Animalcare Grp Regulatory News (ANCR)

Animalcare Group plc

("Animalcare" or the "Group")

Half Yearly Report

Animalcare Group plc (AIM: ANCR), a leading supplier of veterinary medicines, announces interim results for the six months ended 31st December 2014 and confirms a solid first half to all three areas of the business. Animalcare is made up of three product groups: Licensed Veterinary Medicines, Companion Animal Identification and Animal Welfare products.

Financial Highlights

* Underlying measures are before the effect of exceptional and other items. These are analysed in note 3.

Operational Highlights

· Strong revenue growth from our Licensed Veterinary Medicines group, up 10.6% to £4.40m (2013: £3.98m) in part due to a non-recurring benefit from sales of Buprecare as a result of competitor supply issues.

· Companion Animal Identification group continued to perform well, delivering revenue growth of 5.0% to £1.26m (2013: £1.20m). Sales of both microchips and database services increased in the period.

· Continued focus on investment in our product development pipeline, with expenditure weighted to the second half. Further recruitment planned to expand the business development team and support growth plans.

· Cash generation in the period was stronger than expected, with Group cash balances up £1.23m to £5.04m (2013: £3.64m).

· Interim dividend increased by 20% to 1.8 pence per share (2013: 1.5p per share).

James Lambert, Chairman of Animalcare Group plc, said: "I am delighted to report a solid start to our financial year in all three areas of the business. The Group remains on target to perform in line with management expectations for the full year to 30th June 2015. The Board is committed to its strategy to invest in enhanced generic medicines that will deliver growth and protectable revenue to the medium to long-term. I am extremely pleased to be able to increase the interim dividend to 1.8 pence per share, given the solid trading performance and strong financial position of the Group."

Chairman's Statement

I am delighted to report a solid first half in all three areas of the business leading to an overall increase in sales of 7.2% to £6.9m. The strategy to focus on both the Licensed Veterinary Medicines and the Companion Animal Identification products and services has delivered this result. This has flowed through to basic underlying earnings per share of 6.8p (2013: 5.5p), a year on year increase of over 19%.

The 10.6% growth in Licensed Veterinary Medicines revenue was driven by organic growth and a one-off benefit from sales of Buprecare, as a result of supply issues experienced by one of competitors. This more than offset reduced sales of some of our lower margin pharmaceuticals.

Sales in our Companion Animal Identification group generated growth of 5.0% with a small increase in gross profit. The commercial and political opportunities and threats that the compulsory chipping of dogs in 2016 will bring to Animalcare are much clearer now and I believe there should be modest benefits to us.

Sales from our Animal Welfare Products group fell by 1.2% with a small increase in gross margin, leaving the profitability broadly flat year on year.

Operating cash flow growth was created by a general reduction in stock, increased profits and a below originally planned investment in new products.

As I stated in our 2014 Annual Report, we have gathered a strong team and are increasing the level of investment in our Licensed Veterinary Medicines new product development pipeline, which will provide added benefits to both the veterinary practitioner and the animals in their care. Progress is being made on projects in the development pipeline with several new opportunities identified in the period. An uplift in investment is expected in the second half and in subsequent years.

I am very pleased to welcome Mr George Gunn on to the Board of Animalcare. George joined the Board in February 2015 having stepped down recently as Head of the Animal Health Division and from the Executive Committee of Novartis AG on completion of the sale of that division on 1st January 2015. He has extensive experience in Animal Health Pharmaceuticals over a career that has spanned 30 years within the industry.

George will complement the skills of the existing Board members and bring additional commercial and product development experience to the team to help deliver our strategy.

Given the strong trading in the first half and the structural improvements to the business, the Board remains confident about the prospects and outcome for the full year and beyond.

James Lambert

Chairman

Business Review

Introduction

The Group delivered another solid trading performance during the six month period ended 31st December 2014, building on the firm foundations established during the previous financial year. This performance resulted in a 7.2% increase in revenues to £6.93m (2013: £6.46m) and a 24.7% increase in underlying operating profit, our measure of trading performance before exceptional items, to £1.79m (2013: £1.44m).

Our robust balance sheet and cash position continues to reflect the highly cash generative nature of our operations, supported in the first half by planned activity to reduce our inventory levels.

Strategically, we continue to focus on delivering growth from our current core business and our product development pipeline to accelerate our organic expansion from 2016 onwards.

Our sustained trading performance and balance sheet strength prompted the Board's to increase the dividend by 20% to 1.8 pence per share (2013: 1.5 pence per share).

Operating results

The Licensed Veterinary Medicines group, representing around 60% of overall business revenues, continues to be our main growth driver, with sales up 10.6% versus prior period to £4.40m, 8.7% of which is like-for-like. This increase includes a circa £0.2m non-recurring first half benefit from sales of Buprecare as a result of supply issues with a competitor product. The remaining growth has come from products launched during FY14 which have performed well in the first half.

Our Companion Animal Identification group has continued to perform well, delivering an overall increase in sales of 5.0% to £1.26m. With increasing competition in the pet insurance market, much of this growth was driven by microchip revenues following further sales and marketing focus.

Revenues from our Animal Welfare Products group fell modestly to £1.27m however, as observed in the previous financial year, overall gross profitability has been broadly maintained as a result of improved sales mix, including growth in the infusion accessories range.

Gross profit increased by 10.0% to £4.0m (2013: £3.6m). Our gross margins increased to 57.1% (2013: 55.6%) primarily reflecting the non-recurring benefit of higher than expected sales of Buprecare as noted above, however, underlying gross margins have also modestly improved due to favourable sales mix.

Underlying* operating profit increased by 24.7% to £1.79m (2013: £1.44m) largely as a result of improved gross profits whilst maintaining control of overall overheads, excluding research and development costs, at similar levels to H1 FY13. During the period, we completed the restructuring of our UK sales team, including the introduction of a telesales function. We expect to continue to invest in our staff base in a planned and measured way to support our growth strategy.

 Cash flow

Cash flows generated by operations were £2.55m (2013: £0.95m). During the period, as planned, the Group has focused on reducing its inventory levels from the peak seen in FY14. Whilst the £0.48m stock decrease was higher than expected, partly due to strong December sales, we continue to focus on optimising our inventory mix whilst ensuring our customers' requirements are met.

Net income taxes paid at £0.29m include a £0.10m cash benefit in relation to FY13 research and development tax credits.

Capital expenditure in the period principally relates to investment in our product development pipeline. Whilst significantly higher than prior period, this was lower than originally planned. This is an important activity for the Group and is progressing well and has benefitted from the additions made to the Technical and Business Development teams during FY14. We expect overall FY15 expenditure to be weighted to the second half.

Group cash balances at 31st December 2014 were £5.04m (30th June 2014: £3.81m, 31st December 2013: £3.64m).

Earnings per share ("EPS")

Basic underlying* EPS increased by 23.6% to 6.8 pence (2013: 5.5 pence). The statutory basic EPS increased by 26.9% to 6.6 pence (2013: 5.2 pence) reflecting the lower cost of exceptional items in the period.

Dividend

Given the solid trading performance and strong financial position of the Group, the Board is pleased to announce, a 20% increase in the interim dividend to 1.8 pence per share (2013: 1.5 pence per share), which follows the 4.0% increase in the final dividend for FY14. The interim dividend will be paid on 7th May 2015 to shareholders on the register on 10th April 2015.

The Board will continue to monitor the Group's cash position to ensure an appropriate balance between investment for growth and return for shareholders.

New Product Development

As previously stated, we have a strategy to grow the business through investment in the Licensed Veterinary Medicines group. Though it inevitably takes time for this progress to be visible externally, the activity in our product development pipeline has increased significantly in the last 18 months.

As can be seen in the table below the projects in our pipeline are moving forward through the stages.

Please see this link for a copy of the table:

http://www.rns-pdf.londonstockexchange.com/rns/6546F_-2015-2-23.pdf

In addition, the number of potential projects short-listed from our structured product identification process has increased significantly in H1 FY15. These projects will be assessed for their technical and commercial feasibility before Board assessment and the start of investment.

More novel technologies are being reviewed as part of our enhanced generic strategy and we believe that George Gunn's appointment to the Board as a director will undoubtedly enhance the quality and number of opportunities available to Animalcare.

Summary and outlook

Changes to the product development team and processes are having a positive effect on the progress of our new pharmaceutical product pipeline. In order to maintain momentum and explore the extensive range of business opportunities available to Animalcare, we are starting to recruit additional resource.

We expect to launch three new pharmaceutical products in the second half of the financial year, on distribution from one of our European partners, which will keep up the momentum in the core part of our business.

Introduction of compulsory microchipping for dogs in Wales has been delayed from March 2015 and may now coincide with its introduction in England in April 2016. Industry changes to the Animalcare pet and owner database requested by DEFRA are almost complete ahead of schedule. Engagement by dog owners in preparation for the deadline in England in April 2016 has been slow but as this gathers momentum Animalcare is well placed to benefit.

The Board is committed to its strategy to invest in enhanced generic medicines that will deliver growth and protectable revenue in the medium to long-term. As anticipated, the market remains challenging which results in continued pressure on margins, however, the business remains on target to perform in line with management expectations in H2 and for the full year to 30th June 2015.

* Underlying measures are before the effect of exceptional costs and other items as disclosed in note 3.

Iain Menneer Chris BrewsterChief Executive Officer Chief Financial Officer

Condensed Consolidated Statement of Comprehensive Income - Unaudited

Six months ended 31st December 2014

Total comprehensive income/(loss) for the period is attributable to the equity holders of the parent.

(i) In order to aid understanding of underlying business performance, the Directors have presented underlying results before the effect of exceptional and other items. These items are analysed in note 3.

Condensed Consolidated Statement of Comprehensive Income - Audited

Year ended 30th June 2014

Total comprehensive income/(loss) for the year is attributable to the equity holders of the parent.

(i) In order to aid understanding of underlying business performance, the directors have presented underlying results before the effect of exceptional costs and other items. These items are analysed in note 3.

Condensed Consolidated Statement of Changes in Shareholders' Equity

Six months ended 31st December 2014

Condensed Consolidated Balance Sheet

31st December 2014

Cash Flow Statement

Six months ended 31st December 2014

Condensed Notes to the Financial Statements

31st December 2014

1. GENERAL INFORMATION

Animalcare Group plc ("the Company") is a 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 31st December 2014 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.

This Interim Report does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The information contained herein has not been reviewed by the Group's auditor.

The prior year comparatives are derived from the audited financial information as set out in the Group's Annual Report for the year ended 30th June 2014 and the unaudited financial information in the Group's Interim Report for the six months ended 31st December 2013. The comparative figures for the financial year ended 30th June 2014 are not the Group's statutory accounts. Those accounts have been reported on by the Group's auditor and delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not include any reference to matters to which the auditors drew attention without qualifying their report and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The Interim Report for the six months ended 31st December 2014 was approved by the Board of Directors and authorised for issue on 24th February 2015.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation and accounting policies

Except as described below, the condensed consolidated interim financial information for the six months ended 31st December 2014 has been prepared using accounting policies consistent with those of the Company's annual accounts for the year ended 30th June 2014, which were prepared in accordance with IFRSs as adopted by the European Union.

Taxes on income in the interim periods are accrued using the estimated tax rate that would be applicable for the full financial year.

The following new standards and amendments are mandatory for the first time for the financial period beginning 1st July 2014:

IFRS 10: Consolidated Financial Statements

IFRS 12: Disclosure of Interest in Other Entities

Amendments to IFRS 13: Fair value measurement

IAS 27(Amended): Separate Financial Statements

Amendments to IAS32: Financial Instruments: Disclosures - Offsetting Financial Assets and Liabilities

Amendments to IAS 36: Recoverable Amount Disclosures for non-Financial Assets

Amendments to IAS 39: Novation of Derivatives and Continuation of Hedge Accounting

Adoption where applicable has not had a material effect on the Group's financial information.

Going concern

The principal risks and uncertainties facing the Group remain those set out in the latest Annual Report.

For the purposes of their assessment of the appropriateness of the preparation of the interim financial information on a going concern basis, the Directors have considered the current cash position and forecasts of future trading including working capital and investment requirements.

During the period the Group met its day-to-day general corporate and working capital requirements through existing cash resources. At 31st December 2014 the Group had cash on hand of £5.0 million (30th June 2014: £3.8 million).

The Group's forecasts and projections, taking account of reasonable possible changes in trading performance, show that the Group should have sufficient cash resources to meet its requirements for at least the next 12 months. Accordingly, the adoption of the going concern basis in preparing the interim financial information remains appropriate. 

3. EXCEPTIONAL AND OTHER ITEMSSix months ended 31st December 2014

4. REVENUE AND OPERATING SEGMENTS

During the period, the principal activity of the Group was the supply and distribution of veterinary medicines, identification and other products for companion animals.

The Chief Operating Decision Maker ("CODM") is considered to be the Chief Executive Officer of Animalcare Group plc. Performance assessment is principally based on underlying operating profit. The Group solely comprises one reportable segment, being Companion Animal.

An analysis of revenue by product group is disclosed within the Business Review.

5. DIVIDENDS

The interim dividend was approved by the Board of Directors on 24th February 2015 and has not been included as a liability as at 31st December 2014.

6. EARNINGS PER SHARE

Basic earnings per share amounts are calculated by dividing the total comprehensive income for the period attributable to ordinary equity holders of the Company by the weighted average number of fully paid ordinary shares outstanding during the period.

The dilutive effect of share options is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares from the start of the period. The only dilutive potential ordinary shares of the Company are share options.

The following income and share data was used in the earnings per share computations:

7. CAUTIONARY STATEMENT

This Interim Management Report ("IMR") consists of the Chairman's Statement and the Operational and Financial 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.

8. INTERIM REPORT

The Group's Interim Report for the six months ended 31st December 2014 was approved and authorised for issue on 24th February 2015 and is expected to be posted to shareholders during the week commencing 23rd February 2015. Further copies will be available to download on the Company's website at: www.animalcaregroup.co.uk and will also be available from the Company's head office at 10 Great North Way, York Business Park, Nether Poppleton, York, YO26 6RB.