REG - Animalcare Group PLC - Interim results for six months ended 30 June 2022
27/09/2022 07:00
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RNS Number : 7088A Animalcare Group PLC 27 September 2022
Animalcare Group plc
Interim Results for the six months ended 30 June 2022
27 September 2022. 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 2022.
Animalcare reports solid revenue performance and improved gross margins in H1
2022 as the Group maintains its strategic focus on the pursuit of sustainable
growth opportunities.
Financial Highlights
· Revenue decreased 2.1% (0% at CER) to £38.3m compared to exceptional
levels of demand in H1 2021
· Gross profit margin increased 1.4% to 56.0% (H1 2021: 54.6%),
benefiting from a continued focus on brands with higher growth and margin
potential and a positive sales mix
· Underlying* EBITDA declined by 5.3% to £8.0m, with improved gross
margins offset by increased investment in the Orthros R&D programmes and
people-related SG&A
· Underlying basic EPS decreased by 1.3% to 7.9 pence (H1 2021: 8.0
pence)
· Statutory profit before tax, incorporating non-underlying items was
£3.4m (H1 2021: £0.8m), with reported basic EPS at 4.0 pence (H1 2021: 0.5
pence)
· Net debt increased by £2.1m to £7.4m as of 30 June 2022 largely
reflecting significantly higher receivables as a result of revenue phasing
towards the period end, with the net debt to underlying EBITDA leverage ratio
comfortably below the Group's target range of 1 to 2 times
· Adjusted for the increase in Orthros R&D investment, the Group
anticipates that full year earnings will be within market expectations despite
intensification of macroeconomic headwinds
· Board declares interim dividend of 2.0 pence per share, in line with
prior year
* The Group presents a number of non-GAAP Alternative Performance Measures
(APMs) which exclude non-underlying items as set out in note 3. EBITDA is
defined as underlying earnings before interest, tax, depreciation and
amortisation.
Strategic and Operational Highlights
Business development
· Early-stage pipeline strengthened in key therapy area through
research and development collaboration with Netherlands-based company, Orthros
Medical in March 2022
· The Group continues to leverage its financial strength and
flexibility in pursuit of sustainable value-creating opportunities through the
likes of M&A activity, partnerships and pipeline projects
Pipeline
· Preclinical studies are under way after the Group secured a global
exclusive licence from Orthros Medical for early-stage VHH candidates,
initially addressing canine osteoarthritis, with second half research
expenditure to accelerate with the FY 2022 investment anticipated to be in the
region of £0.5m
· Launch activities for STEM's Plaqtiv+ range of oral health products
have commenced following the award of the Seal of Acceptance from the
Veterinary Oral Health Council ("VOHC") during Q2 2022
Leadership
· Doug Hutchens and Sylvia Metayer join Board as Non-Executive
Directors. Sylvia Metayer appointed chair of the Audit and Risk Committee
following the AGM in June 2022
Animalcare's Chief Executive Officer, Jenny Winter, commented: "I am pleased
that Animalcare was able to deliver solid revenue and gross margin performance
compared to exceptional levels of post-COVID demand in H1 2021. Strategically,
we maintained our focus on the pursuit of value-creating M&A and R&D
opportunities made possible by our strong and flexible balance sheet.
"Our confidence in the long-term prospects of Animalcare and the
attractiveness of our markets is demonstrated in a projected R&D spend of
approximately £0.5m for the full year as we invest in the early stage Orthros
collaboration. We anticipate that the majority of any financial impact of
current macroeconomic pressures in our markets will be offset by the expansion
in gross profit margins and therefore expect EBITDA margin to be broadly in
line with market consensus, adjusting for R&D, and full year earnings to
be within market expectations.
"From a revenue perspective, against a backdrop of intensifying headwinds, we
now anticipate a marginal bias to H1 versus H2 2022."
Analyst briefing/webcast
A briefing for analysts will be held at 10:30 BST on Tuesday 27 September 2022
via Zoom webcast. Analysts wishing to join should use the following link to
register and receive access details.
https://stifel.zoom.us/webinar/register/WN_vv3rHgW1RWu49pdL5peiOQ
(https://stifel.zoom.us/webinar/register/WN_vv3rHgW1RWu49pdL5peiOQ)
A copy of the analyst presentation will be made available on the Group website
shortly after the webcast.
This announcement contains inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014.
Enquiries
Animalcare Group plc +44 (0)1904 487 687
Jenny Winter, Chief Executive Officer
Chris Brewster, Chief Financial Officer
Media/investor relations communications@animalcaregroup.com (mailto:communications@animalcaregroup.com)
Stifel Nicolaus Europe Limited +44 (0)20 7710 7600
(Nominated Adviser & Joint Broker)
Ben Maddison
Nick Adams
Nicholas Harland
Panmure Gordon +44 (0)20 7886 2500
(Joint Broker)
Corporate Finance
Freddy Crossley/Emma Earl
Corporate Broking
Rupert Dearden
About Animalcare
Animalcare Group plc is a UK AIM-listed international veterinary sales and
marketing organisation. Animalcare operates in seven countries and exports to
approximately 40 countries in Europe and worldwide. The Group is focused on
bringing new and innovative products to market through its own development
pipeline, partnerships and via acquisition. For more information about
Animalcare, please visit www.animalcaregroup.com
(http://www.animalcaregroup.com)
Chairman's Statement
We are pleased to report that over the first six months Animalcare delivered
good revenue performance against a tough comparator and improved gross margins
as the Group continued to focus on investment in value-creating opportunities.
Total revenues were £38.3m, down 2.1% (0% at CER) compared to H1 2021, a
period of exceptional growth as the lifting of COVID-19 counter measures
released pent-up demand, particularly in the Companion Animals segment.
Revenues generated by our top 40 brands continued to grow, up 2.4% thanks
largely to new product launches including Daxocox. Our promotional focus on
larger, higher margin brands, in addition to a favourable sales mix, was a
further driver of gross margin expansion to 56.0% (H1 2021: 54.9%). Underlying
EBITDA tracked broadly in line with revenues, declining 5.3% to £8.0m. The
effect of higher product margins was offset by investment in people-related
SG&A costs and our development pipeline, most notably in relation to
additional R&D investment in programmes related to the early-stage
agreement with Orthros Medical announced in March 2022.
As anticipated, cash conversion in H1 2022 reduced significantly compared to
the rates delivered over the last two years. Consequently, net debt increased
by £2.1m to £7.4m. Overall, we maintain a strong financial position with our
underlying EBITDA to net debt leverage ratio still comfortably below our
target range of 1 to 2 times.
This healthy leverage position equips us to seek out attractive external
growth opportunities, including the strengthening of our R&D pipeline as
demonstrated by our agreement with Orthros Medical which centres on
preclinical VHH candidates with an initial focus on canine osteoarthritis.
Additionally, during Q2 2022, following the award of the Veterinary Oral
Health Council (VOHC) seal of approval, we celebrated the launch of oral
health range Plaqtiv+ across our markets towards the end of the period.
Plaqtiv+ is the first antibiofilm product from the STEM joint venture.
Continuing to build the Group's leadership capability is a key objective of
our strategy and I'm delighted to see how active we have been in this space
during the first half. Sandra Single joined the Senior Executive Team at the
beginning of the year, taking on the newly-created role of Strategic Product
and Portfolio Director. Her extensive experience in research, development and
licensing is already proving its worth as we pursue growth from internally and
externally sourced products. We also welcomed Doug Hutchens and Sylvia Metayer
to the Board during the first half with Sylvia succeeding Nick Downshire as
chair of the Audit and Risk Committee after the Annual General Meeting in June
2022. Both Doug and Sylvia will be real assets to the Group.
The entire Animalcare team deserves recognition for its first half performance
despite increasingly stiff macroeconomic headwinds and a moderation in demand
growth from a post-COVID high. The fundamentals of the animal health market
remain attractive, supported by historically high levels of pet ownership; the
Group is well positioned to take advantage of these trends to deliver
continued success over the longer term. On that basis the Board has declared
an interim dividend of 2.0 pence a share, the same level as 2021.
Jan Boone, Chairman
Business and Financial Review
Overview of underlying financial results
We are pleased to report a positive first half trading performance with
improved gross margins against a strong prior period comparator. The Group's
financial strength has been maintained with the net debt to underlying EBITDA
leverage ratio comfortably below our stated target range of 1 to 2 times,
enabling us to continue pursuing attractive external opportunities and invest
in long-term drivers of growth.
A summary of the underlying financial results for the first six months of
2022, which the Directors believe provides a clearer picture of business
performance, is shown below.
Six months to 30 June 2022 2021 Change at AER
£'000 £'000 %
Revenue 38,286 39,121 (2.1%)
Gross Profit 21,430 21,354 0.4%
Gross Margin % 56.0% 54.6% 1.4%
Underlying Operating Profit 6,502 7,089 (8.3%)
Underlying EBITDA 8,026 8,474 (5.3%)
Underlying EBITDA margin % 21.0% 21.7% (0.7%)
Basic Underlying EPS (p) 7.9p 8.0p (1.3%)
Revenues for the period totalled £38.3m, a decrease of £0.8m or 2.1% (0% at
CER) compared to H1 2021 which experienced exceptional growth as markets
bounced back following the easing of COVID-19 counter measures.
Revenue performance by product category is shown in the table below:
Six months to 30 June 2022 2021 Change at AER
£'000 £'000 %
Companion Animals 26,634 27,385 (2.7%)
Production Animals 8,814 9,263 (4.9%)
Equine & other 2,838 2,473 14.8%
Total 38,286 39,121 (2.1%)
Companion Animals revenue, which represents around 70% of Group turnover,
declined by 2.7% to £26.6m. Throughout the period and into the second half of
the financial year, we have seen demand levels moderate as markets across
Europe return to more normalised growth. Within the North Region, our
performance has been impacted by a reduction in wholesaler inventory levels,
built up to secure supply through Brexit and COVID, while in Southern Europe,
overall trading was slightly ahead of the prior period, benefiting from the
effects of phasing.
Sales growth from new products contributed £1.5m, predominantly driven by
Daxocox and Plaqtiv+, the latter launching during Q2 following the later than
expected VOHC (Veterinary Oral Health Council) approval. This growth helped
offset a revenue reduction due to the loss of distribution rights.
Production Animal revenues, which are chiefly generated by our South Region
business, declined by 4.9% versus the prior period to £8.8m, predominantly
driven by legislation implemented to further reduce the general usage of
antibiotics, as well as supply disruptions.
Equine and other sales increased by 14.8% to £2.8m principally due to the
resumption of normalised trading patterns following a decrease in sales during
2021 due to customer stock build in 2020 in advance of the manufacturing
transfer of Danilon.
Revenues generated by our top 40 brands, collectively accounting for
approximately 79% of sales, increased by 2.4%, predominantly driven by new
product launches. The continuing commercial focus on these larger, higher
margin brands, together with a more favourable sales mix, is the key driver of
the 1.4% improvement in our gross margins. While the Group has been affected
by inventory and logistic price increases, the net impact on gross and EBITDA
margins during the first half has not been significant as we have taken
mitigating pricing actions where possible. However, we remain alert to the
accelerating inflationary pressures impacting our overall cost base in the
second half and into 2023.
Underlying EBITDA declined by 5.3% to £8.0m, broadly in line with revenues.
SG&A expenses in the first half increased by £0.5m to £13.4m,
representing 35.0% of revenue (H1 2021: 32.9%; FY 2021: 35.1%). We have
continued to invest in our people and drivers of future growth including those
related to new products and pipeline projects, the latter including R&D
expenditure of approximately £0.1m in relation to the early-stage agreement
with Orthros Medical. We expect second half research expenditure to accelerate
with the FY 2022 investment anticipated to be in the region of £0.5m.
The underlying effective tax rate was 23.2%, broadly comparable to both the
prior period and FY 2021 rate of 24.4%.
Reflecting the points noted above, underlying basic EPS decreased by 1.3% to
7.9 pence (H1 2021: 8.0 pence).
Reported results and non-underlying items
Reported Group profit after tax for the period after accounting for the
non-underlying items detailed below was £2.4m (2021: £0.3m), with reported
basic earnings per share at 4.0 pence (H1 2021: 0.5 pence).
Non-underlying items totalling £2.7m (H1 2021: £5.6m) relating to profit
before tax have been incurred in the period, as set out in note 3. These
principally comprise:
· Amortisation and impairment of acquisition-related intangibles of
£2.4m (H1 2021: £5.4m). The decrease versus 2021 primarily reflects the
prior period non-cash impairment of three projects that formed part of the
acquired development pipeline, the principal driver for which was the recall
and suspension of all products containing ranitidine for human use by European
and US authorities. Consequently, Animalcare ceased development of ranitidine
for animal use.
· Expenses relating to acquisition, integration and restructuring costs
of £0.3m (H1 2021: £0.6m) largely relating to the relocation of our Spanish
office together with the reorganisation of our UK operations and associated
carve out of Identicare Ltd, the Group's microchipping and consumer-focused
services business.
Dividend
The Board is pleased to declare an interim dividend of 2.0 pence per share, in
line with the prior period. The interim dividend will be paid on 18 November
2022 to shareholders whose names are on the Register of Members at close of
business on 21 October 2022. The ordinary shares will become ex-dividend on 20
October 2022.
Cash flow, net debt and borrowing facilities
Significant progress was made during FY 2021 in reducing our debt and
increasing the Group's financial strength. With the net debt to underlying
EBITDA leverage ratio comfortably below our stated target range of 1 to 2
times, we continue to pursue value-creating opportunities through M&A,
partnerships and pipeline projects.
Following the very strong cash conversion performance in FY 2021 of 108.8%, we
are reporting, as anticipated, a reduction in our first half underlying cash
conversion to 22.6% (H1 2021: 79.5%) as set out in the table below:
Six months to Six months to
30 June 2022
30 June 2021
£'000 £'000
Underlying EBITDA 8,026 8,474
Net cash flow from operations 1,428 6,145
Non-underlying items 382 594
Underlying net cash flow from operations 1,810 6,739
Underlying cash conversion % 22.6% 79.5%
Net cash flow generated by our operations reduced to £1.4m (H1 2021: £6.2m).
Net working capital increased by £5.6m during the period (H1 2021: £1.4m
increase), largely reflecting significantly higher receivables as a result of
revenue phasing towards the period end. In addition, inventories increased by
£1.6m primarily driven by normalisation of our stock profile following
restocking of delayed supply from the end of 2021. Tax cash outflows at £1.0m
were comparable to the prior period.
We expect cash conversion for the full year at around 70%, the achievement of
which will be largely dependent on trading patterns during the second half and
any decisions the Group may take in connection with strategic stock cover to
support surety of supply going into 2023.
Net debt increased by £2.1m to £7.4m over the period largely driven by the
reduced cash conversion noted above and a significant increase in IFRS16 lease
liabilities primarily in relation to the relocation of our Spanish office.
£'000
Net debt at 1 January 2022 (5,330)
Net cash flow from operations 1,428
Net capital expenditure (1,416)
Net finance expenses (821)
Foreign exchange on cash and borrowings (314)
Movement in IFRS16 lease liabilities (978)
Net debt at 30 June 2022 (7,431)
Net capital expenditure of £1.4m (H1 2021: £1.5m) largely comprises
investment in our product development pipeline of £1.1m, including £0.3m in
relation to the first licence milestone payment to Orthros Medical. The
balance of expenditure relates chiefly to ERP and BI investments as we
continue to harmonise and strengthen our IT infrastructure.
Net debt to underlying EBITDA leverage ratio was approximately 0.6 times (H1
2021: 0.4 times), below the Group's target net debt to underlying EBITDA range
of 1 to 2 times.
Going Concern
Banking Facilities and Covenants
The Group's financing arrangements consisted of a committed revolving credit
facility of €41.5m and a €10m acquisition line, which cannot be utilised
to fund our operations.
The facilities remain 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 2022, and throughout the period, all covenant requirements were
met with significant headroom across all three measures. As at 30 June 2022,
total facilities were £44.2m with headroom, including cash on balance sheet,
was around £39.5m.
Summary and outlook
Animalcare posted solid revenues and an expansion in gross margins in the
first half against a tough prior year comparison as we continued to focus on
execution of our long-term growth strategy.
The Group's progress in the first half has been made despite increasingly
stiff headwinds, including inflationary pressures, and a moderation of the
exceptional post-COVID growth seen in the first half of 2021. In light of
these factors, we anticipate a marginal revenue bias to H1 versus H2 2022.
Our commitment to grow our business through innovation is reflected in a
planned R&D spend of £0.5m for the full year as we invest in the
early-stage Orthros collaboration. We anticipate that the majority of any
financial impact of current macroeconomic pressures in our markets will be
offset by the expansion in gross profit margins. We therefore expect our
EBITDA margin to be broadly in line with market consensus, adjusting for
R&D, and full year earnings to be within market expectations.
Over the long term, we believe the fundamentals of the animal health market
remain attractive, underpinned by historically high levels of pet ownership.
This backdrop, in combination with the Group's strong and flexible financial
platform, with net debt well below our target leverage range, provides us with
the confidence and means to continue investing in growth opportunities through
the likes of M&A, partnerships and R&D collaborations.
The Animalcare team deserves real credit for maintaining a tight focus on all
elements of our long-term growth strategy.
Jenny
Winter
Chris Brewster
Chief Executive
Officer
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
2022 2022 2022 2021 2021 2021
£'000 £'000 £'000 £'000 £'000 £'000
Revenue 38,286 − 38,286 39,121 − 39,121
Cost of sales (16,856) − (16,856) (17,767) − (17,767)
Gross profit 21,430 − 21,430 21,354 − 21,354
Research and development expenses (1,403) (331) (1,734) (1,212) (547) (1,759)
Selling and marketing expenses (6,235) − (6,235) (6,285) − (6,285)
General and administrative expenses (7,308) (2,024) (9,332) (6,818) (2,373) (9,191)
Net other operating income / (expenses) 18 (352) (334) 50 (2,685) (2,635)
Operating profit/(loss) 6,502 (2,707) 3,795 7,089 (5,605) 1,484
Financial expenses 328 − 328 (1,131) − (1,131)
Financial income (699) − (699) 574 − 574
Financial net result (371) − (371) (557) − (557)
Share in net (loss)/profit of joint ventures accounted for using the equity 16 − 16 (136) − (136)
method
Profit/(loss) before tax 6,147 (2,707) 3,440 6,396 (5,605) 791
Income tax (1,429) 396 (1,033) (1,563) 1,100 (463)
Net profit/(loss) 4,718 (2,311) 2,407 4,833 (4,505) 328
Net profit/(loss) attributable to:
The owners of the parent 4,718 (2,311) 2,407 4,833 (4,505) 328
Earnings per share for profit/(loss) attributable to the ordinary equity
holders of the company:
Basic 7.9p 4.0p 8.0p 0.5p
Diluted 7.9p 4.0p 8.0p 0.5p
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
2022 2021
£'000 £'000
Net profit for the period 2,407 328
Other comprehensive income/(expense)
Cumulative translation differences * 283 (468)
Other comprehensive income/(expense)/, net of tax 283 (468)
Total comprehensive income/(expense) for the period, net of tax 2,690 (140)
Total comprehensive income/(expense) attributable to:
The owners of the parent 2,690 (140)
* May be reclassified subsequently to profit & loss
Condensed consolidated statement of financial position
30 June 2022 31 Dec 2021
£'000 £'000
Assets
Non-current assets
Goodwill 50,536 50,337
Intangible assets 27,777 29,719
Property, plant and equipment 945 626
Right-of-use assets 2,638 1,658
Investments in joint ventures 78 1,290
Deferred tax assets 2,043 1,963
Other financial assets 65 90
Other non-current assets − 24
Total non-current assets 84,082 85,707
Current assets
Inventories 12,074 10,328
Trade receivables 13,812 7,135
Other current assets 1,430 1,200
Cash and cash equivalents 5,136 5,633
Total current assets 32,452 24,296
Total assets 116,534 110,003
Liabilities
Current liabilities
Borrowings − −
Lease liabilities (794) (723)
Trade payables (11,326) (10,021)
Tax payables (1,955) (471)
Accrued charges and deferred income (1,478) (1,083)
Other current liabilities (4,842) (2,156)
Total current liabilities (20,395) (14,454)
Non-current liabilities
Borrowings (10,924) (9,243)
Lease liabilities (1,904) (996)
Deferred tax liabilities (4,120) (4,271)
Deferred income − (675)
Provisions (389) (408)
Other non-current liabilities − (1,157)
Total non-current liabilities (17,337) (16,750)
Total Liabilities (37,732) (31,204)
Net Assets 78,802 78,799
Equity
Share capital 12,019 12,019
Share premium 132,798 132,798
Reverse acquisition reserve (56,762) (56,762)
Accumulated losses (10,604) (11,676)
Other reserves 2,703 2,420
Equity attributable to the owners of the parent 80,154 78,799
Total equity 80,154 78,799
Condensed consolidated statement of changes in equity
Attributable to the owners of the parents
Share Share Accumulated losses Reverse acquisition reserve Other reserve Total
capital
premium
£'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2022 12,019 132,798 (11,676) (56,762) 2,420 78,799
Net profit − − 2,407 − − 2,407
Other comprehensive income − − − − 283 283
Total comprehensive income − − 2,407 − 283 2,690
Dividends − − (1,442) − − (1,442)
Share based payments − − 107 − − 107
At 30 June 2022 12,019 132,798 (10,604) (56,762) 2,703 80,154
Attributable to the owners of the parents
Share Share Accumulated losses Reverse acquisition reserve Other reserve Total
capital
premium
£'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2021 12,012 132,729 (9,445) (56,762) 3,058 81,592
Net profit − − 328 − − 328
Other comprehensive expense − − − − (468) (468)
Total comprehensive income/(expense) − − 328 − (468) (140)
Exercise of share options 4 40 − − − 44
Share-based payments − − 124 − − 124
At 30 June 2021 12,016 132,769 (8,993) (56,762) 2,590 81,620
Condensed consolidated cash flow statements
For the six months ended 30 June
Notes 2022 2021
£'000 £'000
Operating activities
Profit before tax 3,440 791
Profit before tax 3,440 791
Adjustments for:
Share in net result of joint ventures (16) 136
Depreciation of property, plant and equipment 538 574
Amortisation of intangible assets 3,291 3,746
Impairment of intangible assets 32 2,417
Share-based payment expense 135 124
Gain on disposal of property, plant and equipment (165) (396)
Non-cash movement in provisions 103 163
Movement in allowance for bad debt and inventories 34 233
Financial income (82) (86)
Financial expense 375 673
Impact of foreign currencies 58 (34)
Other 14 2
Movements in working capital
Increase in trade receivables (6,465) (88)
(Increase)/decrease in inventories (1,572) 257
Decrease/(increase) in payables 2,387 (1,610)
Income tax paid (679) (757)
Net cash flow from operating activities 1,428 6,145
Investing activities
Purchase of property, plant and equipment (373) (265)
Purchase of intangible assets (1,209) (1,566)
Proceeds from the sale of property, plant and equipment (net) 166 337
Net cash flow used in investing activities (1,416) (1,494)
Financing activities
Proceeds from loans and borrowings and convertible debt 420 (2,807)
Repayment of loans and borrowings − (582)
Repayment IFRS16 lease liability (499) (520)
Receipts from issue of share capital − 44
Interest paid (207) (239)
Other financial expense (87) (247)
Increase in other financial assets 6 (28) (1,201)
Net cash flow used in financing activities (401) (5,552)
Net decrease in cash and cash equivalents (389) (901)
Cash and cash equivalents at beginning of period 5,633 5,265
Exchange rate differences on cash and cash equivalents (108) 186
Cash and cash equivalents at end of period 5,136 4,550
Reconciliation of net cash flow to movement in net debt
Net decrease in cash and cash equivalents in the period (389) (901)
Cash flow from decrease in debt financing (420) 3,389
Foreign exchange differences on cash and borrowings (315) 853
Movement in net debt in the period (1,124) 3,341
Net debt at the start of the period (5,329) (13,617)
Movement in lease liabilities during the period (978) 167
Net debt at the end of the period (7,431) (10,109)
Notes to the consolidated interim report
1. General information
Animalcare Group plc ("the Company") is a public company incorporated in the
United Kingdom under the Companies Act 2006 and is domiciled in the United
Kingdom. The address of its registered office is Unit 7, 10 Great North Way,
York Business Park, York, YO26 6RB. The condensed set of financial statements
as at, and for, the six months ended 30 June 2022 comprises the Company and
its subsidiaries (together referred to as the "Group"). The nature of the
Group's operations and its principal activities are set out in the latest
Annual Report.
2. Basis of preparation and significant accounting policies
Basis of preparation and accounting policies
This interim financial information for each of the six month periods ended 30
June 2022 and 30 June 2021 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 2021 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 consolidated financial statements are presented in thousands of pound
sterling (k£ or thousands of £) and all "currency" values are rounded to the
nearest thousand (£000), except when otherwise indicated.
The Interim Report for the six months ended 30 June 2022 was approved by the
Board of Directors and authorised for issue on 27 September 2022.
Except as described below, the condensed consolidated interim financial
information for the six months ended 30 June 2022 has been prepared using
accounting policies consistent with those of the Company's annual accounts for
the year ended 31 December 2021, except for the intangible assets as explained
below, which were prepared in accordance with International Financial
Reporting Standards ("IFRS") as adopted by the European Union ("adopted
IFRSs").
Taxes on income in the interim periods are accrued using the estimated tax
rate that would be applicable for the full financial year.
Changes in accounting policies
The Group has acquired certain intangible assets related to licenses with a
fixed and variable consideration contingent upon the realization of certain
milestones and sales volumes. Due to the recognition of this license asset,
the group will extend its accounting policies on intangible assets as follows:
The Group will recognise an intangible asset for the licenses obtained
initially measured at the fixed consideration paid. The variable consideration
subject to the realisation of the milestones will only be recognised when the
milestones are met and will be recognised as an addition to the intangible
license asset. Once market authorization is obtained, the Group will start
amortizing the intangible asset over its useful life and recognise any future
milestone payments as a cost of sale.
New standards, interpretations and amendments adopted by the Group
The following new Standards, Interpretations and Amendments issued by the IASB
and the IFRIC as adopted by the European Union are effective for the financial
period:
- IFRS 3 Business Combinations - Amendments updating a reference to
the Conceptual Framework (May 2020)
- IAS 16 Property, Plant and Equipment - Amendments prohibiting a
company from deducting from the cost of property, plant and equipment amounts
received from selling items produced while the company is preparing the asset
for its intended use (May 2020)
- IAS 37 Provisions, Contingent Liabilities and Contingent Assets -
Amendments regarding the costs to include when assessing whether a contract is
onerous (May 2020)
- Annual improvements to IFRSs 2018-2020 Cycle (May 2020)
- IFRS 16 Leases - Amendment COVID-19-Related Rent Concessions
beyond June 30, 2021 (March 2021)
The adoption of these new standards and amendments has not led to major
changes in the Group's accounting policies.
New and revised standards not yet adopted
The Group elected not to early adopt the following new Standards,
Interpretations and Amendments, which have been issued by the IASB and the
IFRIC but are not yet effective as of June 30, 2022, and/or not yet adopted by
the European Union as of June 30, 2022. Standards are not expected to have a
material impact on the entity in the current or future reporting periods and
on foreseeable future transactions.
- IAS 1 Presentation of Financial Statements - Amendments regarding
the classification of liabilities (January 2020)* and Amendment to defer the
effective date of the January 2020 amendments (July 2020)* and Amendments
regarding the disclosure of accounting policies (February 2021)
- IAS 8 Accounting policies, Changes in Accounting Estimates and
Errors - Amendments regarding the definition of accounting estimates (February
2021)
- IAS 12 Income Taxes - Amendments regarding deferred tax on leases
and decommissioning obligations and related to assets and liabilities arising
from a single transaction (May 2021)*
* Not yet endorsed by the EU as of 30 June 2022
Going Concern
Banking Facilities and Covenants
At 30 June 2022, the Group's financing arrangements consisted of a committed
revolving credit facility of €41.5m and a €10m acquisition line, the
latter which cannot be utilised to fund our operations. The facilities remain
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 2022, and throughout the period, all covenant requirements were
met with significant headroom across all three measures. As at 30 June 2022,
total facilities were £44.2m with headroom, including cash on balance sheet,
was around £39.5m.
3. Non-underlying items
For the six months ended 30 June
2022 2021
£'000 £'000
Amortisation and impairment of acquisition related intangibles
Classified within Research and development expenses 331 547
Classified within General and administrative expenses 2,024 2,373
Classified within net other operating expenses 32 2,432
Total amortisation and impairment of acquisition related intangibles 2,387 5,352
Restructuring costs 179 457
Acquisition and integration costs 136 164
Divestments and business disposals (146) (368)
Other non-underlying items 151 −
Total non-underlying items before taxes 2,707 5,605
Tax impact (395) (1,100)
Total non-underlying items after taxes 2,312 4,505
The amortisation and impairment of acquisition-related intangibles charge
totalling £2.4m (2021: £5.4m) largely relates to the Esteve acquisition of
£0.8m (2021: £1.0m) and the reverse acquisition of Animalcare Group plc of
£1.5m (2020: £1.7m). The decrease versus 2021 primarily reflects the
non-cash impairment of a project that formed part of the acquired development
pipeline, the principal driver for which was the recall and suspension of all
products containing ranitidine for human use by European and US authorities.
Consequently, Animalcare ceased development of ranitidine for animal use.
During the period the Group incurred acquisition, integration and
restructuring costs of £0.3m (30 June 2021: £0.6m) which include the carve
out and partnership of Identicare Ltd, our microchipping and database services
business, with effect from 1 January 2022, and the cessation of supply due to
manufacturing issues. Further, strong focus on our core higher margin brands
has led to several product divestments with associated income on sale of
£146k (2021: £368k).
Finally, other non-underlying items of £151k largely relate to the relocation
of our Spanish office.
4. Segment information
The Pharmaceutical segment is active in the development and marketing of
innovative pharmaceutical products that provide significant benefits to animal
health.
The measurement principles used by the Group in preparing this segment
reporting are also the basis for segment performance assessment. The Board of
Directors of the Group acts as the Chief Operating Decision Maker. As a
performance indicator, the Chief Operating Decision Maker controls performance
by the Group's revenue, gross margin, Underlying EBITDA and EBITDA. EBITDA is
defined by the Group as net profit plus finance expenses, less financial
income, plus income taxes and deferred taxes, plus depreciation, amortisation
and impairment. Underlying EBITDA equals EBITDA plus non-underlying items.
The following table summarises the segment reporting from continuing
operations for 2022 and 2021. 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
2022 2021
Pharma Pharma
£'000 £'000
Revenues 38,286 39,121
Gross Margin 21,430 21,354
Gross Margin % 56.0% 54.6%
Segment underlying EBITDA 8,026 8,474
Segment underlying EBITDA % 21.0% 21.7%
Segment EBITDA 7,706 8,237
Segment EBITDA % 20.1% 21.1%
The segment EBITDA is reconciled with the consolidated net profit of the year
as follows:
For the six months ended 30 June
2022 2021
£'000 £'000
Segment EBITDA 7,706 8,237
Depreciation, amortisation and impairment (3,911) (6,753)
Operating profit 3,795 1,484
Financial expenses 328 (1,131)
Financial income (699) 574
Share in net result of joint ventures 16 (136)
Income taxes (1,246) (959)
Deferred taxes 213 496
Net profit 2,407 328
Revenue by product category:
For the six months ended 30 June
2022 2021
£'000 £'000
Companion animals 26,634 27,385
Production animals 8,814 9,263
Equine and Other 2,838 2,473
Total 38,286 39,121
Revenue by geographical area:
For the six months ended 30 June
2022 2021
£'000 £'000
Belgium 1,593 2,210
The Netherlands 749 687
United Kingdom 7,269 7,395
Germany 4,766 5,397
Spain 12,165 11,509
Italy 4,610 4,906
Portugal 2,230 2,394
European Union - other 3,927 3,828
Asia 182 324
Other 795 471
Total 38,286 39,121
Revenue by category:
For the six months ended 30 June
2022 2021
£'000 £'000
Product sales 37,376 38,504
Services sales 910 617
Total 38,286 39,121
Product revenue is recognised when the performance obligation is satisfied at
a point in time. Service revenue is recognised by reference of the stage of
completion.
5. Licensing and R&D collaboration agreements with Orthros
Medical BV
On 24 March 2022, the Group entered into two early-stage agreements with
Netherlands-based Orthros Medical, a company focused on the research and early
development of VHH antibodies, also known as small single chain antibody
fragments. Under the terms of the deal, and during the period, Animalcare made
upfront payments to Orthros Medical totalling €500,000. As the two licensed
preclinical candidates progress, Orthros Medical may receive development,
regulatory and commercial milestone payments up to a total value of €11
million, a significant proportion of which are linked to successful
commercialisation. In addition, single digit royalties will be due on the net
sales of the products. These payments are expected to be paid out of the
Group's operating cash flow.
6. 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
2022 2021 2022 2021
Net profit attributable to ordinary equity holders of 4,718 4,833 2,407 328
the parent adjusted for the effect of dilution
Average number of shares (basic and diluted):
For the six months ended 30 June
Underlying Underlying Total Total
2022 2021 2022 2021
Number Number Number Number
Weighted average number of ordinary shares for basic 60,092,161 60,058,266 60,092,161 60,057,161
earnings per share
Dilutive potential ordinary shares 542,465 466,871 542,465 466,871
Weighted average number of ordinary shares adjusted for effect of dilution 60,634,626 60,525,137 60,634,626 60,524,032
Basic earnings per share:
For the six months ended 30 June
Underlying Underlying Total Total
2022 2021 2022 2021
Pence Pence Pence Pence
From operations attributable to the ordinary 7.9 8.0 4.0 0.5
equity holders of the company
Total basic earnings per share attributable to the ordinary equity holders of 7.9 8.0 4.0 0.5
the company
Diluted earnings per share:
For the six months ended 30 June
Underlying Underlying Total Total
2022 2021 2022 2021
Pence Pence Pence Pence
From operations attributable to the ordinary equity holders of the company 7.9 8.0 4.0 0.5
Total diluted earnings per share attributable to the ordinary equity holders 7.9 8.0 4.0 0.5
of the company
7. Dividends
The final dividend for the year ended 31 December 2021 of 2.4 pence per share
was paid to shareholders on 8 July 2022.
The directors have declared an interim dividend of 2.0 pence per share. The
interim dividend will be paid on 18 November 2022 to shareholders whose names
are on the Register of Members at close of business on 21 October 2022. The
ordinary shares will become ex-dividend on 20 October 2022.
As the interim dividend was declared after the end of the period being
reported, it has not been included as a liability as at 30 June 2022 in
accordance with IAS 10 'Events after the Balance Sheet date'.
8. Contingent liabilities
On 3 September 2018, Ecuphar NV sold the wholesale business Medini NV to
Vetdis Holding NV (Vetdis) under a Share Purchase Agreement (SPA). In June
2019, Vetdis sent a letter to Ecuphar claiming that Ecuphar had breached the
SPA. Ecuphar disputes the majority of the claim, however Ecuphar considers it
likely that a part of the claim, amounting to €126,430, may be valid.
Following various discussions and correspondence, during which the parties
were unable to reach any agreement, Vetdis issued formal court papers on 29
May 2020. A full court hearing to consider the case took place in the
Commercial Court in Bruges on 2 March 2021. The court did not decide on the
merits of the claim, instead it appointed an expert auditor to examine the
documents and advise the court on the claim. The court however ordered Vetdis
to pay the current account debt plus interest at 8%, and on 4 May 2021, Vetdis
made a payment of €432,762. The process involving the expert auditor is
ongoing. Other than the €126,430, which may be valid, no further provision
in respect of this matter has been included in the financial statements.
9. Related party transactions
The Group holds, via its subsidiary Ecuphar NV, a 33.3% share in STEM Animal
Health inc. In 2020 the Group entered into a licensing agreement to
commercialise products in global veterinary markets outside the Americas.
There have been no transactions with STEM during the period in relation to
these agreements.
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 2022 was approved
and authorised for issue on 27 September 2022. Copies will be available to
download on the Company's website at: www.animalcaregroup.com
(http://www.animalcaregroup.com) .
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