Animalcare Grp Regulatory News (ANCR)

Animalcare Group plc

("Animalcare" or the "Company")

Full Year Results

Animalcare Group plc ("the Group" or "Animalcare"), a leading supplier of veterinary medicines, announces results for the year ended 30 June 2012. Animalcare is made up of three product groups: Licensed Veterinary Medicines, Companion Animal Identification and Animal Welfare products.

Financial Highlights

·; Revenue from continuing operations down 8.2% to £10.9m (2011: £11.8m)

o Sales of licensed veterinary medicines (excluding Buprecare ampoules) up 16.8%

·; Underlying profit before tax from continuing operations* down 21.7% to £2.3m (2011: £3.0m)

·; Underlying basic earnings per share* down 25% to 8.8p (2011: 11.8p)

·; Year end cash position grew from £1.18m to £2.3m

·; Total dividend for the year up 12.5% to 4.5p (2011: 4p)

* Underlying measures exclude, where applicable, amortisation of acquired intangibles, impairment of goodwill, fair value movements on interest hedging, impairments to current and non-current assets and other charges relating to Group reorganisation.

Operational Highlights

·; Launch of five new generic veterinary medicines during the year

·; Growth in UK sales of licensed veterinary medicines significantly ahead of market

·; Development pipeline on track for products already in regulatory review and new products in development

·; Successful development and implementation of new identification microchip database

·; Strong net cash flow from operating activities of £1.1m (2011: cash outflow £0.4m)

Post-period end

·; Launch of Vitofyllin in the UK and Ireland in a market worth approximately £1.5m per annum

James Lambert, Chairman of Animalcare, said:

"As anticipated, this has been a difficult year for Animalcare but I believe the measures the Board has taken during it will see the business beginning to grow again during the current financial year.

The board believes with the focus on growing our Companion Animal Identification business, the resumption of supply of Buprecare ampoules, and the planned launch of four new licensed veterinary products during the financial year Animalcare should return to growth. Your Board is encouraged by current trading for the beginning of the new financial year."

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Our Business and Strategy

The overall strategy for the Animalcare Group changed to reflect the success of Animalcare Ltd, the veterinary supplies activity of the Group. The non-profitable, underperforming business of the old Ritchey Group has now been disposed of leaving only Animalcare Ltd. All the Group's efforts are now focussed in driving this business forward.

The growth of Animalcare Ltd was based on strategies designed to build a sustainable high performing business in the UK through the development and sale of generic veterinary medicines and other complementary products. The success of those strategies has now given the Group a platform from which it is now capable of making stepwise changes in the rate of development of the business. In addition the targeted growth opportunities, both in businesses and product areas, will bring sustainability to the Group through the inclusion of intellectual property protected processes and technology.

The strategies we will follow during 2012-13 are;

• continue our new product development of differentiated generic medicines at the current rhythm

• increase the sales of our current products outside the UK

‒ with existing distribution in current markets

‒ increased geographic cover with new distribution in new markets particularly within the EU and North America

• selectively strengthen UK Companion Animal Identification range of goods and services

• continue to rationalise other product groups

• accelerate Project Sustain initially in enhanced generics

• reorganise business leadership and operational management to reflect our focus and concentration on the pharmaceutical side of the veterinary supplies business

What is a generic veterinary medicine?

To obtain a Marketing Authorisation a licensed generic veterinary medicine has to be "essentially similar" to the originator product. Pharmaceutical performance in particular must be almost identical i.e. not substantially better or worse than the originator product.

Within Animalcare we classify generic veterinary medicines in three broad types;

• undifferentiated generics - these are generics whose pharmaceutical action is the same as the originator product and are almost identical in all aspects (packaging, composition, dosage size) to the originator product

• differentiated generics - these are generics whose pharmaceutical action is the same as the originator product but have one or more aspect of packaging, flavouring, coating, tablet size etc., modified to improved its acceptance by vets, owners or pets

• enhanced generics - these are generics using well established veterinary medicines but which have been formulated in such a way that their pharmaceutical performance is enhanced in use.

Veterinary Medicines New Product Development Pipeline

Our new product development (NPD) pipeline is key to the future success of the Group. We maintain our target of the introduction of four new licensed veterinary medicine per year originating from our NPD pipeline and that of our development and distribution partners in Europe.

In a dynamic and diverse market such as veterinary medicine it is important that our development direction is reviewed regularly and targets adjusted accordingly. Unlike many larger organisations with resource and fixed asset commitments in defined areas our development model allows great flexibility of approach and direction.

Our NPD pipeline reflects our focus on the companion animal market but also our strategies to increase our geographic reach and to introduce products with the potential to delivery sustained intellectual property protected growth to the Group. 

The expected revenue from these projects in the UK alone is between £5 million and £7 million at maturity

CHAIRMAN'S STATEMENT

FOR THE YEAR ENDED 30 June 2012

Introduction

This has been a difficult year for Animalcare but I believe the measures the Board has taken will see it beginning to grow again during the current financial year. Animalcare is currently made up of three product groups, Licensed Veterinary Medicines, Companion Animal Identification and Animal Welfare products that are all sold mainly through veterinary practices. Whilst the Licensed Veterinary Medicines have continued to grow, albeit slower than anticipated, there has been a marked reduction in sales of both Identichip and Animal Welfare products during the year. Your Board is refocusing the management on these two areas, plus the continued development of new licensed veterinary products and this should return your company to growth during the current year.

Financial Trading

Sales during the financial year fell by 8.2% from £11.8 million to £10.9 million. This resulted in a reduction in underlying profit before tax from £2.3 million to £1.8 million and fully diluted earnings per share from continuing operations fell 18% from 11.2p to 9.2p. However your company continues to be strongly cash generative and the year-end cash position has grown from £1.18m to £2.31m which helps improve the strength of our balance sheet. The reduction of sales was mainly caused by the delay to re- launch a replacement 'single dose Buprecare ampoule' in the veterinary medicine market, a 28% fall in sales in our Companion Animal Identification business, and a 9% reduction in sales of animal welfare products. To reverse this trend your Board promoted Dr Iain Menneer from Marketing Director to Managing Director Animalcare Ltd in charge of all sales and marketing in the UK. This allows Stephen Wildridge, Chief Executive Officer, to concentrate on increasing and delivering our product development pipeline and sales of our licence veterinary products through our European partners.

Dividend

With the increase in cash and the strong underlying cash flow of your business the company increased the interim dividend from 1.0 pence per share to 1.5 pence per share which was paid on the 4th May 2012. With this in mind the Board proposes to maintain the final dividend at 3 pence per share. This gives a total dividend for the year of 4.5 pence per share, an increase of 12.5% over the previous financial year and is covered 2.1 times by earnings. The dividend, which is subject to shareholders' approval, at our Annual General meeting, to be held on 6th November 2012, will be paid on 16th November 2012 to the shareholders on the register on 19th October 2012.

The Board

Your Board has been considerably strengthened during the year with the appointment to the Board of Dr Iain Menneer, Managing Director of Animalcare Ltd and also Ray Harding as a non- executive director. Until 2010 Ray was an owner and Managing Director of Cyton Bioscience Ltd, a leading company in multi-service consultancy to both the animal health and pharmaceutical industries, and he remains as a part time consultant to it. Chris Brewster also joined the Board towards the end of the financial year as Chief Financial Officer and Company Secretary. He gained considerable commercial experience as Group Accounting Manager at Findus Group. Prior to this Chris was a senior manager in the KPMG audit department in the Leeds office. I would like to thank, on behalf of the Board, all our customers, suppliers and colleagues who have helped support and develop Animalcare during the year.

Prospects

The Board believes with the focus on growing our Companion Animal Identification business, the resumption of supply of Buprecare ampoules, and the planned launch of four new licensed veterinary products during the financial year Animalcare should return to growth. Your Board is encouraged by current trading for the beginning of the new financial year.

James Lambert

Chairman

CHIEF EXECUTIVE'S REVIEW

FOR THE YEAR ENDED 30 June 2012

Introduction

The Animalcare Group is now fully focussed on serving the professional veterinary industry through its expanding licensed veterinary medicines portfolio and highly profitable Companion Animal Identification product group. At a time when temporary supply difficulties with one key product strongly affected the business, our proven strategy of growth through the introduction of generic licensed veterinary medicines has meant that our performance in this key segment has been significantly better than the overall market (see below).

Our pipeline for new products remained productive with our target of four new licensed generic veterinary medicines launched in the year being surpassed with the introduction of five new products. Additionally our development programme remained on track with other products in development meeting their milestones and other target products being brought forward into the pipeline.

It is clear however that the competition in licensed generic veterinary medicines will accelerate and intensify over the short-term and although we remain very well placed to continue to compete and grow we have been adapting our strategy to deliver even more durable success in the future. Our efforts in this regard, referred to as Project Sustain, focus on accelerating our development activities beyond differentiated generics initially in enhanced generics. The work we have been doing during 2011-12 on Project Sustain is designed to provide the sustained, protected growth of the Animalcare Group. Project Sustain will become a more evident and important part of the business from here on in.

Business Overview

The Animalcare business was strongly affected by the abrupt loss for the whole year of one of our key products, Buprecare ampoules. At the same time rationalisation of lower margin products and a downturn in sales within our Companion Animal Identification products negatively affected the business. Overall revenues were down £0.9m (8.2%) and gross profit was down £0.5m (8.3%) on last year. Although it will take a little longer than we had initially hoped to reintroduce Buprecare ampoules we are now significantly along the way to achieving this in the current financial year. We have made significant progress in strengthening our Companion Animal Identification segment through cost of goods and cost to serve reductions and the implementation of improved data handling capabilities which lead to increased selling opportunities.

It is very encouraging that in a period when the overall economic climate has been troubled the resilience of the market for licensed veterinary medicines in key markets has been notable and our growth in the segment has been strong. In the UK (which remains the Animalcare Group's largest market representing 92.2% of revenue and 91.9% of gross profit), excluding Buprecare ampoules, the growth in revenue from our licensed veterinary medicines was 16.8%. Even when Buprecare ampoules are included growth was still 3.3% year on year.

Sales of Licensed Veterinary Medicines in the UK

* NOAH website - NOAH members 12 months to March 2012 net of all discounts

** Animalcare results - financial years 2011 and 2012 excluding Buprecare ampoules

Revenue from our sales outside the UK were 1.3% lower than the previous financial year affected by the loss of Buprecare ampoules and the continued poor market conditions in Spain. Gross profit was however 29.5% higher as a result of increased sales in higher value markets.

It is our target to launch four new licensed generic veterinary medicines in course of each financial year, a rate which is at the forefront for the market. During the course of financial year 2011-12 we launched a total of five new licensed veterinary medicines:

- Torphosol, a sedative and short term analgesic for use in horses

- Detonervin, a deep sedative and mild analgesic for use in horses

- Emdocam, an anti-inflammatory for use in horses, cattle and pigs

- Tilmodil, an antibacterial for use in cattle and sheep

- Buprecare MDV, a multidose vial version of our successful severe pain analgesic for cats and dogs

In addition our currently marketed range of companion animal licensed generic medicines continued to perform well.

Sales revenue from the Companion Animal Identification products group was £0.9m (27.7%) below last year principally due to the one off effect of ending the low margin distribution of Sureflap cat flaps (-£0.51m) and the reduced sales of Identichip, our pet identification microchips (-£0.25m). Gross profit in the segment was £0.36m (17.9%) lower than last year.

During the course of the year we took the important step of reorganising the senior management team to meet the needs of the business now and for the future. Chris Brewster joined the Group as Chief Financial Officer and Dr. Iain Menneer took over the role of Managing Director for Animalcare Ltd with the primary responsibility of managing the UK business to achieve its short-term operational targets. This concentration of the UK business with Iain has allowed other members of the senior management team to concentrate on another three key areas of the business;

- increased penetration of our current products in existing markets

- controlled expansion of the geographic reach of the business

- driving the development programme notably project Sustain

Future Developments

In the short-term licensed generic medicines for companion animals in our main target markets (UK, France and Germany) will provide the engine for growth of the Animalcare Group. This growth will be supplemented by better penetration of our existing products in markets outside the UK where we currently operate. We will improve sales through the selective geographic expansion of the markets we address.

In addition to our development efforts in "undifferentiated and differentiated" generic veterinary medicines we have made progress in the identification of the technologies which we believe will form the basis of the Group's medium-term development. Project Sustain is an umbrella title for a group of activities that we are progressing as the sustained driver of the business. Discussions are already underway with potential technology providers in Europe and North America and these efforts are expected to crystallise into the first development projects in the course of the next 12 months.

In early September we launched Vitofyllin in the UK and Ireland in a market worth approximately £1.5m per annum. It is a product which fits well into our growing portfolio of products to treat chronic diseases and conditions of old age, in this case a central nervous system stimulant for older dogs. Our next two products are in the final stages of development and have almost completed regulatory review. We expect to be able to launch both products in the UK in Q3 of the current financial year. A fourth product has just entered regulatory review and should be available for launch in Q4 of the financial year. We are therefore confident of once more achieving our target of the launch of four new licensed generic veterinary medicines in financial year 2012-13.

We have moved two projects to the next phase in development and remain confident that through our own product development pipeline, and that of our development partners, this rate of product innovation and introduction can be maintained for the foreseeable future.

Outlook

In my CEO's statement last year I commented that 2011-12 "may be a difficult year", it was. Although challenging, the difficulties were however uncomplicated market issues which have been recognised and either addressed or are well in the course of resolution. 2012-13 will not be without its challenges but the Animalcare Group is well placed to deliver a strong performance in the year, in line with expectations, moving back to the growth levels recently experienced. Current trading is in line with expectations and comfortably above last year.

The Group has moved away from its previous position as an undifferentiated supplier of low value animal welfare products into a predominantly veterinary pharmaceutical based business. That trend must continue and intensify. I believe that with the support it needs in terms of product development expenditure and leadership evolution, the business is well positioned to provide even higher levels of sustained, IP protected growth in the future.

Stephen Wildridge

Chief Executive Officer

FINANCIAL REVIEW

FOR THE YEAR ENDED 30 June 2012

Group Overview - Revenue and Profit

Overall revenue from continuing operations reduced by 8.2% to £10.9 million driven principally by our Companion Animal Identification group of products (-£0.9 million) together with the full year loss of Buprecare ampoules (-£0.8 million). This was partially offset by the strong performance within our licensed veterinary medicines portfolio which benefited from the launch of five new medicines during the year.

Despite the increased competition in licensed veterinary medicines, gross margin remained consistent with prior year at 54%.

Distribution costs reduced by 10.3% compared to 2011, broadly in line with the reduction in revenues. Administrative expenses increased by 8.6% reflecting in particular, investment in personnel (including Non-Executive Directors).

Both underlying(*) operating profit and underlying(*) profit before tax were £2.3 million for the year compared to £3.1 million and £3.0 million respectively in 2011.

Exceptional and other items

Exceptional and other items in the year comprised executive severance costs and amortisation of acquired intangible assets. Full details are provided in note 6.

Finance income and costs

Following the repayment of bank debt on 31 March 2011, the Group has continued to maintain healthy positive cash balances hence has eliminated its borrowing costs in full during 2012.

Taxation

The Group's effective tax rate reduced from 23% to 17.9% primarily due to the current year benefit of prior year research and development tax credits.

Earnings per share and dividends

The Group achieved 9.3 pence (2011: 11.8 pence) underlying basic earnings per share.

An interim dividend of 1.5 pence per share was paid on 4th May 2012 (2011: 1.0 pence per share). The Board proposes the payment of a final dividend of 3.0 pence per share (2011: 3.0 pence per share) given the satisfactory cash flow performance of the business during 2012 giving a total dividend of 4.5p up 12.5% on the previous year (2011: 4p).

Cash flows

The Group generated £1.1 million (2011: cash outflow £0.4 million) cash during the year, resulting in a strong net cash position at 30 June 2012 of £2.3 million (2011: £1.2 million). Working capital reduced by £0.1 million (2011: £0.5 million increase) in line with the reduced year end sales and phasing of strategic inventory purchases.

Income taxes paid were £0.4 million (2011: £0.8 million) the reduction principally reflecting the decrease in the Group's taxable profits together with the benefit of prior year research and development tax credits.

We have increased our investment by 75% in new product development of licensed veterinary medicines compared to 2011 and will continue this trend during the next financial year. New product development will continue to be funded from operational cash flows.

*Underlying results are before the effect of exceptional costs and other items disclosed in note 6 to the financial statements.

Chris Brewster

Chief Financial Officer

1. BASIS OF PREPARATION

The Group and Company financial statements have been prepared and approved by the directors under the historical cost convention, except for the revaluation of certain financial instruments, in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("adopted IFRSs") and the Companies Act 2006 as applicable to companies reporting under IFRS. They have also been prepared in accordance with the requirements of the AIM Rules.

This announcement has been prepared based on accounting policies which are consistent with those described in the Annual Report for the year ended 30 June 2011. Whilst the financial information included in this preliminary announcement has been computed in accordance with IFRS as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to publish full financial statements in March 2012.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 June 2012 or 2011 but is derived from the 2012 accounts. Statutory accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered in due course. The Auditor has reported on those accounts; the report was (i) unqualified, (ii) did not include references to any matters to which the Auditor drew attention by way of emphasis without qualifying the reports and (iii) did not contain statements under section 498(2) or (3) of the Companies Act 2006.

For the purposes of their assessment of the appropriateness of the preparation of the Group's accounts on a going concern basis, the Directors have considered the current cash position, the availability of bank facilities and forecasts of future trading including working capital requirements.

The Group has an undrawn overdraft facility of £100,000 which is available for general corporate and working capital requirements. At 30 June 2012 the Group had cash on hand of £2.31 million (30 June 2011 - £1.18 million). In the directors' opinion, the Group's working capital requirements can be met from operating cash flow.

Overall, the directors believe the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current committed facilities.

After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements. 

2. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - DISCONTINUED OPERATIONS

5. REVENUE AND OPERATING SEGMENTS

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operating Decision Maker to allocate resources and assess performance. The Chief Operating Decision Maker is considered to be the Chief Executive Officer of Animalcare Group Plc. Performance assessment is based on underlying operating profit.

Following the disposal of the Livestock business during September 2010, the Groupsolely comprises one reportable segment, being Companion Animal.

During 2011, the Group comprised two segments, Companion Animal and Livestock (discontinued).

The carrying amount of Group goodwill is allocated to the Companion Animal Segment.

The recoverable amount of goodwill is determined from value in use calculations.

The Group prepares cash flow forecasts derived from the most recent financial budgets and projections approved by management for the next three years and thereafter assuming an estimated annual growth rate of 1.9 per cent (2011 - 1.0 per cent).

The financial budgets and projections are based on past experience and actual operating results. The growth rates for the three year period are based on current performance of the existing product portfolio and the contribution from new products currently in development which will be launched in the short term. The directors consider the growth rate to be modest based on historical performance. The directors believe that the long-term growth rate does not exceed the average long term growth rate for the UK economy.

The directors estimate the discount rates using the post-tax rates that reflect the current market assessments of the time value of money and the risks specific to the CGU. In the current year the directors estimated the applicable pre -tax rate to be 11.4 per cent (2011 - 12.1 per cent).

The directors modelled a range of different scenarios by applying sensitivities to both the cash flow assumptions and the discount rate. Based on this sensitivity analysis there is significant headroom between the value in use calculation and the carrying value of the cash generating unit ("CGU").