain firm in our belief that the reverse acquisition will provide a number of opportunities for growth.
Delivering the comprehensive integration to realise the synergies and benefits available is key. Ultimately to create value the combination of our businesses must become more than the sum of the parts.
We expect to see some benefits of the integration in the current year but a more meaningful impact on profit in 2019.
Once fully integrated, we believe this will provide a strong platform for long-term value creation for our shareholders.
Pro forma Consolidated Financial Information (unaudited)
As noted previously to help Shareholders to assess the Group, an unaudited Proforma Consolidated Income Statement has been produced, which reflects twelve months of trading from both entities as below. Pro forma information has been prepared in a manner consistent with the accounting policies adopted by the Group in preparing the audited financial statements for the year ended 31st December 2017.
Animalcare
2017
£'000
Ecuphar
2017
£'000
Total
2017
£'000
Animalcare
2016
£'000
Ecuphar
2016
£'000
Total
2016
£'000
Revenue
15,825
76,118
91,943
15,556
68,361
83,917
Gross Profit
8,720
30,408
39,128
8,722
28,275
36,997
Operating expenses
(8,696)
(28,475)
(37,171)
(5,353)
(22,236)
(27,589)
Operating Profit
24
1,933
1,957
3,369
6,039
9,408
Depreciation, amortisation & impairment
280
4,843
5,123
403
4,689
5,092
Non-underlying items
3,045
1,639
4,684
172
(1,814)
(1,642)
Underlying EBITDA
3,349
8,415
11,764
3,944
8,914
12,858
Net financial (expenses)/income
(40)
(617)
(657)
36
(891)
(855)
(Loss)/profit before tax
(16)
1,316
1,300
3,405
5,148
8,553
Taxation
(104)
(724)
(828)
(466)
(1,632)
(2,098)
Net (loss)/profit
(120)
592
472
2,939
3,516
6,455
Underlying net profit
2,769
3,824
6,593
3,139
3,964
7,103
Underlying basic EPS (p)
-
-
11.0p
-
-
11.8p
Proforma Consolidated Income Statement (unaudited)
Compared to the statutory results, the unaudited proforma consolidated income statement includes an additional 28 weeks of Animalcare Group plc's results prior to the reverse acquisition which has the impact of increasing revenue and underlying EBITDA by £8.3m and £1.8m respectively. This is shown in further detail in the reconciliation section below.
On the proforma basis, revenue increased by 9.6% (3.4% at CER) to £91.9m however underlying EBITDA decreased by 8.5% (12.9% decrease at CER) to £11.8m.
The principal drivers for the financial performance of the existing Ecuphar business are described earlier in the Trading Performance section.
For the acquired Animalcare business, revenues increased 1.7% to £15.8m, driven by £0.6m growth within export offset by a £0.4m reduction in sales from our microchipping business, the latter primarily as a result of the £0.3m incremental sales benefit observed in 2016 following the introduction of compulsory microchipping in the UK. Gross profit was flat at £8.7m largely reflecting the changing sales mix towards lower margin export business. Operating expenses excluding non-underlying items increased by £0.4m of which approximately half relates to higher central costs, including the enlarged Board. The balance primarily relates to investment in our UK trading business staff base. As a result, underlying EBITDA fell by £0.6m to £3.3m.
The pro-forma results are yet to reflect the benefits from leveraging the Group's enlarged platform which include commercial synergies, operating efficiencies and optimisation of the R&D function. We will continue to deliver the integration throughout 2018 to deliver more significant value creation from 2019.
Reconciliation of Proforma Consolidated Income Statement
A reconciliation of the statutory results to the Proforma results is shown below:
Reported Results
2017
£'000
Fair value adjustment on acquired
inventory(1)
2017
£'000
Acquisition and integration
costs(2)
2017
£'000
Amortisation of Animalcare acquired
intangibles(3)
2017
£'000
Animalcare
pre-acquisition(4)
2017
£'000
Proforma Results
2017
£'000
Revenue
83,676
-
-
-
8,267
91,943
Gross Profit
34,263
401
-
-
4,464
39,128
Operating expenses
(33,063)
-
-
1,645
(5,753)
(37,171)
Operating Profit/(loss)
1,200
401
-
1,645
(1,289)
1,957
Depreciation, amortisation & impairment
6,569
-
-
(1,645)
199
5,123
Non-underlying items
-
-
1,817
-
2,867
4,684
EBITDA
7,769
401
1,817
-
1,777
11,764
Net financial (expenses)/income
(656)
-
-
-
(1)
(657)
Profit/(loss) before tax
544
401
-
1,645
(1,290)
1,300
Taxation
(360)
(76)
-
(310)
(82)
(828)
Net profit/(loss)
184
325
-
1,335
(1,372)
472
Notes
1. See description within the reconciliation of underlying to statutory results
2. See description within the reconciliation of underlying to statutory results
3. See description within the reconciliation of underlying to statutory results - this is net of £40k amortisation of acquired intangibles relating to the previous reverse acquisition of Animalcare Ltd in January 2008.
4. Pre-acquisition results of Animalcare Group plc from 1st January 2017 to 12th July 2017
Chris Brewster
Chief FINANCIAL Officer
Consolidated income statements
Underlying
Non-Underlying (note 5)
Total
Underlying
Non-Underlying (note 5)
Total
Notes
2017
£'000
2017
£'000
2017
£'000
2016
£'000
2016
£'000
2016
£'000
Revenue
5
83,676
−
83,676
68,361
−
68,361
Cost of sales
(49,012)
(401)
(49,413)
(40,086)
−
(40,086)
Gross profit
34,664
(401)
34,263
28,275
−
28,275
Research and development expenses
(2,048)
(751)
(2,799)
(1,504)
(272)
(1,776)
Selling and marketing expenses
(14,098)
−
(14,098)
(9,740)
−
(9,740)
General and administrative expenses
(10,814)
(3,590)
(14,404)
(10,384)
(2,223)
(12,607)
Net other operating income / (expenses)
55
(1,817)
(1,762)
73
1,814
1,887
Operating profit/(loss)
7,759
(6,559)
1,200
6,720
(681)
6,039
Financial expenses
6
(747)
−
(747)
(988)
−
(988)
Financial income
7
91
−
91
97
−
97
Profit/(loss) before tax
7,103
(6,559)
544
5,829
(681)
5,148
Income tax
8
(1,819)
1,459
(360)
(1,864)
232
(1,632)
Net profit/(loss)
5,284
(5,100)
184
3,965
(449)
3,516
Net profit/(loss) attributable to:
The owners of the parent
5,284
(5,100)
184
3,964
(449)
3,515
Earnings per share attributable to ordinary owners of the parent
Basic
9
0.4p
14.8p
Diluted
9
0.4p
14.8p
Year ended 31st December 2017
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 this financial information.
The accompanying notes form an integral part of the consolidated financial information.
Consolidated statement of comprehensive income
2017
£'000
2016
£'000
Net profit for the year
184
3,516
Other comprehensive income
Financial instruments at fair value through OCI *
−
(5)
Cumulative translation differences *
664
2,515
Other comprehensive income, net of tax
664
2,510
Total comprehensive income for the year, net of tax
848
6,026
Total comprehensive income attributable to:
The owners of the parent
848
6,026
Year ended 31st December 2017
* May be reclassified subsequently to profit & loss.
Consolidated statements of financial position
Notes
2017
£'000
2016
£'000
Assets
Non-current assets
Goodwill
10
51,413
9,959
Intangible assets
11
54,037
21,246
Property, plant & equipment
825
719
Deferred tax assets
8
1,603
1,269
Other financial assets
72
69
Other non-current assets
−
1
Total non-current assets
107,950
33,263
Current assets
Inventories
16,795
13,254
Trade receivables
16,680
10,781
Available-for-sale financial assets
464
423
Other current assets
1,934
1,191
Cash and cash equivalents
7,579
951
Total current assets
43,452
26,600
Total assets
151,402
59,863
Liabilities
Current liabilities
Borrowings
12
(633)
(631)
Trade payables
(14,128)
(10,012)
Tax payables
(2,741)
(1,774)
Accrued charges & deferred income
13
(2,116)
(812)
Other current liabilities
(1,980)
(2,237)
Total current liabilities
(21,598)
(15,466)
Non-current liabilities
Borrowings
12
(32,854)
(24,102)
Deferred tax liabilities
8
(6,454)
(224)
Deferred income
13
(780)
−
Provisions
(72)
(216)
Total non-current liabilities
(40,160)
(24,542)
Total Liabilities
(61,758)
(40,008)
Net Assets
89,644
19,855
Equity
Share capital
14
11,983
4,244
Share premium
132,588
6,687
Reverse acquisition reserve
(56,762)
5,146
Retained earnings
(1,347)
1,258
Other reserves
3,180
2,518
Equity attributable to the owners of the parent
89,642
19,853
Non-controlling interest
2
2
Total equity
89,644
19,855
Year ended 31st December 2017
Consolidated statement of changes in equity
Year ended 31st December 2017
Attributable to the owners of the parents
Share
capital£'000
Share
premium£'000
Treasury shares
£'000
Retained earnings
£'000
Reverse acquisition reserve
£'000
Other reserve
£'000
Total
£'000
Non-
controlling
interest£'000
Total
equity£'000
At 1 January, 2017
4,244
6,687
−
1,258
5,146
2,518
19,853
2
19,855
Net profit
−
−
−
184
−
−
184
−
184
Other comprehensive income
−
−
−
−
−
662
662
−
662
Total comprehensive income
−
−
−
184
−
662
846
−
846
Dividends paid
−
−
−
(2,816)
−
−
(2,816)
−
(2,816)
Shares issued as consideration
5,750
94,880
−
−
−
−
100,630
−
100,630
Exercise of share options
275
3,953
−
−
−
−
4,228
−
4,228
Share issue cost
−
(1,218)
−
−
−
−
(1,218)
−
(1,218)
Arising on reverse acquisition
−
−
−
−
(61,908)
−
(61,908)
−
(61,908)
Issue of new shares
1,714
28,286
−
−
−
−
30,000
−
30,000
Share based payments
−
−
−
27
−
−
27
−
27
At 31 December, 2017
11,983
132,588
−
(1,347)
(56,762)
3,180
89,642
2
89,644
Attributable to the owners of the parents
Share
capital£'000
Share
premium£'000
Treasury shares
£'000
Retained earnings
£'000
Reverse acquisition reserve
£'000
Other reserve
£'000
Total
£'000
Non-
controlling
interest£'000
Total
equity£'000
At 1 January, 2016
7,256
8,821
(646)
(142)
−
8
15,297
2
15,299
Net profit
−
−
−
3,515
−
−
3,515
−
3,515
Other comprehensive income
−
−
−
−
−
2,510
2,510
−
2,510
Total comprehensive income
−
−
−
3,515
−
2,510
6,025
−
6,025
Dividends paid
−
−
−
(1,469)
−
−
(1,469)
−
(1,469)
Capital increase in cash
−
−
646
(646)
−
−
−
−
−
At 31 December, 2016
7,256
8,821
−
1,258
−
2,518
19,853
2
19,855
Arising on reverse acquisition
(3,012)
(2,134)
−
−
5,146
−
−
−
−
At 31 December, 2016
4,244
6,687
−
1,258
5,146
2,518
19,853
2
19,855
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 statements
Year ended 31st December 2017
Notes
2017
£'000
2016
£'000
Operating activities
Profit before tax
544
5,148
Non-cash and operational adjustments
Depreciation of property, plant & equipment
327
326
Amortization of intangible assets
11
6,053
3,982
Share-based payment expense
27
−
Loss/(gain) on disposal of property, plant & equipment
2
(1)
Movement in allowance for bad debt and inventories
652
536
Financial income
7
(91)
(97)
Financial expense
6
747
988
Impact of foreign currencies
25
1,787
Gain from sale of subsidiaries
3
−
(2,432)
Other
(30)
30
Movements in working capital
Increase in trade receivables
(2,079)
(1,447)
Decrease /(increase) in inventories
(1,359)
(890)
(Decrease)/Increase in payables
(2,115)
2,530
Income tax paid
(278)
(1,172)
Net cash flow from operating activities
2,425
9,288
Investing activities
Purchase of property, plant & equipment
(184)
(463)
Purchase of intangible assets
11
(2,379)
(1,185)
Proceeds from the sale of property, plant & equipment (net)
31
74
Payments to acquire subsidiaries
3
(33,145)
−
Cash and cash equivalents acquired under reverse acquisition
3
6,293
-
Proceeds from sale of subsidiary
3
−
3,211
Purchase available for sale financial investments
(45)
(409)
Net cash flow used in investing activities
(29,429)
1,228
Notes
2017
£'000
2016
£'000
Financing activities
Proceeds from loans & borrowings and convertible debt
8,298
15,852
Repayment of loans & borrowings
(649)
(23,925)
Receipts from issue of share capital
29,402
−
Dividends paid
(2,816)
(1,469)
Interest paid
(528)
(663)
Other financial expense
(129)
(241)
Net cash flow from financing activities
33,578
(10,446)
Net increase of cash & cash equivalents
6,574
70
Cash & cash equivalents at beginning of the year
14
951
749
Exchange rate differences on cash & cash equivalents
54
132
Cash & cash equivalents at end of the year
14
7,579
951
Reconciliation of net cash flow to movement in net debt
Net increase in cash and cash equivalents in the year
6,574
70
Cash flow from (increase)/decrease in debt financing
(7,649)
8,073
Foreign exchange differences on cash and borrowings
(1,051)
(4,045)
Movement in net debt in the year
(2,126)
4,098
Net debt at the start of the year
(23,782)
(27,880)
Net debt at the end of the year
(25,908)
(23,782)
Notes to the consolidated financial statements
Year ended 31st December 2017
1. Financial information
The financial information set out above does not constitute the Company's statutory accounts for the year ended 31st December 2017 but is derived from the 2017 accounts. The statutory accounts of Animalcare Group plc for the year ended 30th June 2016 have been delivered to the Registrar of Companies and those for 2017 will be delivered in due course. The external auditor has reported on those accounts; the report was (i) unqualified, (ii) did not include references to any matters to which the external auditor drew attention by way of emphasis without qualifying the reports and (iii) did not contain statements under section 498(2) or (3) of the Companies Act 2006.
2. Basis of preparation
On 13th July 2017 the Company acquired the entire issued ordinary share capital of Ecuphar NV and became the legal parent of Ecuphar NV.
The accounting policy adopted by the Directors applies 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).
This policy reflects the commercial substance of this transaction as follows:
· The original shareholders of the legal subsidiary undertaking were the most significant shareholders following admission to AIM, owning 46.9% of the issued share capital;
· The assets and liabilities of the legal subsidiary Ecuphar NV are recognized and measured in the Group financial statements at the pre-combination carrying amounts without restatement to fair value;
· The retained earnings and other equity balances recognized in the Group financial statements reflect the retained earnings and other equity balances of Ecuphar NV immediately before the business combination.;
· The results of the period from 1st January 2017 to the date of the business combination are those of Ecuphar NV;
· The equity structure appearing in the Group financial statements reflects the equity structure of the legal parent, including the equity instruments issued under the share for share exchange to effect the business combination and adjusted in accordance with IFRS 3. This results in the creation of a 'reverse acquisition reserve' as at 1st January 2017, being the difference between the Company equity structure and that of Ecuphar NV.
The consolidated financial statements cover the year ended 31st December 2017. The financial statements for the comparative year ended 31st December 2016 represent the substance of the reverse acquisition and are those of Ecuphar NV.
3. Business Combinations and disposals of subsidiaries
Reverse acquisition of Animalcare Group plc
On 13th July 2017 Animalcare Group plc acquired 100% of the share capital of Ecuphar NV for a total consideration of £133,775k, satisfied through a combination of a share for share exchange and £33,145k in cash net of commissions.
The acquisition of Ecuphar NV by Animalcare Group plc is deemed to be a reverse acquisition under the provisions of IFRS 3 "Business Combinations".
In accounting for a reverse acquisition (rather than an acquisition) the combined financial statements are deemed to be a continuation of the books of the legal acquiree (Ecuphar NV) rather than a continuation of those of the legal acquirer (Animalcare Group plc).
The assets and liabilities of the Ecuphar NV are recognised and measured in the Group financial statements at the pre-combination carrying amounts, without restatement to fair value and no goodwill arises in relation to them.
Conversely, the assets of Animalcare Group plc and Animalcare Ltd are consolidated at their fair values.
The overall effect is that the consolidated financial statements are prepared from an Ecuphar NV perspective rather than Animalcare Group plc, in summary this means:
· The comparative consolidated financial information is that of Ecuphar NV rather than that of Animalcare Group plc;
· The result for the year and consolidated cumulative profit and loss reserves are those of the Ecuphar NV plus the post-acquisition results of the Animalcare Group plc;
· A reverse acquisition reserve of (£56,762k) has been created;
· The share capital and share premium account are that of Animalcare Group plc;
· The cost of the combination has been determined from the perspective of Ecuphar NV.
Goodwill arises on the reverse acquisition when comparing the deemed fair value consideration of Animalcare Group plc acquiring the shares of Ecuphar NV. The fair value of the consideration is the market capitalization of Animalcare Group plc at the acquisition date based on the closing share price on 12th July of 355p per share.
Carrying
value at
acquisition
date£'000
Fair value
adjustments£'000
Fair value
at acquisition date£'000
Assets
Historical goodwill
12,711
(12,711)
−
Intangible assets
4,658
30,957
35,615
Tangible assets
227
−
227
Deferred tax asset
149
885
1,034
Inventory
2,014
401
2,415
Trade receivables
3,392
−
3,392
Other current assets
559
−
559
Cash
6,293
−
6,293
30,003
19,532
49,535
Liabilities
Financial debts
−
−
−
Deferred tax liabilities
(414)
(6,843)
(7,257)
Trade payables
(3,948)
−
(3,948)
Other liabilities
(4,040)
−
(4,040)
(8,402)
(6,843)
(15,245)
Total identified assets and liabilities
21,601
12,689
34,290
Goodwill
41,048
Fair value of consideration
−
−
75,338
Reverse Acquisition Animalcare
The acquisition consideration, net assets and goodwill are based upon the reverse acquisition of Animalcare Group plc by Ecuphar NV. The fair value of the consideration is the market capitalization of Animalcare Group plc at the closing share price of 355p per share on 12th July 2017. Transaction costs of equity transactions relating to the issue and re-admission of the Company's shares are accounted for as a deduction from equity where they relate to the issue of new shares.
The fair value of the net assets acquired and shown in the table above was £34,290k. The fair value of the consideration was £75,338k resulting in goodwill on reverse acquisition of £41,048k. In addition, the fair value uplift of inventory amounted to £401k, the fair value uplift of the identified intangibles amounted to £30,957k. Deferred tax assets and liabilities respectively were increased by £885k and (£6,843k).
Disposal of subsidiaries
Nutriscience
On 31 October 2016 the Group entered into a share purchase agreement with Swedencare AB regarding the sale of one of its subsidiaries, Nutriscience Ltd. The consideration received by the Group amounts to £3,507k and this resulted in a gain of £2,432k. The effect of this transaction on the financial position and cash flows of the Group is as follows:
Carrying value
at selling date
£'000
Assets
Goodwill
419
Property, plant and equipment
53
Inventories
407
Trade receivables
419
Other receivables
37
Cash and cash equivalents
296
1,631
Liabilities
Financial debts
−
Trade payables
(315)
Other payables
(241)
(556)
Total assets and liabilities
1,075
Gain on sale Nutriscience
2,432
Selling price received in cash
3,507
Cash flow from sale
Cash & cash equivalents transferred
(296)
Selling price
3,507
Total cash flow
3,211
Nutriscience
This disposal did not meet the IFRS 5 criteria as a component of a Group, as a separate major line of business nor as a geographical area of operations. Therefore discontinued operations and asset held for sale disclosures were not required.
4. Non-Underlying items
2017
£'000
2016
£'000
Amortization of acquisition related intangibles
Classified within Research and development expenses
751
272
Classified within General and administrative expenses
3,590
2,223
Total amortization of acquisition related intangibles
4,341
2,495
Fair value uplift of inventory acquired through reverse acquisition
401
−
Acquisition and integration costs
1,454
−
Gain on sale of Nutriscience
−
(2,432)
Other non-underlying items
363
618
Total non-underlying items before taxes
6,559
681
Tax impact
(1,459)
(232)
Total non-underlying items after taxes
5,100
449
The amortization charge of acquisition related intangibles largely relates to the Esteve acquisition £2,017k (2016: £1,880k) and the reverse acquisition of the Animalcare Group £1,685k.
5. Segment information
For management purposes, the Group is organized into two segments: the Pharmaceuticals and the Wholesale segments.
The Pharmaceutical segment is active in the development and marketing of innovative pharmaceutical products that provide significant benefits to animal health.
The Wholesale segment focusses on the sale of veterinary pharmaceuticals, supplies and instruments in the Belgian market.
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 is considered 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, amortization and impairment. Underlying EBITDA equals EBITDA plus non-underlying items.
The following table summarizes the segment reporting for each of the reportable periods ending 31 December. 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.
Pharma
£'000
Wholesales
£'000
Total segments
£'000
Adjustments
& eliminations£'000
Consolidated
£'000
For the year ended 31 December 2017
Revenues
62,291
23,938
86,229
(2,553)
83,676
Gross Margin
31,924
2,415
34,339
(76)
34,263
Gross Margin %
51%
10%
40%
41%
Segment underlying EBITDA
9,698
289
9,987
−
9,987
Segment underlying EBITDA %
16%
1%
12%
12%
Segment EBITDA
7,496
273
7,769
−
7,769
Segment EBITDA %
12%
1%
9%
9%
For the year ended 31 December 2016
Revenues
48,355
21,831
70,186
(1,825)
68,361
Gross Margin
26,007
2,272
28,279
(4)
28,275
Gross Margin %
54%
10%
40%
41%
Segment underlying EBITDA
8,420
485
8,905
8
8,913
Segment underlying EBITDA %
17%
2%
13%
13%
Segment EBITDA
10,235
484
10,719
8
10,727
Segment EBITDA %
21%
2%
15%
16%
The segment EBITDA is reconciled with the consolidated net profit of the year as follows:
2017
£'000
2016
£'000
Segment EBITDA
7,769
10,727
Depreciation, amortization and impairment
(6,569)
(4,689)
Operating profit
1,200
6,038
Financial expenses
(747)
(988)
Financial income
91
97
Income taxes
(643)
(1,305)
Deferred taxes
283
(327)
Net profit
184
3,515
Non-current assets excluding deferred tax assets and financial instruments located in Belgium, Spain, Portugal, the United Kingdom and other geographies are as follows:
2017
£'000
2016
£'000
Belgium
19,691
21,378
Spain
2,170
2,229
Portugal
4,101
3,913
UK
76,010
−
Other
4,375
4,474
Non-current assets excluding deferred tax assets and financial instruments
106,347
31,994
Revenue by product category:
2017
£'000
2016
£'000
Companion animals
42,791
30,799
Production animals
28,390
22,668
Horses
4,718
5,567
Petfood, Instrumentals and Services
7,777
9,327
Total
83,676
68,361
Revenue by geographical area:
2017
£'000
2016
£'000
Europe
82,803
67,842
Belgium
29,501
27,797
The Netherlands
1,726
1,434
United Kingdom
9,459
2,516
Germany
8,930
6,714
Spain
20,909
18,695
Italy
4,458
3,559
Portugal
4,514
4,044
European Union - other
3,306
3,083
Asia
473
309
Middle East Africa
47
5
Other
353
205
Total
83,676
68,361
Revenue by category:
2017
£'000
2016
£'000
Product sales
83,314
67,656
Services sales
362
705
Total
83,676
68,361
6. Financial expenses
Financial expenses includes the following elements:
2017
£'000
2016
£'000
Interest expense
528
663
Foreign currency losses
118
81
Change in fair value - losses on financial instruments
-
-
Other financial expenses
101
244
Total
747
988
7. Financial income
Financial income includes the following elements:
2017
£'000
2016
£'000
Foreign currency exchange gains
69
28
Change in fair value - gains on financial instruments
−
18
Other financial income
22
51
Total
91
97
8. Income tax expense
Income tax
The following table shows the breakdown of the tax expense for 2017 and 2016:
2017
£'000
2016
£'000
Current tax
Current tax charge
(821)
(1,335)
Tax adjustments in respect of previous years
178
30
Total current tax charge
(643)
(1,305)
Deferred tax
Deferred tax - origination and reversal of temporary differences
283
(327)
Total tax expense for the year
(360)
(1,632)
The total tax expense can be reconciled to the accounting profit as follows:
2017
£'000
2016
£'000
Profit before tax
544
5,147
Income tax at weighted average tax rate
(4)
(1,310)
Non-deductible expenses
(212)
(90)
Income not subject to tax
66
−
Other tax credits and tax deductions
(1)
62
Other permanent tax differences
(56)
(73)
Other taxes
(37)
(29)
Changes in statutory enacted tax rate
(294)
(68)
Withholding taxes on acquisition treasury shares
−
(154)
Tax adjustments in respect of previous year
178
30
Income tax expense as reported in the consolidated income statement
(360)
(1,632)
The tax credit of £1,459k (2016: £232k) shown within 'non-underlying items' on the face of the consolidated income statement, which forms part of the overall tax charge of £360k (2016: £1,632k) relates to the items analysed in note 5.
The tax rates used for the 2017 and 2016 reconciliation above is the corporate tax rate of 33.99% (Belgium), 25% (the Netherlands), 29% (Germany), 33% (France), 25% (Spain), 34% in 2017 and 24% in 2016 (Italy), 21% (Portugal) and 19% in 2017 and 20% in 2016 for 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 Finance Bill 2017 (on 6 September 2016). They include reductions to the main rate to reduce the rate to 17% 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% (current) to 29.58% in 2018 and 2019 and to 25% 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
Assets
Liabilities
Total
2017
£'000
2016
£'000
2017
£'000
2016
£'000
2017
£'000
2016
£'000
Goodwill
(7)
44
(362)
(264)
(369)
(220)
Intangible assets
515
175
(6,118)
−
(5,603)
175
Property, plant & equipment
28
13
(25)
3
3
16
Financial fixed assets
1
1
−
−
1
1
Inventory
51
43
(24)
−
27
43
Trade and other payables
297
565
−
−
297
565
Accruals & deferred income
19
173
75
−
94
173
Tax losses carry forward
699
255
−
37
699
292
Total
1,603
1,269
(6,454)
(224)
(4,851)
1,045
(a) Recognised deferred tax assets and liabilities
(b) Movements during the year
£'000
Balance at
31 December 2016
£'000
Recognized
in income
£'000Acquired through business combinations
£'000Foreign exchange adjustments
£'000Balance at 31 December 2017
£'000
Goodwill
(220)
(138)
−
(11)
(369)
Intangible assets
175
565
(6,356)
13
(5,603)
Property, plant & equipment
13
27
(38)
1
3
Financial fixed assets
1
−
−
−
1
Inventory
46
53
(76)
3
26
Trade & other payables
565
(285)
−
18
298
Accruals & deferred income
173
(331)
247
5
94
Tax losses carry forward
292
392
−
15
699
Gross profit
1,045
283
(6,223)
44
(4,851)
Movement of deferred taxes during 2017:
Movement of deferred taxes during 2016:
£'000
Balance at
31 December 2015
£'000
Recognized
in income
£'000Acquired through business combinations
£'000Foreign exchange adjustments
£'000Balance at
31 December 2016
£'000
Goodwill
(7)
(205)
−
(8)
(220)
Intangible assets
194
(44)
−
25
175
Property, plant & equipment
2
11
−
−
13
Financial fixed assets
1
−
−
−
1
Inventory
26
15
−
5
46
Trade & other payables
759
(304)
−
110
565
Accruals & deferred income
103
51
−
19
173
Derivatives
6
(6)
−
−
−
Borrowings
23
(26)
−
3
−
Tax losses carry forward
89
181
−
22
292
Gross profit
1,196
(327)
−
176
1,045
(c) Tax losses
The Group has unused tax losses, tax credits and notional interest deduction available in an amount of £2,636k for 2017 (2016: £1,045k).
Deferred tax assets have been recognized on all available tax loss carry forwards, resulting in amounts recognized of £699k (2016: £292k). 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
Basic earnings per share amounts are calculated by dividing the net profit for the year attributable to ordinary equity holders of the parent company by the weighted average number of ordinary shares outstanding during the year.
The weighted average number of ordinary shares outstanding during 2016 has been calculated by multiplying the existing Ecuphar NV ordinary shares of 13,957,720 by the merger ratio of 63:37 Ecuphar/Animalcare (after taking into account dilution from the exercise of certain Animalcare Share incentive arrangements) giving a total adjusted weighted average of 23,765,858 shares.
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:
Underlying
2017
£'000
Underlying
2016
£'000
Total
2017
£'000
Total
2016
£'000
Net profit attributable to ordinary equity holders of the parent adjusted for the effect of dilution
5,284
3,965
184
3,515
2017
2016
2017
2016
Weighted average number of ordinary shares for basic earnings per share
41,998,692
23,765,848
41,998,692
23,765,858
Dilutive potential ordinary shares
178,191
−
178,191
−
Weighted average number of ordinary shares adjusted for effect of dilution
42,176,883
23,765,848
42,176,883
23,765,858
2017
2016
2017
2016
Earnings per share attributable to ordinary owners of the parent
Basic
12.6p
16.7p
0.4p
14.8p
Diluted
12.5p
16.7p
0.4p
14.8p
Earnings per share are as follows:
10. Goodwill
The goodwill has been allocated to the cash generating units ("CGU") as follows:
2017
£'000
2016
£'000
CGU: Pharmaceuticals
50,856
9,425
CGU: Wholesale
557
534
Total
51,413
9,959
The changes in the carrying value of the goodwill can be presented as follows for the years 2017 and 2016:
Gross
£'000
Impairment
£'000
Total
£'000
At 1 January 2016
8,974
−
8,974
Disposals
(419)
−
(419)
Currency translation
1,403
−
1,403
At 31 December 2016
9,958
−
9,958
Additions
41,048
−
41,048
Currency translation
406
−
406
At 31 December 2017
51,413
−
51,413
In addition to currency translation effects the goodwill balance increased as a result of the reverse acquisition of the Animalcare business in 2017 by £41,048k and decreased as a result of the disposal of Nutriscience Ltd in 2016 by £419k (see Note 3).
As of 31st December 2017 goodwill allocated to the Pharmaceuticals CGU includes goodwill recognized as a result of past business combinations of Esteve, Equipharma NV, Ecuphar BV, Cardon Chemicals NV and the reverse acquisition of the Animalcare Group plc in 2017. As of 31st December 2017 goodwill allocated to the Wholesale CGU includes goodwill recognized as a result of the past business combinations of Medini NV and Orthopaedics NV.
The Group has performed an impairment test based on a discounted cash flow model including cash flows derived from the three year budget plan and residual value as of the fourth year.
Both the Pharmaceuticals and Wholesale CGU are included in their respective reportable segment Pharmaceuticals and Wholesale.
CGU Pharmaceuticals
The recoverable amount of this cash-generating unit is based on the Fair Value Less Costs of Disposal "FVLCD" which uses a multiples model.
For the calculation of the FVLCD we used both the sales and EBITDA multiples. The multiples used in the model are based on the most conservative multiples used by Rothschild for the purpose of valuing both Ecuphar and Animalcare at the time of the acquisition. The sales multiples for 2018 of the old Animalcare and Ecuphar businesses are respectively 3.5 and 1.6. The EBITDA multiples used are 13.8 for Animalcare and 10.9 for Ecuphar. From 2019 onwards, the multiples are determined for the combined businesses. Sales multiple is 1.9 and EBITDA multiple is 11.5. EBITDA and sales are based on the 2018 and 2019 budget provided by management.
Based on the sales multiple model, the value of the Pharmaceuticals segment is determined at £179,479k, leaving a headroom of £65,882k.
The value of the Pharmaceuticals segment is determined at £153,489k when using the EBITDA multiples approach. This leaves a headroom of £39,893k.
CGU Wholesale
The recoverable amount of this cash-generating unit is based on the Fair Value Less Costs of Disposal "FVLCD" which uses a multiples model.
For the calculation of the FVLCD we used both the sales and EBITDA multiples. The multiples used in the model are based on the most conservative multiples used by Rothschild for the purpose of valuing both Ecuphar and Animalcare at the time of the acquisition. The sales multiples for 2018 of the old Animalcare and Ecuphar businesses are respectively 3.5 and 1.6. The EBITDA multiples used are 13.8 for Animalcare and 10.9 for Ecuphar. From 2019 onwards, the multiples are determined for the combined businesses. Sales multiple is 1.9 and EBITDA multiple is 11.5. EBITDA and sales are based on the 2018 and 2019 budget provided by management.
Based on the sales multiple model, the value of the Wholesale segment is determined at £53,061k, leaving a headroom of £51,106k. The value of the Wholesale segment is determined on £5,602k when using the EBITDA multiples approach. This leaves a headroom of £3,647k.
11. Intangible assets
In Process
R&D
£'000
Patents, distribution rights & licenses
£'000
Product portfolios & product development costs
£'000
Capitalized software
£'000
Total
£'000
Acquisition value
At 1 January 2016
2,451
11,065
13,735
−
27,251
Additions
−
1,735
1,036
−
2,771
Disposals
−
(2,090)
−
−
(2,090)
Transfers
−
−
−
179
179
Currency translation
388
1,736
2,219
8
4,351
Other
−
(9)
(34)
−
(43)
At 31 December 2016
2,839
12,437
16,956
187
32,419
Additions
550
187
1,174
468
2,379
Change due to business combinations
10,013
4,561
21,041
−
35,615
Disposals
−
(29)
−
−
(29)
Currency translation
116
510
704
14
1,344
Other
−
19
−
48
67
At 31 December 2017
13,518
17,685
39,875
717
71,795
Amortization
At 1 January 2016
(160)
(1,820)
(5,856)
−
(7,836)
Additions
(268)
(2,256)
(1,457)
−
(3,981)
Disposals
−
2,016
7
−
2,023
Transfers
−
−
(1)
(55)
(56)
Currency translation
(39)
(299)
(991)
(2)
(1,331)
Other
−
8
−
−
8
At 31 December 2016
(467)
(2,351)
(8,298)
(57)
(11,173)
Additions
(751)
(2,523)
(2,589)
(190)
(6,053)
Currency translation
(23)
(124)
(359)
(5)
(511)
Other
−
8
5
(34)
(21)
At 31 December 2017
(1,241)
(4,990)
(11,241)
(286)
(17,758)
Net carrying value
At 31 December 2017
12,277
12,695
28,634
431
54,037
At 31 December 2016
2,372
10,086
8,658
130
21,246
The changes in the carrying value of the intangible assets can be presented as follows for the years 2017 and 2016:
In Process Research & Development relates to acquired development projects as part of the Esteve business combination in 2015, the reverse acquisition of Animalcare in 2017 and external and internal in process R&D costs for which the capitalization criteria are met.
Patents, distribution rights & licenses 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 in 2017.
Product portfolios & product development costs relate to amounts paid for acquired brands as well as external and internal product development costs capitalized on the development projects in the pipeline for which the capitalization criteria are met.
The total amortization charge for 2017 is £6,053k (2016: £3,981k) 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.
12. Borrowings
Interest
rateMaturity
2017
£'000
2016
£'000
Other loans
1.56%
51
75
Revolving credit facilities
Euribor +1.50%
March22
26,768
21,482
Roll over investment facility
Euribor +1.50%
March22
2,676
3,176
Acquisition loan
Euribor +1.75%
March22
3,992
−
Total loans and borrowings
33,487
24,733
of which non-current
32,854
24,102
current
633
631
The loans and borrowings include the following:
Revolving credit facilities and roll over investment facilities
Mid 2016, the Group refinanced all 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 new agreements consist of:
· € 41.5m Revolving credit facilities
· € 10m available acquisition financing
· € 4.08m investment loans
The loans have a variable, EURIBOR based interest rate, increased with a margin of 1.5% 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. Deferred income and accrued charges
2017
£'000
2016
£'000
Accrued charges
1,868
806
Deferred income - due within one year
219
−
Other
29
6
Total due within one year
2,116
812
Deferred income - Due after one year
780
−
Deferred income and accrued charges consists of the following:
Accrued charges mainly relate to accrued product development expenses of £757k, accrued management bonuses in Ecuphar NV for £93k (2016: £350k) and several accrued charges relating to commissions and bonuses in Ecuphar Veterinaria for an amount of £333k (2016: £318k).
Deferred income arises from certain services sold by the Group's subsidiary Animalcare Ltd. In return for a single up-front 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 service. 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 recognized evenly over the term of the contract, currently between eight and fourteen years.
Movements in the Group's deferred income liabilities during the current year are as follows:
£'000
Balance at the beginning of the year
−
Acquired through business combinations
925
Income deferred to following periods
181
Release of income deferred from previous periods
(107)
Balance at the end of the year
999
The deferred income liabilities fall due as follows:
£'000
Within one year
219
After one year
780
Balance at the end of the year
999
14. Equity
Share capital
2017
Number of shares
2016
Number of shares
Allotted, called up and fully paid Ordinary Shares of 20p each
59,913,900
21,222,110
2017
£'000
2016
£'000
Allotted, called up and fully paid Ordinary Shares of 20p each
11,983
4,244
The following share transactions have taken place during the year ended 31st December 2017:
2017
Number of shares
2016
£'000
At 1st July 2016
21,222,110
4,244
Issued as consideration for business combinations
37,322,894
7,465
Exercise of share options
1,368,896
274
At 31 December 2017
59,913,900
11,983
On 13th July 2017 the Group announced that it had completed the reverse acquisition. In aggregate, 37,322,894 new Ordinary Shares were allotted and issued comprising 8,571,428 new placing shares and 28,751,466 consideration shares.
During the year a total of 1,368,896 shares were issued in respect of the exercise of share options. This comprised a total of 1,218,896 shares issued to certain Directors, with the balance of 150,000 shares issued in relation to the grant of options over the Company's share by Animalcare Ltd under the Animalcare Group plc Executive Share Option Scheme and the Save As You Earn (SAYE) Share Option Scheme.
Dividends
The Group paid an ordinary interim dividend of 4.7p per share, totalling £2,816k, on 24th November 2017. During the year ended 31st December 2016 the Group paid a final dividend of £1,469k.
The proposed final dividend of 2.0 pence per share is subject to approval of shareholders at the Annual General Meeting and has not been included as a liability as at 31st December 2017, in accordance with IAS 10 "Events After the Balance Sheet Date".
Non-controlling interest
The non-controlling interest is £2k at 31 December 2017 (2016: £2k). This non-controlling interest represents 0.2% of the share capital of Medini NV and 0.02% of Orthopaedics.be NV which are held by third parties.
15. 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 31st December 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.co.uk 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 RNSThe company news service from the London Stock ExchangeENDFR SFUEELFASEDI
Recent news on Animalcare
See all newsREG - Animalcare Group PLC - Grant of options and PDMR Dealing
AnnouncementREG - Animalcare Group PLC - Sale of equity in STEM Animal Health Inc.
AnnouncementREG - Animalcare Group PLC - Investor presentation via Investor Meet Company
AnnouncementREG - Animalcare Group PLC - Preliminary Unaudited Full Year Results 2023
AnnouncementREG - Animalcare Group PLC - Disposal of Identicare Ltd
Announcement