TIDMANCR
RNS Number : 3709A
Animalcare Group PLC
29 September 2020
Animalcare Group plc
Interim Results for the six months ended 30 June 2020
29 September 2020. Animalcare Group plc ("the Company" or
"Group") (AIM: ANCR), the international animal health business,
announces its unaudited interim results for the six months ended 30
June 2020.
The Group is pleased to report a resilient first half
performance and remains well-placed to navigate the challenges due
to COVID-19. We entered 2020 in a strong financial position and
this has been maintained throughout the period, important both in
terms of the Group's operational resilience and its ability to
focus on the execution of our growth strategy.
Financial Highlights
-- Resilient financial performance at higher end of the Board's
range of pandemic scenario modelling
-- Revenue GBP34.5m (2019: GBP36.1m), a decline of 4.4% (4.8% at
CER) compared to prior year period due to COVID-19. Production
Animals sales increased by 13.1%, partially offsetting the negative
impact of government pandemic controls on the Companion Animals
sector
-- Underlying* EBITDA down 2.4% on the prior year, reflecting
cost efficiencies generated in 2019 and decisive realignment of
SG&A spend during Q2 2020
-- Cash conversion rate of 56.9% (2019: 92.3%) for first half as
a result of COVID-19 disruption and previously announced strategic
stock build in relation to manufacturing transfers
-- Net debt GBP18.1m as of 30 June 2020 (GBP17.8m at 1 January
2020), adversely impacted by currency variations
-- Underlying* basic EPS 5.9 pence (6.4 pence for first half 2019)
-- Declared interim dividend of 2.0 pence per share, in line
with prior period. Funds initially allocated for 2019 final
dividend retained for investment in growth opportunities
*The Group presents a number of non-GAAP Alternative Performance
Measures (APMs) which exclude non-underlying items as set out in
note 3. EBITDA is defined as underlying earnings before interest,
tax, depreciation and amortisation.
Strategic and Operational Highlights (including post-period)
Despite disruption to Animalcare's markets caused by the
COVID-19 pandemic, the Group has maintained a strong focus on
delivery of its long-term growth strategy.
Business development
-- Post-period end, Animalcare signs CA$5 million agreement with
Kane Biotech to form an animal health company to target
biofilm-related ailments. The Group will commercialise Kane
Biotech's range of oral care products for companion animals outside
the Americas while the jointly-owned company will focus on research
and development of novel animal treatments based on biofilm
targeting technology.
-- The roll-out of Procanicare, the probiotic gastrointestinal
treatment for dogs, progresses across markets despite disruption to
operation of veterinary practices caused by COVID-19.
Pipeline
-- Animalcare's novel COX-2 inhibitor pain treatment continues
to progress through the regulatory process. Planned 2021 launch
subject to approval.
Operational Highlights
-- Sales and marketing excellence programme initiated to
optimise launch and commercialisation of differentiated
products.
-- Review of operations to capitalise on the accelerated
transition to digital working by veterinary practices, suppliers,
distributors and other stakeholders.
Animalcare's Chief Executive Officer, Jenny Winter, commented:
"Animalcare has shown exceptional resilience in the face of
unprecedented conditions caused by the pandemic. Our performance
across the Group was at the upper end of the range of our scenario
modelling, highlighting the strength of our financial position as
well as the agility, commitment and deep market knowledge of our
people.
"While trading to the end of August was broadly in line with the
same period last year, uncertainty about the economic and market
impact of the pandemic prevails. However, the attractive
fundamentals of the animal health sector, the steady recovery in
our markets as veterinary practices adapt to life with COVID-19,
combined with the impressive response of the Group to these
difficult conditions and our maturing pipeline underpin our
confidence in the future and further strengthen our long-term focus
on growth.
"Notably, our continuing pursuit of value-creating growth
opportunities resulted in the recently announced agreement with
Kane Biotech centred on the treatment of biofilm-related ailments
in companion animals. This is a significant deal that complements
our existing portfolio and is an example of our focus on developing
long-term sustainable commercial relationships."
Analyst briefing
A briefing for analysts will be held at 10:30 BST on Tuesday 29
September via teleconference. Analysts wishing to join should
contact InvestorRelations@panmure.com to register and receive
dial-in details. A copy of the analyst presentation will be made
available on the Group website shortly after the analyst briefing
.
For further information please contact:
Animalcare Group plc Panmure Gordon (Nominated Adviser
Tel: +44 (0)1904 487 687 & Broker)
Jenny Winter, Chief Executive Officer Tel: +44 (0)20 7886 2500
Chris Brewster, Chief Financial Officer Corporate Finance
Media relations Freddy Crossley / Emma Earl
communications@animalcaregroup.com Corporate Broking
Rupert Dearden
About Animalcare www.animalcaregroup.com
Animalcare Group plc is a UK AIM-listed international veterinary
sales and marketing organisation. Animalcare operates in seven
countries and exports to approximately 32 countries in Europe and a
further 16 worldwide. The Group is focused on bringing new and
innovative products to market through its own development pipeline,
partnerships and via acquisition.
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) 596/2014 (MAR).
Chairman's Statement
Animalcare has demonstrated remarkable resilience and strategic
focus during what has been an extraordinarily testing period for
our sector.
That resilience is underlined by our financial performance over
the first half of 2020. To have navigated such challenging trading
conditions with a year-on-year decline in revenue and Underlying
EBITDA of 4.4% and 2.4% respectively - at the higher end of our
scenario modelling range - is testament to the agility of our
business and the strength of the platform we had built coming into
2020. You can read more details about our performance in the
Financial Review of this report.
This platform not only allows us to deal with the economic
reverses, the cash it generates equips us to grow our business.
Under our CEO Jenny Winter, the Group has succeeded in keeping our
long-term growth strategy in sharp focus despite the disruption of
COVID-19. The strengthened capability of our leadership team has
enabled us to continue pursuing investment opportunities that will
grow our business and create sustainable value for our
shareholders. Our recently announced agreement with Canada's Kane
Biotech is an excellent example of this approach and the Board is
open to use the full range of appropriate funding options as we
deliver on our business development objectives in the coming months
and years.
The Group's internal pipeline has also reached an important
phase with our differentiated COX-2 inhibitor pain treatment
progressing in line with our expectations. We believe this novel
drug has significant potential in all our markets. To maximise that
opportunity, we have developed detailed plans to support a 2021
launch - regulatory approval permitting, of course.
There are many reasons to be optimistic as we execute our growth
strategy. But while the worst of the pandemic may be behind us, the
spread of the COVID-19 virus and its economic aftereffects create
continued uncertainty.
In March this year the Board decided to defer payment of the
second dividend for 2019, providing a platform to continue
progressing opportunities during the pandemic crisis. In keeping
with our undertaking at the time, we have now reviewed this
deferral and have decided to retain the GBP1.4m initially allocated
for the second 2019 dividend to support investment in growth. A
proportion of these funds will now be directed to support the
agreement with Kane Biotech. Reflecting the resilience of the
business over the first half and post period end, as well as the
confidence of the Board, we propose to resume payment of the
dividend for 2020. We strongly believe that this approach is in the
long-term interests of shareholders.
Our Company is in a strong position as a direct result of the
hard work, expertise and market knowledge of our people across the
organisation. I'd like to take this opportunity to thank our
employees who have shown exceptional commitment during these
unprecedented times.
Jan Boone, Chairman
Business Review
We continue to make progress on our five clear strategic
priorities that are designed to deliver our goal of above market
growth in three to five years.
Strong financial platform
Entering 2020 on a strong financial platform has enabled the
Group to weather the disruption and challenges caused by COVID-19
while continuing to invest in opportunities for growth. While
revenues were down by 4.4% year-on-year over the first half and
underlying EBITDA declined 2.4%, overall performance metrics were
at the upper end of the range in the Group's scenario modelling.
The benefits of the Group's diverse portfolio were visible in the
growth in Production Animals (up 13.1%) partially offsetting the
10.6% decline in the Companion Animals segment which was more
impacted by government measures designed to combat spread of
COVID-19.
Right people and capabilities
The Group continues to strengthen the leadership team and
capabilities across the organisation. The roll-out of our Sales and
Marketing excellence programme is designed to improve the quality
and consistency of approach. This will be particularly important in
supporting the market development, launch and ongoing
commercialisation of differentiated products. With the pandemic
accelerating the shift to digital working by veterinary practices,
suppliers, distributors and other stakeholders, the Group has
initiated a review of operations in order to capitalise on the
rapidly developing "new normal".
Reinforcing our existing portfolio
We continue to move towards our target of generating 80% of
revenue from the top 20 products by reducing the number of low
revenue products and increasing sales and marketing activities on
the largest products with highest margins and biggest growth
prospects. Several products have been delisted or withdrawn during
the period.
Building our pipeline
Animalcare's novel COX-2 inhibitor pain treatment (Enflicoxib
E-6087) continues to progress through the regulatory process.
Detailed plans are in place for a concerted 2021 launch across all
direct markets and through international partners, subject to
approval.
Business development
The Group is pursuing a number of opportunities that will
reinforce the existing portfolio, generate increased revenues from
a reduced number of differentiated products and extend geographical
reach.
The recently announced CA$5 million agreement with Canadian
company Kane Biotech will form an animal health company to target
biofilm-related ailments. Under the terms of the deal, Animalcare
will commercialise Kane Biotech's range of oral care products for
companion animals outside the Americas while the new jointly-owned
company, named STEM Animal Health Inc., will focus on the research
and development of novel animal treatments based on biofilm
targeting technology. Animalcare launches of Kane Biotech's
coactiv+(TM) and DispersinB(R) products are planned for the second
half of 2021 and the Board expects the agreement to be earnings
enhancing in 2022.
The roll-out of Procanicare, the probiotic gastrointestinal
treatment for dogs, is progressing across markets despite the
disruption to the operation of veterinary practices caused by
COVID-19, especially in the first half.
Financial Review
Overview of underlying financial results
The Group is pleased to report a resilient first half trading
performance despite the disruption due to COVID-19. We entered the
financial year in a strong financial position, which has been
maintained throughout the period.
A summary of the underlying financial results, which the
Directors believe provides a clearer understanding of business
performance, is shown below.
Six Months to 30 June 2020 2019 % Change
at AER
GBP'000 GBP'000 %
-------- -------- ---------
Revenue 34,520 36,121 (4.4%)
-------- -------- ---------
Gross Profit 17,937 19,135 (6.3%)
-------- -------- ---------
Gross Margin % 52.0% 53.0% (1.0%)
-------- -------- ---------
Underlying Operating
Profit 4,915 5,178 (5.1%)
-------- -------- ---------
Underlying EBITDA 6,606 6,765 (2.4%)
-------- -------- ---------
Underlying EBITDA
margin % 19.1% 18.7% 0.4%
-------- -------- ---------
Basic Underlying EPS
(p) 5.9p 6.4p (7.8%)
-------- -------- ---------
Revenue
Revenue for the period was GBP34.5m (2019: GBP36.1m) a decline
of 4.4% (4.8% decline at CER). Revenue by product category is shown
in the table below:
Six Months to 30 June 2020 2019 % Change
at AER
GBP'000 GBP'000 %
-------- -------- ---------
Companion Animals 21,210 23,724 (10.6%)
-------- -------- ---------
Production Animals 10,543 9,322 13.1%
-------- -------- ---------
Equine & other 2,767 3,075 (10.0%)
-------- -------- ---------
Total 34,520 36,121 (4.4%)
-------- -------- ---------
Companion Animals revenue declined by 10.6% to GBP21.2m largely
reflecting the disruption to veterinary activity across Europe
caused by the pandemic. As we entered Q2, while the veterinary
market remained open for business, in the majority of our markets,
lock-down and social distancing measures led to restricted opening
hours and consultations. This disruption has reduced the
opportunities for interaction with many veterinary practices with
the effect that launches of new products have been slowed or
deferred.
The COVID-19 impact was particularly prevalent within the UK,
which was subject to large-scale closures of veterinary practices,
with all but urgent and emergency cases being seen. Together, these
measures resulted in a marked decline in the number of clients
visiting a small animal vet practice. Evidence of a return to more
normal customer activity in some markets was visible at the end of
the first half and has continued to develop post period-end.
However, uncertainty about the shape and extent of a recovery in
demand prevails.
In contrast, Production Animals revenue grew by 13.1% vs prior
period to GBP10.5m, largely driven by strong growth in Spain, which
benefited from the recent restructuring and partial reversal of the
de-stocking observed towards the end of FY19. Large animal
practices were in general less impacted due both to the requirement
to protect the food chain and more industrial nature of this
market. We expect this trend to continue through H2.
Equine and other sales decreased by 10.0% to GBP2.8m principally
due to phasing of export sales.
Underlying operating results
Underlying EBITDA decreased by 2.4% to GBP6.6m (2019: GBP6.8m)
principally reflecting the revenue decrease and higher percentage
of lower margin Production Animals sales. However, Underlying
EBITDA margin strengthened to 19.1% versus the prior period driven
by the benefits from cost efficiencies generated during 2019
together with decisive action to realign SG&A spend during Q2.
As a result, adjusted SG&A expenses as a percentage of revenue
were 32.8% compared to 35.7%. Around half of the SG&A savings
generated from deferred or contracted spend related to COVID-19 has
been allocated to support continued investment in drivers of future
growth including new product launches, pipeline projects and
business development opportunities, which we expect to increase
during the second half.
The underlying effective tax rate was 24.2% (2019: 20.9%)
primarily reflecting the larger proportion of profits arising, and
expected to arise, in higher rate tax jurisdictions. We continue to
optimise research and development tax credits.
Reflecting the points noted above, underlying basic EPS
decreased by 7.8% to 5.8 pence (2019: 6.4 pence).
Non-underlying items
Non-underlying items totalling GBP3.9m (2019: GBP6.7m) relating
to profit before tax have been incurred in the period, as set out
in note 3. These principally comprise:
1. Amortisation and impairment of acquisition related
intangibles of GBP2.9m (2019: GBP4.5m). The decrease versus 2019
reflects the prior period non-cash impairment of three projects
within the acquired product development pipeline at a fair value of
GBP1.5m that failed to meet technical, competitive or commercial
milestones.
2. Restructuring, acquisition and integration costs of GBP0.7m
(2019: GBP1.9m) largely relating to restructuring of the Production
Animals business unit in Spain and manufacturing transfer costs as
we work towards simplifying our supply chain. The prior period
charge primarily relates to the R&D and Technical &
Regulatory team centralisation and associated costs of implementing
headcount reduction.
Dividend
On 25 March 2020, the Group announced the deferral of its final
dividend for 2019, preserving cash of GBP1.4m, with the aim of
supporting our financial strength and providing a platform to
continue progressing opportunities during the global COVID-19
pandemic. We noted that the decision would be reviewed later in the
financial year once we had more clarity about the ongoing effects
of the pandemic on our business, at which time any decision will
consider what actions are in the best interest of long-term
shareholder value.
After this review, the Board has decided to waive the final
dividend for 2019 and re-allocate the GBP1.4m cash preserved to
invest in growth. A proportion of these funds will be directed to
support investment in the recently announced agreement with Kane
Biotech.
In respect of the interim dividend, and reflecting the resilient
first half trading performance, strong financial position and our
more confident outlook, we are pleased to announce an interim
dividend of 2.0 pence per share, in line with the prior period. The
interim dividend will be paid on 20 November 2020 to shareholders
whose names are on the Register of Members at close of business on
23 October 2020. The ordinary shares will become ex-dividend on 22
October 2020.
We strongly believe the above decisions are in the long-term
interest of our stakeholders.
Cash flow, net debt and borrowing facilities
Establishing and maintaining a strong financial platform is at
the core of our strategy. The Group remains committed to generating
strong levels of operating cash and maintaining a solid balance
sheet, important in providing capacity to invest in our business
for growth.
Six months Six months
to 30 June to 30 June
2020 2019
GBP'000 GBP'000
------------------------------- ------------ ------------
Underlying EBITDA 6,606 6,765
------------ ------------
Net cash flow from operations 3,076 4,831
------------ ------------
Non-underlying items 686 1,415
------------ ------------
Underlying net cash flow
from operations 3,762 6,246
------------ ------------
Cash conversion % 56.9% 92.3%
------------------------------- ------------ ------------
The Group's underlying cash conversion at 56.9% (2019: 92.3%)
was impacted by a GBP3.7m increase in working capital compared to
GBP1.0m in the prior period, largely reflecting movement in our
inventories since the start of the financial year. Within our 2019
full year results announcement on 28 May 2020, we highlighted that,
following the GBP2.5m reduction in FY19, we expected to increase
inventories by approximately GBP1.5m during 2020 due to strategic
stock build, relating to manufacturing transfers, in certain key
brands. At the half year, such stock build equated to approximately
GBP1.1m of the overall GBP2.3m cash increase in our inventories.
The balance primarily relates to the demand disruption in Q2
trading as a result of COVID-19. During the second half we plan to
invest a further GBP0.9m in stock cover for a Top 5 brand to
protect sales in FY21.
Non-underlying cash items principally relate to the
restructuring costs and post-acquisition and integration costs as
noted above. Net debt has increased in the period by GBP0.3m to
GBP18.1m. Exchange rate variations adversely impacted the net debt
position by GBP1.7m.
GBP'000
Net debt at 1 January 2020 (17,812)
---------
Net cash flow from operations 3,076
---------
Net capital expenditure (961)
---------
Net finance expenses (845)
---------
Foreign exchange on cash and borrowings (1,666)
---------
Movement in IFRS16 lease liabilities 109
---------
Net debt at 30 June 2020 (18,099)
---------
During the period, all non-essential capex was put on hold, in
effect preserving GBP0.4m. Net capital expenditure of GBP1.0m
largely comprises investment in our novel pain product developed
internally for use in dogs. This was submitted to the European
Regulatory authority in January 2020 and the regulatory process is
progressing in line with expectations. Subject to regulatory
approval, we remain on track to launch during 2021.
The net debt to underlying EBITDA leverage ratio was 1.4 times
(2019: 1.9 times) versus the bank covenant of 3.5 times. At 30 June
2020, total facilities were GBP47.0m, of which GBP18.5m, net of
cash balances of GBP3.3m, was utilised, leaving headroom of
GBP26.8m.
Going Concern
Banking Facilities and Covenants
At 30 June 2020, the Group's financing arrangements consisted of
a committed revolving credit facility of EUR41.5m, a EUR10m
acquisition line, which cannot be utilised to fund our operations,
and EUR4.1m investment loans. All facilities mature in March
2022.
The facilities are subject to the following covenants which are
in operation at all times:
-- Net debt to underlying EBITDA ratio of 3.5 times
-- Underlying EBITDA to interest ratio of minimum 4 times
-- Solvency (total assets less goodwill/total equity less goodwill) greater than 25%
As at 30 June 2020, all covenant requirements were met with
significant headroom across all three measures. As at 30 August
2020, the net debt to underlying EBITDA ratio was approximately 1.2
times. Headroom on the banking facilities, including cash on
balance sheet, was GBP28.1m.
COVID-19 Scenario Analysis - Update
The Group entered the pandemic period in a strong financial
position, which has been maintained post period end, supported by
careful management of both our SG&A costs and capital
expenditure.
In our full year results announced on 28 May 2020, we shared a
scenario analysis, attempting to quantify the potential impact on
our business through to June 2021 of a range of downside revenue
estimates with mitigating actions on cost and cash flow. At that
time, we modelled a rolling 12-month downturn of between 13% and
22% compared to 2019, with the most significant impact during a
quarter in which lockdown measures are enforced. In the downside
scenarios, a prolonged lockdown of six months, or a second wave
mirroring Q2 2020, both with subsequent slower recovery, was
considered.
While trading for the first half was down on the prior period,
our overall performance during Q2 was above the higher end of the
Company's range of scenario modelling, leading to, as noted
previously, a resilient first half year.
We have continued to develop and update our scenario analysis as
the financial year progresses. Evidence of a return to more normal
customer activity in some markets was visible at the end of the
first half and has continued to develop post period-end.
Uncertainty about the shape and extent of a recovery in demand
prevails. However, we have demonstrated that the Group can and will
take swift mitigating actions to maintain our financial resilience,
including reducing SG&A spend, stopping all non-essential and
non-committed capital expenditure and deferring dividends to
preserve cash.
The results of these scenarios indicate that the Group would
operate well within its committed revolving credit facility of
EUR41.5m and maintain headroom against all covenant obligations for
at least the next 12 months. Therefore, the Directors have a
reasonable expectation that the Group will have sufficient cash
flow and available resources to continue operating for at least 12
months from the approval date of the Interim Report. Accordingly,
the Directors continue to adopt the going concern basis of
preparation.
Summary and Outlook
Despite the unprecedented trading conditions caused by COVID-19,
Animalcare has responded well to the challenge with a robust
performance over the first half. The Group entered 2020 in a strong
financial position, helping to protect Animalcare from the worst
effects of the pandemic while continuing to make progress against
strategic priorities.
The long-term fundamentals of the animal health market remain
attractive: companion animal ownership and willingness to spend on
treatment and wellbeing are increasing globally and demand for
animal protein is growing. In the more immediate future, our
customer base is showing continued signs of recovery post period as
veterinary practices find ways to operate successfully in a world
with COVID-19; in terms of revenue, for the eight months to the end
of August, we traded broadly in line with the previous year.
Strategically, the Group continues to deliver on its growth
ambitions with the post-period end agreement with Canadian company
Kane Biotech to jointly target biofilm-related ailments in animals.
Launches by Animalcare of Kane Biotech's oral care products outside
the Americas are planned for the second half of 2021 and the Board
expects the agreement to be earnings enhancing in 2022.
The Board acknowledges that a significant level of market and
economic uncertainty remains, predominately due to COVID-19. Marked
variations between different countries and factors such as the
slower uptake of new products caused by disruption to the operation
of veterinary practices make it difficult to forecast performance
with any precision.
But whatever challenges the remainder of 2020 present, we are
confident that the Group's strong finances, its proven agility and
focus on a clear growth strategy mean Animalcare will continue to
be well placed to take advantage of opportunities and generate
long-term value for our shareholders.
Jenny Winter, Chief Executive Officer
Chris Brewster, Chief Financial Officer
Condensed consolidated income statement
For the six months ended 30 June
--------------------------------------------------------------------------
Non-Underlying Non-Underlying
Underlying (note 3) Total Underlying (note 3) Total
---------- -------------- -------- ---------- -------------- --------
Note 2020 2020 2020 2019 2019 2019
---------- -------------- -------- ---------- -------------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 4 34,520 - 34,520 36,121 - 36,121
Cost of sales (16,583) - (16,583) (16,986) - (16,986)
---------- -------------- -------- ---------- -------------- --------
Gross profit 17,937 - 17,937 19,135 - 19,135
---------- -------------- -------- ---------- -------------- --------
Research and development
expenses (1,163) (547) (1,710) (1,662) (622) (2,284)
Selling and marketing
expenses (5,685) - (5,685) (6,222) - (6,222)
General and administrative
expenses (6,235) (2,376) (8,611) (6,109) (2,380) (8,489)
Net other operating
income / (expenses) 61 (986) (925) 36 (3,711) (3,675)
---------- -------------- -------- ---------- -------------- --------
Operating profit/(loss) 4 4,915 (3,909) 1,006 5,178 (6,713) (1,535)
---------- -------------- -------- ---------- -------------- --------
Financial expenses (488) - (488) (515) - (515)
Financial income 244 - 244 216 - 216
Profit/(loss) before
tax 4,671 (3,909) 763 4,879 (6,713) (1,834)
---------- -------------- -------- ---------- -------------- --------
Income tax (1,129) 832 (297) (1,022) 1,268 246
---------- -------------- -------- ---------- -------------- --------
Net Profit/(loss) 4 3,542 (3,077) 466 3,857 (5,445) (1,588)
---------- -------------- -------- ---------- -------------- --------
Net profit/(loss)
attributable
to:
---------- -------------- -------- ---------- -------------- --------
The owners of the parent 3,542 (3,077) 466 3,857 (5,445) (1,588)
---------- -------------- -------- ---------- -------------- --------
Earnings per share
for profit/(loss)
attributable
to the ordinary equity
holders of the company:
Basic 5.9p 0.8p 6.4p (2.6p)
Diluted 5.9p 0.8p 6.4p (2.6p)
In order to aid understanding of underlying business
performance, the Directors have presented underlying results before
the effect of exceptional and other items. These exceptional and
other items are analysed in note 3.
Condensed consolidated statement of comprehensive income
For the six months
ended 30 June
--------------------
2020 2019
--------- ---------
GBP'000 GBP'000
Net profit/(loss) for the period 466 (1,588)
Other comprehensive income/(expense)
Cumulative translation differences * 672 (90)
--------- ---------
Other comprehensive income/(expense), net of tax 672 (90)
--------- ---------
Total comprehensive income/(expense) for the period,
net of tax 1,138 (1,678)
========= =========
Total comprehensive income/(expense) attributable
to:
The owners of the parent 1,138 (1,678)
========= =========
* May be reclassified subsequently to profit & loss
Condensed consolidated statement of financial position
30 June 30 June 31 December
2020 2019 2019
unaudited unaudited audited
---------- ---------- -----------
GBP'000 GBP'000 GBP'000
Assets
Non-current assets
Goodwill 51,135 50,940 50,454
Intangible assets 41,097 47,085 43,000
Property, plant and equipment 292 403 312
Right-of-use assets 1,805 2,194 1,917
Deferred tax assets 1,544 1,925 1,524
Other financial assets 63 60 59
Other non-current assets 49 291 72
Total non-current assets 95,985 102,898 97,338
---------- ---------- -----------
Current assets
Inventories 13,826 12,895 11,102
Trade receivables 11,852 12,046 10,891
Other current assets 1,032 3,230 2,746
Cash and cash equivalents 3,342 3,887 6,165
Total current assets 30,052 32,058 30,904
---------- ---------- -----------
Total assets 126,037 134,956 128,242
---------- ---------- -----------
Liabilities
Current liabilities
Borrowings (328) (324) (612)
Lease liabilities (874) (938) (830)
Trade payables (10,355) (9,581) (10,334)
Tax payables (686) (1,896) (1,288)
Accrued charges and deferred income (2,707) (2,299) (2,063)
Other current liabilities (2,021) (3,371) (2,799)
Total current liabilities (16,971) (18,409) (17,926)
---------- ---------- -----------
Non-current liabilities
Borrowings (19,286) (24,477) (21,428)
Lease liabilities (952) (1,276) (1,106)
Deferred tax liabilities (5,028) (5,154) (5,176)
Deferred income (600) (606) (599)
Provisions (128) (106) (118)
Total non-current liabilities (25,994) (31,619) (28,427)
---------- ---------- -----------
Total Liabilities (42,965) (50,028) (46,353)
---------- ---------- -----------
Net Assets 83,072 84,929 81,889
========== ========== ===========
Equity
Share capital 12,012 12,012 12,012
Share premium 132,729 132,729 132,729
Reverse acquisition reserve (56,762) (56,762) (56,762)
Accumulated losses (8,130) (6,305) (8,640)
Other reserves 3,223 3,255 2,550
Equity attributable to the owners of the
parent 83,072 84,929 81,889
---------- ---------- -----------
Total equity 83,072 84,929 81,889
========== ========== ===========
Condensed consolidated statement of changes in equity
Attributable to the owners of the parents
------------------------------------------------------------
Reverse Non-
Share Share Accumulated acquisition Other controlling Total
capital premium losses reserve reserve Total interest equity
------- ------- ----------- ----------- ------- ------- ----------- -------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2019 12,012 132,729 (4,732) (56,762) 3,345 86,592 - 86,592
Net profit - - (1,588) - - (1,588) - (1,588)
Other comprehensive
expense - - - - (90) (90) - (90)
Total comprehensive
income/(expense) - - (1,588) - (90) (1,678) - (1,678)
------- ------- ----------- ----------- ------- ------- ----------- -------
Share-based payments - - 16 - - 16 - 16
At 30 June 2019 12,012 132,729 (6,305) (56,762) 3,255 84,929 - 84,929
======= ======= =========== =========== ======= ======= =========== =======
Attributable to the owners of the parents
------------------------------------------------------------
Reverse Non-
Share Share Accumulated acquisition Other controlling Total
capital premium losses reserve reserve Total interest equity
------- ------- ----------- ----------- ------- ------- ----------- -------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2020 12,012 132,729 (8,640) (56,762) 2,550 81,889 - 81,889
Net loss - - 466 - - 466 - -
Other
comprehensive
expense - - - - 672 672 - 672
Total
comprehensive
expense - - 466 - 672 1,138 - 1,138
------- ------- ----------- ----------- ------- ------- ----------- -------
Share-based
payments - - 43 - - 43 - 43
At 30 June 2020 12,012 132,729 (8,130) (56,762) 3,223 83,072 - 83,072
======= ======= =========== =========== ======= ======= =========== =======
Condensed consolidated cash flow statements
For the six months
ended 30 June
--------------------
2020 2019
--------- ---------
GBP'000 GBP'000
Cash flows from operating activities
Profit/(loss) before tax 763 (1,834)
Profit/(loss) before tax 763 (1,834)
--------- ---------
Adjustments for:
Depreciation of property, plant and equipment 610 618
Amortisation of intangible assets 4,020 3,968
Impairment of intangible assets - 1,518
Share-based payment expense 43 16
Loss/(gain) on disposal of property, plant and equipment (16) -
Non-cash movement in provisions 300 -
Movement in allowance for bad debt and inventories 362 433
Financial income (148) (72)
Financial expense 467 409
Impact of foreign currencies (79) (46)
Non-cash restructuring expenses - 778
Other (3) (2)
Movements in working capital
(Increase)/decrease in trade receivables (582) 1,550
(Increase)/decrease in inventories (2,342) 1,533
Decrease in payables (797) (4,071)
Income tax received 478 33
Net cash flow from operating activities 3,076 4,831
--------- ---------
Investing activities
Purchase of property, plant and equipment (49) (29)
Purchase of intangible assets (961) (1,294)
Proceeds from the sale of property, plant and equipment
(net) 49 11
Net cash flow used in investing activities (961) (1,312)
-------- --------
Financing activities
Repayment of loans and borrowings (3,760) (6,508)
Repayment IFRS16 lease liability (526) (491)
Interest paid (264) (327)
Other financial (expense)/income (55) (11)
Net cash flow used in financing activities (4,605) (7,337)
-------- --------
Net decrease in cash and cash equivalents (2,490) (3,819)
======== ========
Cash and cash equivalents at beginning of period 6,165 8,035
Exchange rate differences on cash and cash equivalents (333) (329)
Cash and cash equivalents at end of period 3,342 3,887
======== ========
Reconciliation of net cash flow to movement in net
debt
Net decrease in cash and cash equivalents in the
period (2,490) (3,819)
Cash flow from decrease in debt financing 3,760 6,508
Foreign exchange differences on cash and borrowings (1,666) (14)
Movement in net debt in the period (396) 2,675
-------- --------
Net debt at the start of the period (17,812) (23,588)
Movement in lease liabilities during the period 109 (2,214)
Net debt at the end of the period (18,099) (23,127)
======== ========
Notes to the consolidated interim report
1 General information
Animalcare Group plc ("Animalcare" or "the Company") is a public
company incorporated in England and Wales under the Companies Act
2006 and is domiciled in the United Kingdom. The condensed set of
financial statements as at, and for, the six months ended 30 June
2020 comprises the Company and its subsidiaries (together referred
to as the "Group"). The nature of the Group's operations and its
principal activities are set out in the latest Annual Report.
2 Basis of preparation and significant accounting policies
This interim financial information for each of the six month
periods ended 30 June 2020 and 30 June 2019 has not been audited
and does not constitute statutory accounts as defined in Section
43s of the Companies Act 2006. The comparative information for the
year ended 31 December 2019 does not constitute statutory accounts
however is based on the statutory accounts for that year, on which
the Group's auditors issued an unqualified report and which have
been filed with the Register of Companies.
The Interim Report for the six months ended 30 June 2020 was
approved by the Board of Directors and authorised for issue on 29
September 2020 .
Except as described below, the condensed consolidated interim
financial information for the six months ended 30 June 2020 has
been prepared using accounting policies consistent with those of
the Company's annual accounts for the year ended 31 December 2019
which were prepared in accordance with International Financial
Reporting Standards ("IFRS") as adopted by the European Union
("adopted IFRSs") and the amendment to IFRS 16 - Covid -19-related
rent concessions , which will form the basis of the 2020 Annual
Report.
Taxes on income in the interim periods are accrued using the
estimated tax rate that would be applicable for the full financial
year.
Several amendments and interpretations apply for the first time
in 2020, but do not have an impact on the Interim Report of the
Company:
- Amendments to References to the Conceptual Framework in IFRS Standards
- IFRS 3 Business Combinations - Amendments to clarify the definition of a business
- IAS 1 Presentation of Financial Statements - Amendments regarding the definition of material
- IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors - Amendments regarding the definition of material
- IFRS 9, IAS 39 and IFRS 7 - Amendments regarding the Interest Rate Benchmark Reform
- IFRS 16 amendment - Covid-19-related rent concessions.
Going Concern
Banking Facilities and Covenants
At 30 June 2020, the Group's financing arrangements consisted of
a committed revolving credit facility of EUR41.5m, a EUR10m
acquisition line, which cannot be utilised to fund our operations,
and EUR4.1m investment loans. All facilities mature in March
2022.
The facilities are subject to the following covenants which are
in operation at all times:
-- Net debt to underlying EBITDA ratio of 3.5 times
-- Underlying EBITDA to interest ratio of minimum 4 times
-- Solvency (total assets less goodwill/total equity less goodwill) greater than 25%
As at 30 June 2020, all covenant requirements were met with
significant headroom across all three measures.
As at 30 August 2020, the net debt to underlying EBITDA ratio
was approximately 1.2 times. Headroom on the banking facilities,
including cash on balance sheet, was GBP28.1m.
COVID-19 Scenario Analysis - Update
The Group entered the pandemic period in a strong financial
position, which has been maintained post period end, supported by
careful management of both our SG&A costs and capital
expenditure.
In our full year results announced on 28 May 2020, we shared a
scenario analysis, attempting to quantify the potential impact on
our business through to June 2021 of a range of downside revenue
estimates with mitigating actions on cost and cash flow. At that
time, we modelled a rolling 12-month downturn of between 13% and
22% compared to 2019, with the most significant impact during a
quarter in which lockdown measures are enforced. In the downside
scenarios, a prolonged lockdown of six months, or a second wave
mirroring Q2 2020, both with subsequent slower recovery, was
considered.
While trading for the first half was down on the prior period,
our overall performance during Q2 was above the higher end of the
Company's range of scenario modelling, leading to, as noted
previously, a resilient first half year.
We have continued to develop and update our scenario analysis as
the financial year progresses. Evidence of a return to more normal
customer activity in some markets was visible at the end of the
first half and has continued to develop post period-end.
Uncertainty about the shape and extent of a recovery in demand
prevails. However, we have demonstrated that the Group can and will
take swift mitigating actions to maintain our financial resilience,
including reducing SG&A spend, stopping all non-essential and
non-committed capital expenditure and deferring dividends to
preserve cash.
The results of these scenarios indicate that the Group would
operate well within its committed revolving credit facility of
EUR41.5m and maintain headroom against all covenant obligations for
at least the next 12 months. Therefore, the Directors have a
reasonable expectation that the Group will have sufficient cash
flow and available resources to continue operating for at least 12
months from the approval date of the Interim Report. Accordingly,
the Directors continue to adopt the going concern basis of
preparation.
3 Non-underlying items
For the six months
ended 30 June
--------------------
2020 2019
--------- ---------
GBP'000 GBP'000
Amortisation and impairment of acquisition related
intangibles
Classified within Research and development expenses 547 622
Classified within General and administrative expenses 2,376 2,380
Classified within net other operating expenses - 1,518
Total amortisation and impairment of acquisition
related intangibles 2,923 4,520
--------- ---------
Restructuring costs 351 1,823
Acquisition and integration costs 304 77
Divestments and business disposals 49 -
Brexit-related costs 2 118
Other non-underlying items 280 175
Total non-underlying items before taxes 3,909 6,713
--------- ---------
Tax impact (832) (1,268)
Total non-underlying items after taxes 3,077 5,445
========= =========
The amortisation charge of acquisition related intangibles
largely relates to the Esteve acquisition GBP1,001k (30 June 2019 :
GBP1,005k) and the reverse acquisition of Animalcare Group plc
GBP1,740k (30 June 2019 : GBP1,814k).
Restructuring, acquisition and integration costs of GBP0.7m
(2019: GBP1.9m) largely relating to restructuring of the Production
Animals business unit in Spain and manufacturing transfer costs as
we work towards simplifying our supply chain. The prior period
charge primarily relates to the R&D and Technical &
Regulatory team centralisation and associated costs of implementing
headcount reduction.
In 2019, the Group recorded an impairment charge of GBP1,518k
for acquisition related intangibles that related to an impairment
of projects within the R&D pipeline who are deemed no longer
economically viable due to technical difficulties in the
development process.
4 Segment information
The Group reports one business segment, being "Pharmaceuticals".
This reporting segment is used for management purposes. The
Pharmaceutical segment is active in the development and marketing
of innovative pharmaceutical products that provide significant
benefits to animal health.
The measurement principles used by the Group in preparing this
segment reporting are also the basis for segment performance
assessment. The Board of Directors of the Group acts as the Chief
Operating Decision Maker. The Chief Operating Decision Maker
assesses performance based on the Key Performance Indicators set
out on page 14 of the latest Annual Report which include revenue
and underlying EBITDA, excluding the effect of non-underlying
items.
The following table shows an analysis of the segment reporting
from continuing operations. As management's controlling instrument
is mainly revenue-based, the reporting information does not include
assets and liabilities by segment and is as such not presented per
segment.
For the six
months ended
30 June
----------------
2020 2019
------- -------
Pharma Pharma
------- -------
GBP'000 GBP'000
Revenues 34,520 36,121
Gross Margin 17,936 19,135
Gross Margin % 52.0% 53.0%
Segment underlying EBITDA 6,606 6,765
Segment underlying EBITDA % 19.1% 18.7%
Segment EBITDA 5,634 4,573
Segment EBITDA % 16.3% 12.7%
The segment EBITDA is reconciled with the consolidated net
profit of the year as follows:
For the six months
ended 30 June
--------------------
2020 2019
--------- ---------
GBP'000 GBP'000
Segment EBITDA 5,634 4,573
Depreciation, amortisation and impairment (4,628) (6,108)
Operating profit/(loss) 1,006 (1,535)
--------- ---------
Financial expenses (488) (515)
Financial income 244 216
Income taxes (402) (346)
Deferred taxes 106 592
Net profit/(loss) 466 (1,588)
========= =========
Revenue by product category:
For the six
months ended
30 June
----------------
2020 2019
------- -------
GBP'000 GBP'000
Companion animals 21,210 23,724
Production animals 10,543 9,322
Equine 2,758 2,970
Pet food, Instrumentation and Services - 105
Total 34,520 36,121
======= =======
Revenue by geographical area:
For the six
months ended
30 June
----------------
2020 2019
------- -------
GBP'000 GBP'000
Belgium 4,840 4,351
The Netherlands 659 1,090
United Kingdom 4,255 7,211
Germany 5,209 5,081
Spain 9,650 9,771
Italy 3,895 2,857
Portugal 2,379 2,575
European Union - other 2,608 2,612
Asia 603 238
Middle East Africa 26 23
Other 396 312
Total 34,520 36,121
======= =======
Revenue by category:
For the six
months ended
30 June
----------------
2020 2019
------- -------
GBP'000 GBP'000
Product sales 34,000 35,551
Services sales 520 570
Total 34,520 36,121
======= =======
Product revenue is recognised when the performance obligation is
satisfied at a point in time. Service revenue is recognised by
reference to the stage of completion.
5 Earnings per share
Basic earnings per share amounts are calculated by dividing the
net profit for the period attributable to ordinary equity holders
of the parent company by the weighted average number of ordinary
shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing
the net profit attributable to ordinary equity holder of the parent
company by the weighted average number of ordinary shares
outstanding during the year plus the weighted average number of
ordinary shares that would be issued on conversion of all potential
dilutive ordinary shares.
The following income and share data were used in the earnings
per share computations:
For the six months ended 30
June
------------------------------- -------
Underlying Underlying Total Total
---------- ---------- ------- -------
2020 2019 2020 2019
---------- ---------- ------- -------
GBP'000 GBP'000 GBP'000 GBP'000
Net profit/(loss) 3,542 3,857 466 (1,588)
Net profit/(loss) attributable to ordinary
equity holders of the parent adjusted
for the effect of dilution 3,542 3,857 466 (1,588)
========== ========== ======= =======
Average number of shares (basic and diluted):
For the six months ended 30
June
------------------------------------ ------------
Underlying Underlying Total Total
---------- ------------ ---------- ------------
2020 2019 2020 2019
---------- ------------ ---------- ------------
Number Number Number Number
Weighted average number of ordinary shares
for basic
earnings per share 60,057,161 60,057,161 60,057,161 60,057,161
Dilutive potential ordinary shares 256,510 - 256,510 -
Weighted average number of ordinary shares
adjusted for effect of dilution 60,313,671 60,057,161 60,313,671 60,057,161
========== ============ ========== ============
Basic earnings/(loss) per share:
For the six months ended 30
June
------------------------------- -----
Underlying Underlying Total Total
----------- ----------- ----- -----
2020 2019 2020 2019
----------- ----------- ----- -----
Pence Pence Pence Pence
Basic earnings/(loss) per share attributable
to the ordinary equity holders of the
company 5.9 6.4 0.8 (2.6)
=========== =========== ===== =====
Diluted earnings/(loss) per share:
For the six months ended 30
June
------------------------------- -----
Underlying Underlying Total Total
----------- ----------- ----- -----
2020 2019 2020 2019
----------- ----------- ----- -----
Pence Pence Pence Pence
Diluted earnings/(loss) per share attributable
to the ordinary equity holders of the
company 5.9 6.4 0.8 (2.6)
=========== =========== ===== =====
6 Dividends
On 25 March 2020, the Group announced the deferral of its final
dividend for 2019, preserving cash of GBP1.4m, with the aim of
supporting our financial strength and providing a platform to
continue progressing opportunities during the global COVID-19
pandemic. We noted that the decision would be reviewed later in the
financial year once we had more clarity about the ongoing effects
of the pandemic on our business, at which time any decision will
consider what actions are in the best interest of long-term
shareholder value.
After this review, the Board has decided to waive the final
dividend for 2019 and re-allocate the GBP1.4m cash preserved to
invest in growth.
In respect of the interim dividend, and reflecting the resilient
first half trading performance, strong financial position and our
more confident outlook, we are pleased to announce an interim
dividend of 2.0 pence per share, in line with the prior period. The
interim dividend will be paid on 20 November 2020 to shareholders
whose names are on the Register of Members at close of business on
23 October 2020. The ordinary shares will become ex-dividend on 22
October 2020.
We strongly believe the above decisions are in the long-term
interest of our stakeholders.
As the dividend was declared after the end of the period being
reported, it has not been included as a liability as at 30 June
2020 in accordance with IAS 10 'Events after the Balance Sheet
date'.
7 Contingent Liabilities
On 3 September 2018, Ecuphar NV sold the wholesale business
Medini NV to Vetdis Holding NV under a Share Purchase Agreement
(SPA). In June 2019, Vetdis sent a letter to Ecuphar claiming that
Ecuphar had breached the SPA. Ecuphar disputed the basis and the
value of the claim. Following various discussions and
correspondence, during which the parties have been unable to reach
any agreement, Vetdis issued formal court papers on 29 May 2020. A
preliminary court hearing took place on 3 September 2020 and a
procedural calendar has been set by the court up to 31 January 2021
to submit legal briefs. The Company strongly disagrees with the
claim and has not made any provision in respect of this matter in
the financial statements. As part of our defence we have
counter-claimed for the outstanding amounts due to Ecuphar under
the SPA.
8 Related part transactions
There have been no new related party transactions that have
taken place in the six months ended 30 June 2020 .
9 Subsequent events
On 28 September 2020 the Group announced that it has entered
into an agreement with Canada-based biotech company Kane Biotech
Inc. (TSX-V:KNE; OTCQB:KNBIF) under which the parties will form
STEM Animal Health Inc. ("STEM"), a company dedicated to treating
biofilm-related ailments in animals. Animalcare will invest CA$5
million, consisting of CA$3 million to acquire a one-third stake in
STEM, and a further CA$2 million for rights to commercialise
products in global veterinary markets outside of the Americas.
10 Cautionary statement
This Interim Management Report ("IMR") consists of the
Chairman's Statement and the Business Review, which have been
prepared solely to provide additional information to shareholders
to assess the Group's strategies and the potential for those
strategies to succeed. The IMR should not be relied upon by any
other party or for any other purpose.
The IMR contains a number of forward-looking statements. These
statements are made by the Directors in good faith based upon the
information available to them up to the time of their approval of
this report and such statements should be treated with caution due
to the inherent uncertainties, including both economic and business
risk factors, underlying any such forward looking information.
This IMR has been prepared for the Group as a whole and
therefore emphasises those matters which are significant to
Animalcare Group plc and its subsidiaries when viewed as a
whole.
11 Interim report
The Group's Interim Report for the six months ended 30 June 2020
was approved and authorised for issue on 29 September 2020 . Copies
will be available to download on the Company's website at:
www.animalcaregroup.com .
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END
IR SEIEEAESSEFU
(END) Dow Jones Newswires
September 29, 2020 02:00 ET (06:00 GMT)
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