Eco Animal Regulatory News (EAH)

12 Jul 2013 07:00

ECO Animal Health Group plc

(AIM: EAH)

Results for the year ended 31 March 2013

HIGHLIGHTS

21% advance in gross profit to £13.1m (2012: £10.8m) reflecting significant improvement in product mix with greater focus on higher margin business 7 percentage point uplift in gross margin to 45.2% (2012: 38.2%) Dividend lifted by 7% to 4.0 pence per share net (2012: 3.75 pence ) Earnings on continuing activities before interest, tax, depreciation, amortisation, share based payments, foreign exchange movements and minorities, amounted to £6.7 million (2012: £6.5m). Net cash of £7.5m at period end 42.9% increase in pre-tax profit on continuing activities to £3.3 million (2012: £2.3million) Over 20% rise in earnings per share on continuing activities to 5.1 pence (2012: 4.2 pence) Demand for Aivlosin® continues to grow strongly Successful launch of Aivlosin® in North America - response continues to be very encouraging with more registrations expected early in 2014 Continued growth in China, Japan and Europe First orders of Aivlosin® shipped to Russia

Peter Lawrence, Executive Chairman of ECO Animal Health Group plc, commented:

“The new year has started strongly and sales in the first quarter of the year were substantially ahead of the level for the same period last year. We are excited about the prospects of further increasing our market shares, particularly in North America. The recovery that we are currently experiencing in Latin America and the expansion of sales in the Far East give us confidence for growth in the coming year. In addition, as the global consumption of meat protein continues to increase, ECO is in an excellent position to supply the animal farming industry worldwide. The profits generated by our modern, fast acting treatments should continue to deliver increasing value to our shareholders.”

Contacts:

ECO Animal Health Group plc
Peter Lawrence		020 8336 6190
Spiro Financial
Anthony Spiro		020 8336 6196
Cenkos Securities plc (Nominated Adviser )
Liz Bowman		020 73978928

ECO Animal Health Group plc is a leader in the development, registration and marketing of pharmaceutical products for animals. Our products for these global growth markets promote well-being. Our financial goals are achieved through the careful and responsible application of science to generate value for our shareholders.

CHAIRMAN’S STATEMENT

FOR THE YEAR ENDED 31 MARCH 2013

I am pleased to report that ECO Animal Health Group has delivered another strong set of results for the year ended 31 March 2013. ECO has made good progress in many of its markets and this has been achieved against a background of a generally lacklustre global economy. It is particularly encouraging to report that following the receipt of initial marketing authorisations and the launch of Aivlosin® in North America last year, sales in that territory ran ahead of our expectations and the product is rapidly gaining acceptance, having received a number of excellent reviews and testimonials from independent veterinarians. Latin America, which is traditionally one of our strongest markets, was adversely affected by the political situation in Argentina and Venezuela. Shareholders are encouraged to visit the ECO websites, which give up to date information about the company and its subsidiaries, products and testimonials, as well as links to investment research.

FINANCIAL

As Aivlosin® revenues continue to build, the Group’s ongoing policy is to focus on higher margin products and move away from sales of lower margin, undifferentiated generic drugs. Lower margin products were important to ECO in earlier years as they were supplied to customers as part of a portfolio offer. This move away from low margin, high sales volume medications is reflected in the year to 31 March 2013 in the continuing improvement in gross margin, which has now reached 45.2% (2012: 38.2%). Pre-tax profit on continuing activities increased by almost 43% to £3.3m (2012: £2.3m). Earnings per share on the same basis improved by over 20% to 5.1 pence (2012: 4.2 pence). Group turnover increased only slightly to £29.0m (2012: £28.3m). Earnings on continuing activities before interest, tax, depreciation, amortisation, share based payments, foreign exchange movements and minorities rose again reaching £6.7m (2012: £6.5m). Net cash at the end of the year was £7.5m (2012: £9.5m) after generating more than £4.3m from operations.

As our business expands and penetrates its major markets with particular emphasis on the opportunities in North America and China, there has been a predictable increase in the cash resources required to finance the expansion in working capital resulting from additional stock and debtors. The active pharmaceutical ingredient in Aivlosin® is manufactured in a state of the art, US Food and Drug Administration approved facility in China, which is well located for the local market, but geographically distant from a number of ECO’s key global operations. The resulting long lead times for product delivery to these markets has an inevitable impact on cash flow. This cash effect was exacerbated in the year under review by the political situation in Venezuela, where we experienced many months of delay in payments as banks froze US dollar payments and transfers during the Presidential election. This was enormously frustrating as we were holding very large and important orders for that country, which we could not fulfil until payments were received towards the end of the year. Argentina was also difficult as local banks held up payments to the UK, possibly for political reasons.

ECO trades in international markets and over 31 per cent of sales were in US dollars and nearly 18 per cent in Euros. Currency fluctuations are a normal part of our business. We hedge our currency risk as effectively as we can without taking speculative positions so our exposure is strictly limited to the extent of forecast cash flows and protection of local assets. As a UK based company, our main administrative costs are in sterling, although an increasing presence in the key markets of China and the US does give us the opportunity to meet administration costs in local currencies, thereby reducing exchange risk.

The Board is pleased to declare an increased dividend for the year of 4.0 pence per share, some 7% above the level of last year (2012: 3.75 pence), payable on 25 October 2013 to shareholders on the register on 13 September 2013. As in previous years, the scrip dividend alternative will be offered in place of the cash dividend. In the current year we anticipate further demands on our working capital to sustain the growth of the business. Shareholders that elect for the scrip dividend will assist our cash flow considerably and this will be greatly appreciated by the Company. Since the introduction of the scrip dividend alternative in 2008, some £3.8m of cash dividends have been reinvested in our business.

OPERATIONS

North American revenue has continued to build impressively and exceeded our expectations in the year under review. This strong performance follows the successful launch of Aivlosin® Water Soluble for swine in September 2012 and the build up of sales in Canada. Income from these territories is generated by our sales and technical teams at Pharmgate Animal Health, our North American joint venture with Pharmgate LLC, a subsidiary of Jinhe Biotechnology of China. The technical advantages of Aivlosin® over other antibiotics have ensured that its usage has been supported by many prominent veterinarians and swine producers. Aivlosin® has been approved as a treatment of short duration against specific disease outbreaks. It fulfills all the requirements set by the regulatory authorities for the judicious use of antimicrobials in the control of disease in farm animals. ECO has continued to invest heavily in the Aivlosin® product development and registration programme as well as in the costs of launching the product with Pharmgate Animal Health. This investment is in anticipation of the receipt of marketing authorisations for additional indications and presentations in North America which should significantly increase the revenue generating potential of the range.

An ECO subsidiary was established in Mexico at the end of the previous financial year following our decision to terminate a long standing local distribution agreement with a third party whose performance had deteriorated . The new company is now fully operational and will contribute a full year’s sales in the current year. A feature of this new operation is that it will bring ECO much closer to the very important Mexican market and will in future allow ECO to capitalise on existing beneficial NAFTA (North American Free Trade Agreement) opportunities.

Sales in Europe, including the UK, grew in the year by over 11%, a good result given the economic conditions coupled with the considerable pressure that European meat producers continue to face owing to the combination of near record high feed costs and the weak financial circumstances of many consumers. Aivlosin® achieved particularly good volume gains in Russia, Spain and the UK. The Ecomectin ® range of differentiated generic ivermectin based products showed renewed growth, with sales ahead by nearly 13% compared with the previous year. This improvement followed our increased focus on this range and the introduction of new brands and important new presentations for the market. Sales of horse paste and pig premix formulations were again particularly strong.

Latin America, which historically has been one of ECO’s strongest markets, had a particularly challenging year, with sales declining by some 28% in sterling compared to the prior year. Early season sales in Brazil were poor, constrained by delays in the issuing of contracts and tenders. This was principally a reflection of the poor economic climate, but it is pleasing to report that business rebounded to more normal levels late in the second half of the year. Deliveries of product to Venezuela and Argentina were held back by local political, foreign exchange and liquidity issues. The business in these two countries also rebounded in the last couple of months of the year.

Sales in China and Japan grew by 27% compared to the prior year. Sales of Aivlosin® through our ECO BIOK joint venture in China enjoyed strong growth driven by a combination of overall expansion of the market and good pork prices. The Aivlosin® business in Japan made good progress compared to the prior year as the market returned to more normal trading conditions. Changes to the Japanese Aivlosin® supply chain have resulted in a significant margin improvement and enhanced profitability for our ECOpharma subsidiary in that country.

Total turnover from the Rest of World declined slightly compared to the prior year, although Aivlosin® sales were up almost 20%.Our progressive global strategy of increasing our focus on sales of our higher margin products also benefits our cash flow by lowering the amount of credit offered to our distributors.

ECO has an impressive record of successfully obtaining marketing authorisations (also known as drug registrations), and currently holds in excess of 600 world-wide. A valid marketing authorisation is a legal requirement in every country before sales can begin. The regulatory authorities granting these authorisations have become increasingly stringent over time in order to ensure drug efficacy, the safety of the animals being treated and also that of consumers and the environment. Once an authorisation has been received and marketing commenced, ongoing work is required to protect and further enhance the registration. ECO’s investment in product development and regulatory work continues on further Aivlosin® indications and presentations for existing territories, such as for swine in Canada and the USA, as well as for poultry and also for access to new markets such as South Korea. We expect to be granted more licences over the coming months, which will allow us to address even larger new markets for Aivlosin®.

PEOPLE

We currently employ over 150 people in our 15 offices around the world and we are, as always, grateful to this team of hard working and highly qualified specialists who are helping ECO become a leader in the global animal health market.

OUTLOOK

The new year has started strongly and sales in the first quarter of the year were substantially ahead of the level for the same period last year. We are excited about the prospects of further increasing our market shares, particularly in North America. The recovery that we are currently experiencing in Latin America and the expansion of sales in the Far East give us confidence for growth in the coming year. In addition, as the global consumption of meat protein continues to increase, ECO is in an excellent position to supply the animal farming industry worldwide. The profits generated by our modern, fast acting treatments should continue to deliver increasing value to our shareholders.

Peter Lawrence

Executive Chairman

11 July 2013

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 MARCH 2013

				2013				2012
		Notes		£				£
Revenue		2,3		28,985,954				28,322,177
Cost of sales				(15,882,933)				(17,504,226)
Gross profit				13,103,021				10,817,951
Other income		4		179,380				760,062
Administrative expenses				(9,752,606)				(9,373,175)
Profit from operating activities		5		3,529,795				2,204,838
Finance income		6		56,214				130,931
Finance costs		6		(269,919)				(15,427)
Net finance (expense)/ income				(213,705)				115,504
Profit before income tax				3,316,090				2,320,342
Income tax (charge)/credit		8		(192,487)				306,584
Profit for the year from continuing operations				3,123,603				2,626,926
Discontinued operations
(Loss) for the year from discontinued operations (net of income tax)				(70,000)				-
Profit for the year				3,053,603				2,626,926
Profit attributable to:
Owners of the parent company				2,616,892				2,217,627
Minority interest		24		436,711				409,299
Profit for the year				3,053,603				2,626,926
Earnings per share		7		2013				2012
Continuing operations				5.11				4.24
Discontinued operations				(0.13)				-
Post tax earnings per share (pence)				4.98				4.24
Diluted earnings per share (pence)
Continuing operations				5.03				4.19
Discontinued operations				(0.13)				-
Diluted earnings per share (pence)				4.90				4.19

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 MARCH 2013

				2013				2012
		Notes		£				£
Profit for the year				3,053,603				2,626,926
Other comprehensive income:
Foreign currency translation differences				247,348				200,872
Defined benefit plan actuarial gains/(losses)		21		57,000				(151,000)
Revaluation of investments				-				(2,828)
Transfer on disposal of investment				-				(58,766)
Revaluation of freehold property				28,200				-
Deferred tax on revaluations				(3,460)				14,782
Other comprehensive income for the year				329,088				3,060
Total comprehensive income for the year				3,382,691				2,629,986
Attributable to:
Owners of the parent company				2,816,028				2,140,405
Minority interest		24		566,663				489,581
				3,382,691				2,629,986

All items listed in other comprehensive income have gone through reserves and are shown in the consolidated statement of changes in equity.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MARCH 2013

CONSOLIDATED		Attributable to the owners of the Parent
		Share		Share		Treasury		Revaluation		Other		Retained		Total		Minority		Total
		Capital		premium		Reserve		Reserve		Reserves		Earnings				Interest		Equity
				Account
		£		£		£		£		£		£		£		£		£
Balance as at 31 March 2011		2,609,758		46,269,100		-		545,540		1,330,230		5,221,761		55,976,389		1,790,587		57,766,976
Profit for the year		-		-		-		-		-		2,217,627		2,217,627		409,299		2,626,926
Other comprehensive income:
Foreign currency differences		-		-		-		-		-		120,590		120,590		80,282		200,872
Actuarial losses on pension scheme assets		-		-		-		-		-		(151,000)		(151,000)		-		(151,000)
Revaluation of investment		-		-		-		(2,828)		-		-		(2,828)		-		(2,828)
Revaluation of freehold property		-		-		-		(58,766)		-		-		(58,766)		-		(58,766)
Deferred taxation		-		-		-		14,782		-		-		14,782		-		14,782
Total comprehensive income for the year		-		-		-		(46,812)		-		2,187,217		2,140,405		489,581		2,629,986
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Issue of shares in the year		146,202		4,587,817		-		-		-		-		4,734,019		-		4,734,019
Share-based payments		-		-		-		-		290,890		-		290,890		-		290,890
Transfers on expiry of options		-		-		-		-		(96,989)		96,989		-		-		-
Dividends relating to 2011		-		-		-		-		-		(1,567,595)		(1,567,595)		(388,581)		(1,956,176)
Cancellation of share premium account		-		(13,250,000)		-		-		3,250,000		10,000,000		-		-		-
Treasury reserve arising from issue of jointly owned shares		-		-		(5,217,580)		-		-		-		(5,217,580)		-		(5,217,580)
Transactions with owners		146,202		(8,662,183)		(5,217,580)		-		3,443,901		8,529,394		(1,760,266)		(388,581)		(2,148,847)
Balance as at 31 March 2012		2,755,960		37,606,917		(5,217,580)		498,728		4,774,131		15,938,372		56,356,528		1,891,587		58,248,115
Profit for the year		-		-		-		-		-		2,616,892		2,616,892		436,711		3,053,603
Other comprehensive income:
Foreign currency differences		-		-		-		-		-		117,396		117,396		129,952		247,348
Actuarial losses on pension scheme assets		-		-		-		-		-		57,000		57,000		-		57,000
Revaluation of freehold property		-		-		-		28,200		-		-		28,200		-		28,200
Deferred taxation		-		-		-		(3,460)		-		-		(3,460)		-		(3,460)
Total comprehensive income for the year		-		-		-		24,740		-		2,791,288		2,816,028		566,663		3,382,691
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Issue of shares in the year		11,291		274,079		-		-		-		-		285,370		-		285,370
Share-based payments		-		-		-		-		358,260		-		358,260		-		358,260
Transfers on expiry of options		-		-		-		-		(82,062)		82,062		-		-		-
Dividends relating to 2012		-		-		-		-		-		(1,982,700)		(1,982,700)		-		(1,982,700)
Transactions with owners		11,291		274,079		-		-		276,198		(1,900,638)		(1,339,070)		-		(1,339,070)
Balance as at 31 March 2013		2,767,251		37,880,996		(5,217,580)		523,468		5,050,329		16,829,022		57,833,486		2,458,250		60,291,736

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MARCH 2013

COMPANY		Attributable to the owners of the Parent
		Share		Share		Treasury		Revaluation		Other		Retained		Total
		Capital		premium		Reserve		Reserve		Reserves		Earnings
				Account
		£		£		£		£		£		£		£
Balance as at 31 March 2011		2,609,758		46,269,100		-		276,679		1,330,230		5,193,761		55,679,528
Profit for the year		-		-		-		-		-		739,303		739,303
Other comprehensive income:		-		-		-		-		-		-		-
Actuarial losses on pension scheme assets		-		-		-		-		-		(151,000)		(151,000)
Revaluation of investment		-		-		-		(2,828)		-		-		(2,828)
Transfer on disposal of investment		-		-		-		(58,766)		-		-		(58,766)
Deferred taxation		-		-		-		14,782		-		-		14,782
Total comprehensive income for the year		-		-		-		(46,812)		-		588,303		541,491
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Issue of shares in the year		146,202		4,587,817		-		-		-		-		4,734,019
Share-based payments		-		-		-		-		290,890		-		290,890
Transfers on expiry of options		-		-		-		-		(96,989)		96,989		-
Dividends relating to 2011		-		-		-		-		-		(1,567,595)		(1,567,595)
Cancellation of share premium account		-		(13,250,000)		-		-		3,250,000		10,000,000		-
Treasury reserve arising from issue of jointly owned shares		-		-		(5,217,580)		-		-		-		(5,217,580)
Transactions with owners		146,202		(8,662,183)		(5,217,580)		-		3,443,901		8,529,394		(1,760,266)
Balance as at 31 March 2012		2,755,960		37,606,917		(5,217,580)		229,867		4,774,131		14,311,458		54,460,753
Loss for the year		-		-		-		-		-		(232,332)		(232,332)
Actuarial gains on pension scheme assets		-		-		-		-		-		57,000		57,000
Revaluation of freehold property		-		-		-		28,200		-		-		28,200
Deferred taxation		-		-		-		(3,461)		-		-		(3,461)
Total comprehensive income for the year		-		-		-		24,739		-		(175,332)		(150,593)
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Issue of shares in the year		11,291		274,079		-		-		-		-		285,370
Share-based payments		-		-		-		-		358,260		-		358,260
Transfers on expiry of options		-		-		-		-		(82,062)		82,062		-
Dividends relating to 2012		-		-		-		-		-		(1,982,700)		(1,982,700)
Transactions with owners		11,291		274,079		-		-		276,198		(1,900,638)		(1,339,070)
Balance as at 31 March 2013		2,767,251		37,880,996		(5,217,580)		254,606		5,050,329		12,235,488		52,971,090

STATEMENTS OF FINANCIAL POSITION (CO. NUMBER: 01818170)

AS AT 31 MARCH 2013

				Group				Company
				2013		2012		2013		2012
		Notes		£		£		£		£
Non-current assets
Intangible assets		11		41,169,357		39,109,147		-		-
Property, plant and equipment		12		1,176,213		1,268,063		671,391		662,599
Investment property		13		151,642		154,773		151,642		154,773
Investments		14		8,738		8,738		20,082,240		20,082,240
				42,505,950		40,540,721		20,905,273		20,899,612
Current assets
Inventories		15		6,425,937		4,417,317		-		-
Trade and other receivables		16		11,248,516		10,755,390		30,348,663		28,912,983
Income tax recoverable				23,395		15,921		-		-
Other taxes and social security				170,615		292,182		157,612		229,630
Cash and cash equivalents		18		9,664,443		14,002,422		4,130,622		9,793,239
Total current assets				27,532,906		29,483,232		34,636,897		38,935,852
Liabilities
Trade and other payables		19		(6,915,983)		(6,705,991)		(278,332)		(734,166)
Short -term borrowings		20		(2,134,765)		(4,492,690)		(2,134,765)		(4,492,690)
Income tax				(174,467)		(58,084)		-		-
Other taxes and social security				(258,454)		(157,572)		(50,097)		(44,143)
Dividends				(31,835)		(31,122)		(31,835)		(31,122)
Current liabilities				(9,515,504)		(11,445,459)		(2,495,029)		(5,302,121)
Net current assets				18,017,402		18,037,773		32,141,868		33,633,731
Total assets less current liabilities				60,523,352		58,578,494		53,047,141		54,533,343
Non current liabilities
Deferred tax		17		(231,616)		(330,379)		(76,051)		(72,590)
TOTAL ASSETS LESS TOTAL LIABILTIES				60,291,736		58,248,115		52,971,090		54,460,753
EQUITY
Issued share capital		23		2,767,251		2,755,960		2,767,251		2,755,960
Share premium account				37,880,996		37,606,917		37,880,996		37,606,917
Treasury reserve		25		(5,217,580)		(5,217,580)		(5,217,580)		(5,217,580)
Revaluation reserve				523,468		498,728		254,606		229,867
Other reserves		26		5,050,329		4,774,131		5,050,329		4,774,131
Retained earnings				16,829,022		15,938,372		12,235,488		14,311,458
				57,833,486		56,356,528		52,971,090		54,460,753
Minority interests		24		2,458,250		1,891,587		-		-
TOTAL EQUITY				60,291,736		58,248,115		52,971,090		54,460,753

Approved by the Board and authorised for issue on 11 July 2013

Peter Lawrence Director

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 MARCH 2013

				Group		Group		Company		Company
				2013		2012		2013		2012
		Notes		£		£		£		£
Cash flows from operating activities
Profit/(loss) before income tax				3,246,090		2,320,342		(232,332)		732,074
Adjustment for:
Net finance costs/(income)				213,705		(115,504)		(398,422)		(398,154)
Depreciation		12 & 13		190,224		98,219		22,933		21,932
Amortisation of intangible assets		11		2,562,217		3,593,365		-		-
Pension payments		21		(60,000)		(64,000)		(60,000)		(64,000)
Pension operating costs		21		4,000		3,000		4,000		3,000
Share based payments		22		358,260		290,890		358,260		290,890
Profit on disposal of investment				-		(28,210)		-		(58,766)
Operating cash flows before movements in working capital				6,514,496		6,098,102		(305,561)		526,976
Change in inventories				(2,008,620)		386,612		-		-
Change in receivables				(258,559)		(1,396,043)		(1,250,662)		(599,864)
Change in payables				310,874		991,542		(449,880)		497,093
Cash generated from/(used in) operations				4,558,191		6,080,213		(2,006,103)		424,205
Finance costs				(39,184)		(90,356)		(38,995)		(89,831)
Income tax				(185,802)		140,185		-		219,119
Net cash from/(absorbed by) operating activities				4,333,205		6,130,042		(2,045,098)		553,493
Cash flows from investing activities
Disposal of investment				-		308,766		-		308,766
Acquisition of property, plant and equipment		12		(38,642)		(140,457)		(394)		(27,143)
Acquisition of investment property		13		-		(156,550)		-		(156,550)
Purchase of intangibles		11		(4,619,566)		(4,063,647)		-		-
Finance income				56,214		126,931		437,417		483,985
Net cash (used in)/from investing activities				(4,601,994)		(3,924,957)		437,023		609,058
Cash flows from financing activities
Proceeds from issue of share capital				244,927		4,390,913		244,927		4,390,913
Dividends paid				(1,941,544)		(1,614,317)		(1,941,544)		(1,225,736)
Purchase of own shares				-		(5,217,580)		-		(5,217,580)
Net cash (used in) financing activities				(1,696,617)		(2,440,984)		(1,696,617)		(2,052,403)
Net (decrease) in cash and cash equivalents				(1,965,406)		(235,899)		(3,304,692)		(889,852)
Foreign exchange movements				(14,648)		327,290		-		-
Balance at 1 April 2012				9,509,732		9,418,341		5,300,549		6,190,401
Balance at 31 March 2013		18		7,529,678		9,509,732		1,995,857		5,300,549

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 2013

1. General information

Eco Animal Health Group plc (“the company”) and its subsidiaries (together “the group”) manufacture and supply animal health products globally.

The Company is traded on the AIM market of the London Stock Exchange and is incorporated and domiciled in the UK. The address of its registered office is 78 Coombe Road, New Malden, Surrey, KT3 4QS.

2. Summary of significant accounting policies

2.1 Basis of preparation

The group has presented its annual report and accounts in accordance with International Financial reporting Standards (IFRS), as adopted by the European Union, IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS.

The preparation of financial statements, in conformity with IFRS as adopted by the European Union, requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

The principal accounting policies of the group are set out below and have been applied consistently in dealing with items which are considered material in relation to the Group’s financial statements.

2.2 Adoption of new and revised standards

At the date of authorisation of these financial statements, the following standards and interpretations to existing standards are mandatory for the first time for the accounting period ended 31 March 2013.

				Effective from
IFRS 1		"Severe Hyperinflation and Removal of Fixed Dates for First –time Adopters"		1 July 2012
IFRS 7		"Disclosures: Transfers of Financial Assets"		1 July 2012
IAS 1		"Presentation of Items of Other Comprehensive Income"		1 July 2012
IAS 12		"Deferred Tax: Recovery of Underlying Assets"		1 January 2012

2.3 Adoption of new and revised standards (continued)

The adoption of these standards and interpretations has not had a significant impact on the Group. At the date of the authorisation of these financial statements, the following standards and interpretations were in issue but not yet effective.

				Effective from
Annual Improvements		2009 - 2011		1 January 2013
IFRIC 20		“Stripping Costs in the Production Phase of a Surface Mine"		1 January 2013
IFRS 1		“Government Loans”		1 January 2013
IFRS 7		"Disclosures: Offsetting Financial Assets and Financial Liabilities"		1 January 2013
IFRS 9		"Financial Instruments"		1 January 2013
IFRS 10 (issued 2012)		“Consolidated Financial Statements”		1 January 2013
IFRS 11 (issued 2012)		"Joint arrangements"		1 January 2013
IFRS 12 (issued 2012)		"Disclosure of Interests in Other Entities"		1 January 2013
IFRS 13 (issued 2012)		"Fair Value Measurement"		1 January 2013
IAS 19		"Employee Benefits (Revised)"		1 January 2013
IAS 27		“Separate Financial Statements”		1 January 2014
IAS 28		“Investments in Associates and Joint Ventures”		1 January 2014
IAS 32		“Offsetting Financial Assets and Financial Liabilities”		1 January 2014

A review of the impact of these standards, amendments and interpretations continues. At this stage the directors do not believe that they will give rise to any significant financial impact.

The Group did not adopt any new or amended standards early during the year and does not plan to early adopt any of the standards issued but not yet effective.

2.4 Basis of consolidation

The consolidated financial statements comprise the accounts of the Company and its subsidiaries drawn up to 31 March 2013.

An entity is classed as a subsidiary of the Company when as a result of contractual arrangements the Company has the power to govern its financial and operating policies so as to obtain benefits from its activities.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured, as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value the difference is recognised directly in the income statement.

Accounting policies have been changed where material to ensure consistency with the policies adopted by the Group. Although the subsidiaries in Brazil and China have December year ends, the Group uses management accounts to the end of March to prepare the Group accounts. Subsidiaries are wholly consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation.

2.5 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting to the chief operating decision-maker. The chief operating decision-maker who is responsible for allocating resources and assessing performance of the operating segments has been identified as the Board.

2.6 Foreign currency translation

(a) Functional and presentational currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“functional currency”). The consolidated financial statements are presented in Pounds Sterling, which is the Company’s functional and the Group’s presentational currency.

(b) Transactions and balances

Monetary assets and liabilities denominated in foreign currencies are translated into Pounds Sterling at the rates of exchange ruling at the date of the financial statements.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Foreign exchange gains and losses that relate to borrowing and cash and cash equivalents are presented in the income statement within finance income or finance costs.

(c) Group companies

The results and financial position of all Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows;

assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of the balance sheet; income and expenses for each income statement are translated at average exchange rates unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case the income and expenses are translated at the rate on the dates of the transaction; and all resulting exchange differences are recognised as a separate component of equity.

When a foreign operation is partially disposed or sold, exchange differences that were recognised in equity are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing exchange rate.

2.7 Financial instruments

Non-derivative financial assets

The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows from the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group has the following non-derivative financial assets:

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.

Loans and receivables comprise trade and other receivables and cash and cash equivalents.

Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

Non-derivative financial liabilities

All financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

The Group has the following non-derivative financial liabilities: bank overdrafts and trade and other payables.

Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest method.

2.8 Goodwill

Goodwill arising on the acquisition of an entity represents the excess of the costs of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity recognised at the date of acquisition.

Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is not subject to amortisation but is tested for impairment.

Negative goodwill arising on an acquisition is recognised directly in the income statement. On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss recognised in the income statement on disposal. Goodwill arising before the date of transition to IFRS, on 1 April 2004, has been retained at the previous UK GAAP amounts, subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.

2.9 Other intangible assets

Drug registrations, patents and licences

The Group recognises internally generated or externally acquired intangible assets at cost and subsequently recognises them at cost less accumulated amortisation and impairment losses. Intangible assets acquired as part of a business combination are recognised at fair value.

Expenditure on drug registrations and licences is recognised as an internally generated or externally acquired intangible asset only if all the following conditions are met:

an asset is created that can be identified it is probable that the asset created will generate future economic benefits: and the development cost of the asset can be measured reliably.

All drug registrations and licences have previously been amortised on a straight-line basis over their useful economic life of 10 years. However, following the granting of Aivlosin’s first marketing authorisation in the USA in July 2012, which has greatly increased the economic potential of the product, management have revised their estimate of the useful life of the Aivlosin drug registrations only from 10 to 20 years and in accordance with IAS8 have amortised the remaining book value of the Aivlosin registrations over the remainder of the useful life of these registrations from that date. This change in accounting estimate, which was first reported in detail in the interim accounts, has increased reported profit for the year by approximately £1.3 million and has increased the carrying value of the drug registrations at the year end by the same amount. The effect in the year ended 31 March 2014 may be an increase in reported profit and the carrying value of drug registrations of approximately £1.8 million.

Distribution rights

Distribution rights are recognised at cost and amortised on a straight line basis over their estimated useful economic life of 20 years. They are reviewed for impairment when any indication of potential impairment exists.

2.10 Property, plant and equipment and depreciation

Plant and equipment are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows;

Plant and machinery		20% on cost
Fixtures, fittings and equipment		20% on cost
Motor Vehicles		25% on cost

Freehold land and buildings are stated at valuation less depreciation. The property is professionally valued by a qualified surveyor at least once every three years. Surpluses and deficits arising from the periodic valuations are taken to the revaluation reserve in the statement of financial position and are recognised in the statement of comprehensive income for the year. Depreciation is provided at a rate calculated to write off the valuation less estimated residual value over the remaining useful life of the building at a rate of 2 per cent per annum. Land is not depreciated.

2.11 Impairment of non-financial assets

The carrying amounts of the Group’s assets are reviewed at each year end, to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated in order to determine the impairment loss if any. The recoverable amount is the higher of its fair value and its value in use. For intangible assets with an indefinite useful life, an impairment test is performed at each year end.

In assessing value in use, the expected future cash flows from the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognised in the income statement whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.

A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a change in the estimates used to determine the recoverable amount, but not to an amount higher than the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognised in prior years.

2.12 Investment property

Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is measured at cost on initial recognition and subsequently at its cost less any accumulated impairment and depreciation. Depreciation is provided on a straight line basis over the property’s expected useful economic life of 50 years.

2.13 Leasing

The Group leases certain property, plant and equipment.

Assets obtained under finance leases, where the Group has substantially all the risks and rewards of ownership are capitalised as property, plant and equipment and depreciated over the shorter of the lease term and their useful lives. Obligations under such agreements are included in borrowings net of the financial charge allocated to future periods. The financial element of the rental payment is charged to the income statement so as to produce constant periodic rates of charge on the net obligations outstanding in each period.

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease.

2.14 Inventories

Inventories are valued at the lower of cost and net realisable value. Cost is determined using the first-in, first-out method. The cost of finished goods comprises raw materials, direct labour and other direct costs. Net realisable value is the estimated selling price in the ordinary course of business.

2.15 Trade receivables

Trade receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowance for estimated, irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

2.16 Investments

Non-current asset investments are stated at fair value, including transaction costs, less impairment. They are recognised or derecognised on the date when the contract for acquisition or disposal requires the delivery of that investment.

Investments in subsidiaries are stated at cost less impairment in the Parent Company’s statement of financial position.

An impairment is recognised in profit or loss when there is objective evidence that the asset is impaired and is measured on the difference between the investment’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate adjusted for a risk premium. Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised costs would have been had the impairment not been recognised.

Investments classified as available-for-sale are stated at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in net profit or loss for the period. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity, determined using the weighted average cost method, is included in the net profit or loss for the period.

2.17 Interest in joint ventures

A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control; that is, when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control.

The Group reports its interests in jointly controlled entities using proportionate consolidation. The group’s share of the assets, liabilities, income, expenses and cash flows of jointly controlled entities are combined with the equivalent items in the results on a line-by-line basis.

2.18 Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held on call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position.

2.19 Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

2.20 Bank borrowings and loans

Interest-bearing bank loans and overdrafts are recorded as the proceeds received, net of direct issue costs (which equate to fair value). Finance charges including premiums payable on settlement or redemption and direct issue costs are accounted for on an accruals basis in profit or loss using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

2.21 Trade payables

Trade payables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method.

2.22 Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be required to settle the obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation outstanding at the year end and are discounted to present value where the effect is material.

2.23 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the Group’s activities. Revenue is shown net of value added tax, returns, rebates and discounts and after eliminating sales within the Group.

The Group recognises revenue on despatch of the goods (which the directors believe transfers substantially all the risks and rewards of ownership to the buyer). No goods are despatched on a sale or return basis. Distributors trade on their own account and not as agents.

The Group also receives interest, rental income, royalty income and management charges in respect of accounting services supplied to certain ex-subsidiaries. The amounts are small and are recognised on an accruals basis.

2.24 Pensions

Defined Contribution Scheme

The pension costs charged against operating profits represent the amount of the contributions payable to the schemes in respect of the accounting period.

Defined Benefit Scheme

The regular cost of providing retirement pensions and related benefits is charged to the income statement over the employees’ service lives on the basis of a constant percentage of earnings. Any difference between the charge to the income statement and the contributions paid to the scheme are disclosed as an asset or liability in the statement of financial position in accordance with IAS 19. Actuarial gains or losses are taken directly to equity in the statement of comprehensive income.

2.25 Share-based payments

The Group has applied the requirements of IFRS2 Share-based payments. In accordance with the transitional provisions, IFRS2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested at 1 January 2005.

The Group issues equity-settled share-based payments to certain employees in exchange for services from those employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant of such equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions (with a corresponding movement in equity).

The Group’s Employee Benefit Trust (“the Trust”) was set up on 6 October 2012 to administer the Group’s Joint Share Ownership Plan (JSOP). The trust was funded by loans from the Group, with its assets comprising shares in the Company. The Group recognised the assets and liabilities of the Trust in its own accounts and the carrying value of the Company’s shares held by the Trust were recorded as a deduction in total equity until such a time as the shares vest unconditionally to employees.

Fair value, for both options and jointly owned shares is measured by use of the Black-Scholes model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behaviour considerations.

Further details of the inputs to the Black-Scholes model can be found in note 22 to the accounts.

2.26 Taxation

Tax expense for the period comprises current and deferred tax.

Current tax, including UK corporation tax and foreign tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted by the year end. Tax expenses are recognised in the income statement or statement of comprehensive income according to the treatment of the transactions which give rise to them.

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax basis of assets and liabilities and their carrying amount in the financial statements.

Deferred income tax is determined using tax rates (and laws) that have been enacted, or substantially enacted, by the date of the statement of financial position and are expected to apply when the related deferred tax asset is realised or deferred tax liability is settled.

Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.

2.27 Equity

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Amounts arising on the restructuring of equity and reserves to protect creditor interests are credited to the capital redemption reserve.

The Treasury reserve arises when the Company issues equity share capital under its Joint Share Ownership Plan, which is held in trust by ECO Animal Health Group plc Employee Benefit Trust. The interests of this trust are consolidated into the Group’s financial statements and the relevant amount treated as a reduction in equity. The expenses of the trust are included in the consolidated income statement.

2.28 Dividend distribution

Final dividend distributions to the Company’s shareholders are recognised as liabilities in the financial statements in the period in which they are approved by the Company’s shareholders. Interim dividends are recognised when they are paid.

2.29 Critical accounting estimates and judgements

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are:

(a) Estimated impairment value of intangible assets

The Group tests annually whether intangible assets with indefinite life have suffered any impairment. Other intangible assets are reviewed for impairment when an indication of potential impairment exists. Impairment provisions are recorded as applicable based on directors’ estimates of recoverable values. Details of the impairment reviews performed can be found in note 11 of the financial statements.

(b) Income taxes

The Group is subject to income taxes predominantly in the United Kingdom but also in other jurisdictions.

Significant estimates are required in determining the provision for income taxes. There are some transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises assets and liabilities based on estimates of the final agreed position.

Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

(c) Pension scheme

The Group maintains one defined benefit pension scheme which has been accounted for according to the provisions of IAS19. Although the assumptions were determined by a qualified actuary, any change in those assumptions may materially impact the financial position and results of the Group. Details of the assumptions used can be found in note 21 of the financial statements.

(d) Share-based payments

The charge to the Income Statement in respect of share-based payments has been externally calculated using management’s best estimates of the amount of options expected to vest and various other inputs to the Black-Scholes model, as disclosed in note 22. Any variation in those assumptions may have a material impact on the Group’s future results and financial position.

3. Segment information

Management has determined the operating segments based on the reports reviewed by the Board that are used to make strategic decisions. The Board considers the business from a geographical perspective. Geographically, management considers the performance in the UK and Europe, China, Japan and the Indian subcontinent, Latin America and the rest of the world. The segment information provided to the Board for the year ended 31 March 2013 is as follows;

Management considers Earnings before Interest, Tax, Depreciation and Amortisation (“EBITDA”), adjusted for share-based payments.

		U.K.		Europe		China, Japan and the Indian subcontinent		Latin America		North America		Rest of the world		Total
		£		£		£		£		£		£		£
Year ended 31 March 2013
Total segmental revenue		1,202,118		4,323,022		13,738,407		9,403,628		3,276,743		4,427,208		36,371,126
Inter-segment revenue		-		-		(2,854,106)		(2,453,163)		(2,077,903)		-		(7,385,172)
Revenue from external customers		1,202,118		4,323,022		10,884,301		6,950,465		1,198,840		4,427,208		28,985,954
Sale of goods		1,202,118		4,323,022		10,884,301		6,950,465		1,198,840		4,192,591		28,751,337
Royalties		-		-		-		-		-		234,617		234,617
		1,202,118		4,323,022		10,884,301		6,950,465		1,198,840		4,427,208		28,985,954
Adjusted EBITDA		(915,195)		1,004,225		2,959,981		1,771,244		32,650		1,787,591		6,640,496
Total assets		9,355,833		12,118,870		18,700,691		17,243,942		2,448,145		10,171,375		70,038,856
Year ended 31 March 2012
Total segmental revenue		760,235		4,201,343		11,546,943		11,791,871		-		4,644,930		32,945,322
Inter-segment revenue		-		-		(2,421,888)		(2,196,659)		-		(4,598)		(4,623,145)
Revenue from external customers		760,235		4,201,343		9,125,055		9,595,212		-		4,640,332		28,322,177
Sale of goods		760,235		4,201,343		9,125,055		9,595,212		-		4,325,068		28,006,913
Royalties		-		-		-		-		-		315,264		315,264
		760,235		4,201,343		9,125,055		9,595,212		-		4,640,332		28,322,177
Adjusted EBITDA		(846,287)		1,103,737		1,934,133		2,636,392		-		1,359,337		6,187,312
Total assets		15,285,976		9,464,789		20,078,286		16,556,570		-		8,638,332		70,023,953

Goodwill and other intangible assets are initially allocated to the geographical segments on the basis of the proportion of sales achieved by each segment.

A reconciliation of adjusted EBITDA to profit before tax is provided as follows:

		2013		2012
		£		£
Adjusted EBITDA for reportable segments		6,640,496		6,187,312
Depreciation		(190,224)		(98,219)
Amortisation		(2,562,217)		(3,593,365)
Share-based payment charges		(358,260)		(290,890)
Finance (expense)/income		(213,705)		115,504
Profit before tax on continuing activities		3,316,090		2,320,342

4. Other income

The previous year’s figures included an amount of £550,000 received in compensation for a claim against a former adviser relating to tax losses not claimed within the statutory time limit.

5. Result from operating activities

		2013		2012
		£		£
Result from operating activities is stated after charging:
Cost of inventories recognised as an expense		15,795,333		17,504,226
Employee benefits expenses		3,432,339		2,967,640
Amortisation of intangible assets		2,562,217		3,593,365
Depreciation		190,224		98,219
Loss on foreign exchange transactions		29,507		332,411
Research and development		7,131		37,561
Operating lease rentals		297,569		178,625
Fees payable to the Company's auditor for the audit of the parent Company and Group annual accounts		19,000		18,000
For the audit of the Company's subsidiaries		28,500		27,000
Fees payable to other auditors for audit of the Company's subsidiaries pursuant to legislation		4,635		-
		2013		2012
		£		£
Earnings due to shareholders before interest, tax, depreciation, amortisation, share-based payments, foreign exchange differences and losses on disposal of discontinued activities
Profit from operating activities		3,529,795		2,204,838
Depreciation		190,224		98,219
Amortisation		2,562,217		3,593,365
Share-based payments		358,260		290,890
		6,640,496		6,187,312
Foreign exchange differences		29,507		332,411
		6,670,003		6,519,723

6. Finance (cost)/income

		2013		2012
		£		£
Finance costs
Interest paid		(39,184)		(90,356)
Foreign exchange differences on bank loans and overdrafts		(230,735)		74,929
Finance income
On short term bank deposits		56,214		130,931
Net finance (expense)/income		(213,705)		115,504

7. Earnings per share

The calculation of basic earnings per share is based on the post tax profit for the year divided by the weighted average number of shares in issue during the year.

		2013						2012
		Earnings		Weighted average number of shares		Per share amount		Earnings		Weighted average number of shares		Per share amount
		£'000		000		(pence)		£'000		000		(pence)
Earnings attributable to ordinary shareholders on continuing operations after tax		2,687		52,599		5.11		2,218		52,333		4.24
Dilutive effect of share options		-		789		(0.08)		-		553		(0.05)
Fully diluted earnings per share on continuing operations		2,687		53,388		5.03		2,218		52,886		4.19
Loss on discontinued activities		(70)		-		(0.13)		-		-		-
Fully diluted earnings per share		2,617		53,388		4.90		2,218		52,886		4.19

Diluted earnings per share takes into account the dilutive effect of share options. For the purposes of calculating earnings per share, shares held by the Employee Benefit Trust as part of the Joint Share Ownership Plan are excluded from the calculation of the weighted average number of shares. The weighted average number of shares held by the Trust during the year was 2,603,290 (2012:1,233,950).

8. Taxation

		2013		2012
		£		£
Current tax year
Foreign corporation tax on profits for the year		294,395		189,527
Adjustment for prior years		-		(9,411)
Current tax		294,395		180,116
Deferred tax
Origination and reversal of temporary differences		(101,908)		(486,700)
Income tax charge/(credit)		192,487		(306,584)
Factors affecting the tax charge for the year
Profit on ordinary activities before taxation		3,316,090		2,320,342
		2013		2012
		£		£
Profit on ordinary activities before taxation multiplied by the applicable rate of UK corporation tax of 24% (2012: 26%)		795,862		603,289
Effects of:
Non deductible expenses		170,266		148,535
Non chargeable credits		(79,599)		(453,659)
Enhanced allowance on research and development expenditure		(894,569)		(742,797)
Different tax rate for foreign subsidiaries		(34,725)		(116,428)
Unused tax losses carried forward		229,226		263,899
Other tax adjustments		6,026		(9,423)
Income tax charge		192,487		(306,584)
		2013		2012
		%		%
Applicable tax rate per UK legislation		24.00		26.00
Effects of:
Non deductible expenses		5.13		6.40
Non chargeable credits		(2.40)		(19.55)
Enhanced allowance on research and development expenditure		(26.97)		(32.01)
Different tax rate for foreign subsidiaries		(1.05)		(5.02)
Unused tax losses carried forward		6.91		11.37
Other tax adjustments		0.18		(0.40)
Effective tax rate		5.80		(13.21)

8. Taxation (continued)

The UK corporation tax rate reduced from 26% to 24% with effect from 1 April 2012. Deferred tax balances at the year end have been measured at 24%. Further proposed reductions in the UK corporation tax rate to 21% from 1 April 2014 and 20% from 1 April 2015 have not been recognised in these financial statements and are not expected to have a material impact on the tax position of the Group.

9. Profit for the financial year

		2013		2012
		£		£
Parent Company's (loss)/profit for the financial year		(232,332)		739,303

10. Dividends

		2013		2012
		£		£
Dividend for the period ended 31 March 2011 of 3p per ordinary share		-		1,567,595
Dividend for the period ended 31 March 2012 of 3.75p per ordinary share		2,066,984		-
Dividend waived by Employee Benefit Trust		(84,284)		-
		1,982,700		1,567,595

The Board is declaring a dividend of 4.00 pence per share in respect of the year ended 31 March 2013. A scrip dividend alternative will be offered.

11. Intangible fixed assets

Group		Goodwill		Distribution rights		Drug registrations, patents and licence costs		Total
Cost		£		£		£		£
At 1 April 2011		17,930,495		1,034,860		35,460,448		54,425,803
Additions		-		-		4,063,647		4,063,647
At 1 April 2012		17,930,495		1,034,860		39,524,095		58,489,450
Additions		-		231,256		4,388,310		4,619,566
At 31 March 2013		17,930,495		1,266,116		43,912,405		63,109,016
Amortisation
At 1 April 2011		-		371,044		15,417,943		15,788,987
Charge for the year		-		51,743		3,541,622		3,593,365
Foreign exchange movements		-		-		(2,049)		(2,049)
At 1 April 2012		-		422,787		18,957,516		19,380,303
Charge for the year		-		58,050		2,504,167		2,562,217
Foreign exchange movements		-		-		(2,861)		(2,861)
At 31 March 2013		-		480,837		21,458,822		21,939,659
Net Book Value
At 31 March 2013		17,930,495		785,279		22,453,583		41,169,357
At 31 March 2012		17,930,495		612,073		20,566,579		39,109,147
At 1 April 2011		17,930,495		663,816		20,042,505		38,636,816

The amortisation charge is included within administrative expenses on the income statement.

Distribution rights are amortised over their estimated useful life of 20 years and reviewed for impairment when any indication of potential impairment exists. The remaining amortisation period at the date of the financial statements ranged from 10 to 19 years.

The carrying value of goodwill is attributable to the following cash generating units:

Entity		Date of acquisition		£
Eco Animal Health Limited (remaining 50%)		1 October 2004		17,358,621
Zhejiang Eco Biok Animal Health Products Limited		1 April 2007		94,257
ECOpharma Inc. (remaining 80%)		24 December 2009		477,617
				17,930,495
				===================

Goodwill acquired in a business combination is allocated at acquisition to the cash generating units (CGU’s) that are expected to benefit from the business combination.

The recoverable amounts of the CGU’s are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding discount rates, growth rates and the estimated remaining useful life of the asset which is maintained at 30 years through ongoing investment in the cash generating unit.

The Group prepares cash flow forecasts derived from the most recent financial budgets and projections that are approved by management for the year ahead and then extrapolates them assuming a 3% annual growth rate which is well below the current performance of the existing business. The directors believe that the long term growth rate assumed does not exceed the average long term growth rate for the relevant markets.

Management estimates discount rates using the pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU’s. In the current year management estimated the applicable rate to be 11%. Despite general economic conditions, management considers that there is adequate headroom when comparing the net present value of the cash flows to the carrying value of goodwill to conclude that no impairment is necessary this year. On current assumptions the excess of recoverable amount over carrying value is over £31 million.

Management believes that the most significant assumption in the calculation of value in use is the estimated growth rate. However, even if the growth rate were to be zero, the recoverable amount would still be over £16 million more than the carrying value and no impairment would be necessary. This assumes an earnings multiple of 10 on the current budgeted results in estimating fair value which has been derived from historical data.

Drug registrations and licences are amortised over their estimated useful lives of 10 to 20 years, which is the directors’ estimate of the time it would take to develop a new product allowing for the Group’s patent protection and the exclusivity period which comes with certain registrations. Given the economic climate the directors have conducted an impairment review in the current year by preparing cash flow projections for the year ahead and extrapolating the results for the remaining life of the registrations assuming zero growth and an 11% discount rate to establish value in use. On the current assumptions the excess of the recoverable amount over carrying value is more than £16 million. The calculations have also shown that on current budget figures a 5 year life is more than enough to justify the current carrying value of these registrations. Moreover, fair value calculated as 10 times the current cash generated by the registrations gives an even higher result, so management has again concluded that no impairment is necessary.

12. Property, plant and equipment

Group		Land and Buildings (freehold)		Plant and machinery		Fixtures, fittings and equipment		Motor Vehicles		Total
Cost or valuation		£		£		£		£		£
At 1 April 2011		650,000		1,136,000		550,886		42,211		2,379,097
Additions		-		6,117		74,749		59,591		140,457
Foreign exchange movements		-		43,660		-		-		43,660
At 1 April 2012		650,000		1,185,777		625,635		101,802		2,563,214
Additions		-		15,701		22,941		-		38,642
Foreign exchange movements		-		64,852		-		-		64,852
At 31 March 2013		650,000		1,266,330		648,576		101,802		2,666,708
Depreciation
At 1 April 2011		9,400		591,660		490,408		10,043		1,101,511
Charge for the year		9,400		33,433		37,597		16,012		96,442
Foreign exchange movements		-		97,190		8		-		97,198
At 1 April 2012		18,800		722,283		528,013		26,055		1,295,151
Charge for the year		9,400		118,563		33,121		26,009		187,093
Foreign exchange movements		-		41,376		(4,562)		(363)		36,451
Write back on revaluation		(28,200)		-		-		-		(28,200)
At 31 March 2013		-		882,222		556,572		51,701		1,490,495
Net Book Value
At 31 March 2013		650,000		384,108		92,004		50,101		1,176,213
At 31 March 2012		631,200		463,494		97,622		75,747		1,268,063
At 1 April 2011		640,600		544,340		60,478		32,168		1,277,586

The freehold property at 78 Coombe Road, New Malden was valued on 10 May 2013 by Mr R Sworn of Kelion Sworn Chartered Surveyors and Valuers, London, W1. The fair value in use of the freehold property was determined at £650,000 by means of applying a 7.75% discount rate to the annual rental value of the property as determined by local market conditions. The property will continue to be valued on a regular basis.

The value of non depreciable land included within Land and Buildings is £180,000.

The freehold property of 78 Coombe Road, New Malden is subject to a legal charge held by the company’s bankers dated 20 March 1987.

The value of the freehold property would have been recorded at £317,437 (2012: £328.743) on a historical cost basis giving rise to the current revaluation surplus of £254,606.This balance is not distributable to shareholders.

Depreciation has been included in the administrative expenses line on the income statement, except for £87,600 of depreciation of production equipment in our Chinese subsidiary ECO Biok, which is included within cost of sales.

Company		Land and Buildings (freehold)		Fixtures, fittings and equipment		Motor Vehicles		Total
Cost or valuation		£		£		£		£
At 1 April 2011		650,000		143,517		-		793,517
Additions		-		677		26,466		27,143
At 31 March 2012		650,000		144,194		26,466		820,660
Additions		-		394		-		394
At 31 March 2013		650,000		144,588		26,466		821,054
Depreciation
At 1 April 2011		9,400		128,506		-		137,906
Charge for the year		9,400		9,084		1,671		20,155
At 1 April 2012		18,800		137,590		1,671		158,061
Charge for the year		9,400		3,790		6,612		19,802
Revaluation adjustment		(28,200)		-		-		(28,200)
At 31 March 2013		-		141,380		8,283		149,663
Net Book Value
At 31 March 2013		650,000		3,208		18,183		671,391
At 31 March 2012		631,200		6,604		24,795		662,599
At 1 April 2011		640,600		15,011		-		655,611

The freehold property at 78 Coombe Road, New Malden was valued on 10 May 2013 by Mr R Sworn of Kelion Sworn Chartered Surveyors and Valuers, London, W1. The fair value in use of the freehold property was determined at £650,000 by means of applying a 7.75% discount rate to the annual rental value of the property as determined by local market conditions. The property will continue to be valued on a regular basis.

The value of non depreciable land included within Land and Buildings is £180,000.

The freehold property at 78 Coombe Road, New Malden, is subject to a legal charge held by the company’s bankers dated 20 March 1987.

The value of the freehold property would have been recorded at £317,437 (2012: £328,743) on a historical cost basis giving rise to the current revaluation surplus of £254,606.This balance is not distributable to shareholders.

Depreciation has been included in the administrative expenses line on the income statement.

13. Investment property

Group and Company		Land and Buildings (freehold)		Total
		£		£
Cost
Additions in the year ended 31 March 2012		156,550		156,550
At 31 March 2012 and 2013		156,550		156,550
Depreciation
Charge for the year		1,777		1,777
At 31 March 2012		1,777		1,777
Charge for the year		3,131		3,131
At 31 March 2013		4,908		4,908
Net Book Value
At 31 March 2013		151,642		151,642
At 31 March 2012		154,773		154,773

Depreciation has been included in the administrative expenses line on the income statement.

14. Fixed asset investment

Group
		Available for sale quoted assets at fair value		Unlisted investments		Total
Cost or fair value		£		£		£
At 1 April 2011		311,594		39,294		350,888
Revaluation in the year		(2,828)		(30,556)		(33,384)
Disposals		(308,766)		-		(308,766)
At 31 March 2012 and 31 March 2013		-		8,738		8,738
Net Book Value
At 31 March 2013		-		8,738		8,738
At 31 March 2012		-		8,738		8,738
At 1 April 2011		311,594		39,294		350,888

Company
		Available for sale quoted assets at fair value		Investments in subsidiary undertakings at cost		Total
Cost or fair value		£		£		£
At 1 April 2011		311,594		21,273,502		21,585,096
Revaluation in the year		(2,828)		-		(2,828)
Disposals		(308,766)		-		(308,766)
At 31 March 2012 and 31 March 2013		-		21,273,502		21,273,502
Impairment
At 1 April 2011, 2012 and 2013		-		1,191,262		1,191,262
Net Book Value
At 31 March 2013		-		20,082,240		20,082,240
At 31 March 2012		-		20,082,240		20,082,240
At 1 April 2011		311,594		20,082,240		20,393,834

The Company holds more than 20% of the share capital of the following companies:

Company		Country of registration or incorporation		Class		Shares held %
Subsidiary undertakings held by Company
Zhejiang ECO Biok Animal Health Products Limited		P. R. China		Ordinary		3
Shanghai ECO Biok Veterinary Drug Sale Company Ltd. (via Zhejiang ECO Biok Animal Products Ltd.)		P. R. China		Ordinary		3
Petlove Limited		Great Britain		Ordinary		91
Eco Animal Health Limited		Great Britain		Ordinary		100
Subsidiary undertakings held by Group
ECO Animal Health Southern Africa (Pty) Limited		South Africa		Ordinary		100
Zhejiang ECO Biok Animal Health Products Limited		P. R. China		Ordinary		48
Shanghai ECO Biok Veterinary Drug Sale Company Ltd. (via Zhejiang ECO Biok Animal Products Ltd.)		P. R. China		Ordinary		48
ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda.		Brazil		Ordinary		100
ECOpharma Inc.		Japan		Ordinary		100
ECO Animal Health USA Corp.		U.S.A.		Ordinary		100
Interpet LLC		U.S.A.		Ordinary		100
ECO Animal Health de Mexico		Mexico		Ordinary		100
ECO Argentina S.A.		Argentina		Ordinary		100

The principal activity of these undertakings for the last relevant financial year was as follows:

		Principal activity
ECO Animal Health Limited		Distribution of animal drugs
ECO Animal Health Southern Africa (Pty) Limited		Non-trading
Petlove Limited		Non-trading
Zhejiang ECO Biok Animal Health Products Limited		Manufacture of animal drugs
Shanghai ECO Biok Veterinary Drug Sale Company Ltd.		Distribution of animal drugs
ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda		Distribution of animal drugs
ECOpharma Inc.		Distribution of animal drugs
ECO Animal Health USA Corp.		Distribution of animal drugs
Interpet LLC		Non-trading
ECO Animal Health de Mexico		Distribution of animal drugs
ECO Argentina S.A.		Non-trading

The aggregate amount of capital and reserves and the results of these undertakings for the last relevant financial year were:

		Equity		Profit/loss for the year		Equity		Profit/loss for the year
		2013		2013		2012		2012
		£		£		£		£
ECO Animal Health Limited		5,848,715		2,503,244		3,345,471		2,068,100
Zhejiang ECO Biok Animal Health Products Ltd		5,011,779		891,248		3,855,323		835,305
ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda		1,290,474		(172,581)		(129,901)		(197,683)
ECOpharma Inc		7,558,807		151,070		671,451		(98,253)
ECO Animal Health de Mexico		(19,078)		(12,084)		9,233		9,093
ECO Animal Health USA Corp.		(475)		-		-		-

The equity and results of Shanghai ECO Biok Veterinary Drug Sale Company Ltd are included within those disclosed for Zhejiang ECO Biok Animal Health Products Limited.

All of the subsidiaries listed above were included in the consolidation for the year.

Zhejiang ECO Animal Health Products Limited and ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda both have 31 December year ends. The Group receives management accounts for the three months to 31 March for these subsidiaries for use in preparing the consolidated financial statements.

ECO Argentina S.A. which holds neither assets nor liabilities and which has not traded since its formation has been excluded from consolidation. Interpet LLC has also been excluded from consolidation as it holds no assets or liabilities and has ceased trading.

The following trading subsidiaries have no requirement for audit under local legislation;

ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda.

ECOpharma Inc.

ECO Animal Health USA Corp.

ECO Animal Health de Mexico.

The Group also holds (by means of its ownership of ECO Animal Health USA Corp.), a 50% joint venture interest in Pharmgate Animal Health LLC, which is resident in U.S.A. Pharmgate Animal Health LLC distributes the group’s products in the U.S.A.

The Group also holds a 50% joint venture interest in Pharmgate Animal Health Canada Inc, which distributes its products into Canada.

Both Pharmgate Animal Health LLC and Pharmgate Animal Health Canada Inc. have accounting years which end on 31 December.

The group’s holdings in each of the joint venture companies share capital is given in the table below:

Pharmgate Animal Health Canada Inc		Holding (shares)		Shares in Issue		Holding %
Common shares		100		200		50
Class A shares		100		100		100
Class B shares		-		100		-
Pharmgate Animal Health USA LLC		Holding (shares)		Shares in Issue		Holding %
Common shares		100		200		50
Class A shares		100		100		100
Class B shares		-		100		-

In each case class A shares carry the rights to dividends payable out of profits attributable to the group. These are made up of profits made by products supplied by the ECO group plus 50% of any profit relating to new products developed jointly by the partners to the joint venture.

The following amounts included in the group’s financial statements are related to its interest in these joint ventures.

15. Inventories

		Group				Company
		2013		2012		2013		2012
		£		£		£		£
Raw materials and consumables		3,225,988		2,279,354		-		-
Finished goods and goods for resale		3,199,949		2,137,963		-		-
		6,425,937		4,417,317		-		-

The cost of inventories recognised as an expense and included in cost of sales in the period amounted to £15,795,393 (2012: £17,504,226).

16. Trade and other receivables

		Group				Company
		2013		2012		2013		2012
		£		£		£		£
Trade receivables		10,665,453		9,616,990		-		-
Amounts owed by group undertakings		-		-		30,098,438		28,418,185
Amounts owed by joint ventures		112,664		-		-		-
Other receivables		279,695		768,301		205,661		226,630
Prepayments and accrued income		190,704		370,099		44,564		268,168
		11,248,516		10,755,390		30,348,663		28,912,983
Non current		-		100,225		30,098,438		28,373,610
Current		11,248,516		10,655,165		250,225		539,373
		11,248,516		10,755,390		30,348,663		28,912,983

As at 31 March 2013, trade receivables of £1,881,527 (2012: £2,102,528) due to the Group and £nil (2012: £nil) due to the Company were past due but not impaired. These relate to long standing distributors with whom we have agreed settlement terms and with whom there is no history of default. The ageing analysis of these trade receivables is as follows:

		Group				Company
		2013		2012		2013		2012
		£		£		£		£
Up to 3 months past due		1,575,637		1,731,377		-		-
3 to 6 months past due		220,108		286,649		-		-
Over 6 months past due		85,782		84,502		-		-
		1,881,527		2,102,528		-		-

As at 31 March 2013, trade receivables of £60,269 were impaired and provided for. The impaired receivables mainly relate to historic debt for which recovery is still being sought. The Group mitigates its exposure to credit risk by extensive use of commercial credit reference agencies, close management of its customers’ trading against terms offered and use of retention of title clauses wherever possible. The ageing analysis of the impaired balances is as follows:

		Group				Company
		2013		2012		2013		2012
		£		£		£		£
Up to 3 months past due		6,102		-		-		-
3 to 6 months past due		-		-		-		-
Over 6 months past due		54,167		32,379		-		-
		60,269		32,379		-		-

Movement on the Group provision for impairment of trade receivables is as follows:

		Group
		2013		2012
		£		£
Balance at 1 April		32,379		124,348
Provided/(recovered)in the year		27,890		(75,605)
Written off in the year		-		(16,364)
Balance at 31 March		60,269		32,379

The carrying amounts of trade and other receivables are denominated in the following currencies:

		Group				Company
		2013		2012		2013		2012
		£		£		£		£
Pounds Sterling		851,016		776,993		30,317,630		28,780,350
Euros		2,459,140		2,857,514		-		-
U S Dollars		4,496,919		5,513,412		31,033		132,633
Chinese RMB		684,529		411,957		-		-
Brazilian Real		915,847		357,576		-		-
Japanese Yen		625,170		492,684		-		-
Other currencies		1,215,895		345,254		-		-
		11,248,516		10,755,390		30,348,663		28,912,983

The carrying amounts of trade and other receivables are not significantly different to their fair values.

17. Deferred tax

Group

Deferred tax assets and liabilities are attributable to the following:

		Liabilities				Net
		2013		2012		2013		2012
		£		£		£		£
Drug registration expenditure		(2,193,897)		(2,139,050)		(2,193,897)		(2,139,050)
Freehold property		(76,051)		(72,590)		(76,051)		(72,590)
Plant and equipment		(8,682)		(12,094)		(8,682)		(12,094)
Tax losses carried forward		2,047,014		1,893,355		2,047,014		1,893,355
Amount (payable) after more than one year		(231,616)		(330,379)		(231,616)		(330,379)

The movement on the deferred tax account can be summarised as follows:

		Drug registration expenditure		Freehold property		Property, plant and equipment		Total
		£		£		£		£
At 31 March 2012		(245,695)		(72,590)		(12,094)		(330,379)
Credit/(charge) for the year through income statement		90,130		-		12,094		102,224
Movement through the year through revaluation reserve		-		(3,461)		-		(3,461)
At 31 March 2013		(155,565)		(76,051)		-		(231,616)

The tax losses carried forward are not expected to expire under current legislation.

Any future dividend received from the Chinese subsidiary Zhejiang ECO Biok Animal Health Products Limited will be subject to a 10 per cent withholding tax. The deferred tax liability in respect of this has not been recognised.

Company
		Freehold property		Total
		£		£
At 31 March 2012		(72,590)		(72,590)
Movement through the year through revaluation reserve		(3,461)		(3,461)
At 31 March 2013		(76,051)		(76,051)

No charge or credit (2012: credit of £1,732) was recognised in the Company’s income statement for the year. A charge of £3,461 (2012: credit of £14,782) was recognised in the Company’s Revaluation Reserve.

18. Cash and cash equivalents

Cash and cash equivalents comprise cash and short term deposits held by the Group. The carrying amount of these assets are not significantly different to their fair value.

		Note		Group				Company
				2013		2012		2013		2012
				£		£		£		£
Cash and cash equivalents				9,664,443		14,002,422		4,130,622		9,793,239
Overdrafts		20		(2,134,765)		(4,492,690)		(2,134,765)		(4,492,690)
Net funds per cash flow				7,529,678		9,509,732		1,995,857		5,300,549

19. Trade and other payables

		Group				Company
		2013		2012		2013		2012
		£		£		£		£
Trade payables		6,099,247		5,410,817		57,953		124,057
Amounts due to joint venture		34,966		-		-		-
Other payables		424,791		887,400		187,850		565,651
Accruals and deferred income		356,979		407,774		32,529		44,458
		6,915,983		6,705,991		278,332		734,166

20. Borrowings

Included within payables on the statement of financial position are the following amounts at fair value secured by a debenture on the assets of the group:

		Group				Company
		2013		2012		2013		2012
		£		£		£		£
Short term borrowings		2,134,765		4,492,690		2,134,765		4,492,690

Currency analysis of short term borrowings

				Group				Company
				2013		2012		2013		2012
				£		£		£		£
U S Dollars				835,527		4,072,226		835,527		4,072,226
Euros				1,299,238		420,464		1,299,238		420,464
				2,134,765		4,492,690		2,134,765		4,492,690

The Group has arranged a net overdraft facility of £1,000,000 which is subject to renewal in June 2014. It also has the facility to overdraw in specific currencies within the net facility. The interest rate for all currency overdrafts is 2.75 per cent over the relevant currency base rate and the borrowings are secured by two debentures held over all assets of the company dated 28 January 1995 and 28 November 2006.

21. Pension and other post-retirement benefit commitments

Defined Contribution pension Scheme

The Group operates defined contribution pension schemes for the benefit of certain directors and senior employees. The assets of the schemes are held separately from the Group and independently administered by insurance companies. The pension cost charge represents contributions payable to the funds in the year and amounted to £340,268 (2012: £316,853).

Defined Benefit Pension Scheme

The Group operates a defined benefit scheme in the UK for ex-employees only. A full actuarial valuation was carried out at 6 April 2009 and updated 31 March 2013 by a qualified independent actuary. The major assumptions used by the actuary were:

		31 March		1 April
		2013		2012
Discount rate		4.1%		4.6%
Rate of increase in pension payment		2.1%		2.9%
Inflation assumption with a maximum of 5% p.a.		2.8%		2.9%
Expected rate of return on assets		2.2%		4.7%

Mortality rates

Pre retirement mortality is based on the mortality table known as AMCOO for males and AFCOO for females and 70% of the mortality indicated by this table has been taken, as in the previous year.

Post retirement mortality is based on the mortality table known as PCMAOO for males and PCFAOO for females. Allowance has been made for the improvement in mortality experienced recently and expected in the future by using 100% of the “Medium Cohort” improvement table, subject to a minimum improvement rate of 1% for males and 0.7% for females. The previous years’ figures were based on the same mortality tables but allowance was made for improvement in mortality experienced and expected by using 100%for males and 70% for females of the “Medium Cohort” improvement table, subject to a minimum improvement rate of 1.4% for males and 1.1% for females. To allow for the expected additional cost of purchasing annuities on retirement, 60% of the mortality indicated by these projections was taken.

Under these mortality assumptions, the expected future lifetime for a member retiring at age 65 at the year end would be 22.6 years for males (2012: 25.2 years) and 24.5 years for females (2012: 29.1 years). For members retiring in 20 years time, the expectation of life would be 24.5 years for males (2012: 28.1 years) and 25.9 years for females (2012: 31.3 years). However, it should be noted that there are only 11 deferred members in the scheme and over 50 per cent of the scheme’s liabilities relate to a single member who is due to retire in 2016.

The weighted average duration of the scheme’s obligations at 31 March 2013 was 22.0 years (2012: 22.1 years).

Results		2013				2012
		£		£		£		£
Assets at start of year		2,959,000				2,684,000
Defined benefit obligation at start of year		(2,957,000)				(2,596,000)
Net asset at 1 April				2,000				88,000
Current service cost, including risk benefits		(4,000)				(3,000)
Past service credit		20,000				-
				16,000				(3,000)
Expected return on assets		132,000				150,000
Interest cost		(131,000)				(139,000)
				1,000				11,000
Gain/(loss) on asset return		34,000				(26,000)
Experience (loss)		(31,000)				(5,000)
Gain/(loss) on changes in assumptions		54,000				(120,000)
Statement of other comprehensive income				57,000				(151,000)
Employer contributions gross		60,000				64,000
Expenses paid by trustees		(7,000)				(7,000)
				53,000				57,000
Net asset at 31 March 2013				129,000				2,000
Actual assets at end of year				2,760,000				2,959,000
Actual defined benefit obligation at end of year				2,631,000				2,957,000

The pension fund assets are all held within a policy managed by an insurance company.

Reconciliation of changes in the asset value during the year

		2013				2012
		£		£		£		£
Fair value of assets at 1 April		2,959,000				2,684,000
Expected return on assets		132,000				150,000
Gain/(loss) on asset return		34,000				(26,000)
Employer contributions (gross)		60,000				64,000
Death in service insurance premiums paid		(4,000)				(3,000)
Expenses paid by trustees		(7,000)				(7,000)
(Decrease)/increase in secured pensioners value due to scheme experience		(413,000)				97,000
Benefits paid		(1,000)				-
Fair value of assets at 31 March 2013				2,760,000				2,959,000
Reconciliation of changes in the liability value during the year
Defined benefit obligation at 1 April		2,957,000				2,596,000
Interest cost		131,000				139,000
Past service credit		(20,000)				-
Experience loss on liabilities		31,000				5,000
(Gain)/loss on changes in assumptions		(54,000)				120,000
(Decrease)/increase in secured pensioners value due to scheme experience		(413,000)				97,000
Benefits paid		(1,000)				-
Defined benefit obligation at 31 March 2013				2,631,000				2,957,000

The expected contribution to be paid by the employer during the next accounting year is £59,000. This includes a provision of £4,000 for death in service risk premium, (2012: £3,000).

Year ended 31 March		2013		2012		2011		2010		2009
Present value of defined benefit obligation		2,760,000		2,959,000		2,596,000		2,575,000		2,227,000
Fair value of plan assets		2,631,000		2,957,000		2,684,000		2,592,000		2,224,000
Surplus/(deficit) in plan		129,000		2,000		88,000		17,000		(3,000)
Experience (loss)/gains on plan liabilities		31,000		(5,000)		1,000		9,000		3,000

22. Share-based payments

The measurement requirements of IFRS2 have been implemented in respect of share options that were granted after 7 November 2002. The expense recognised for share based payments made during the year is shown in the following table:

		2013		2012
		£		£
Total expense arising from equity settled share-based transactions		358,260		290,890

The share based payment plans are described below:

Movements in issued share options and jointly owned shares during the year

The following table illustrates the number and weighted average exercise prices (WAEP) of and movements in, share options and jointly owned shares during the period:

		Options				Jointly owned shares				Options				Jointly owned shares
		2013		2013		2013		2013		2012		2012		2012		2012
				WAEP				WAEP				WAEP				WAEP
				£				£				£				£
Outstanding at 1 April		3,257,850		1.39		2,603,290		2.00		4,007,390		1.23		-		-
Granted during the period		410,000		2.23		-		-		456,500		1.87		2,603,290		2.00
Expired/cancelled during the period		(10,000)		3.40		-		-		-		-		-		-
Exercised during the period		(209,240)		1.17		-		-		(1,206,040)		1.03		-		-
Outstanding at 31 March		3,448,610		1.50		2,603,290		2.00		3,257,850		1.39		2,603,290		2.00
Exercisable at 31 March		1,612,110		1.24		315,000		2.00		1,129,350		1.11		-		-

The maximum aggregate number of shares over which options may currently be granted cannot exceed 10 per cent of the nominal share capital of the Company on the grant date. The options outstanding at 31 March 2013 had a weighted average share price of £1.50 and a weighted average contractual life of 4.4 years.

Eco Animal Health Group plc Executive Share Option Scheme

In accordance with the Executive Share Option Scheme, approved and unapproved share options are granted to full time directors and employees who devote at least 25 hours per week to the performance of duties or employment with the Company.

Details of options granted to directors can be found in the Directors Report and notes 29 (Directors Emoluments) and 31 (Related Party Transactions).

The exercise price of the options is equal to the market price of the shares at the date of grant. The options vest three years from the date of grant and if the option holder ceases to be a director or employee of the Company due to injury, disability, redundancy or retirement on reaching pensionable age or any other age at which they are bound to retire at in accordance with the terms of their contract of employment, the option may be exercised within a period of six months after the option holders so ceasing, although the Board may, at its discretion, extend this period by up to 36 months after the date of cessation.

If the option holder ceases employment for any other reason, the option may not be exercised unless the Board permits. The approved and unapproved options will be forfeited where they remain unexercised at the end of their respective contractual lives of ten and seven years.

An analysis of the expiry dates of the outstanding options is given below:

Date of grant		Unapproved		Approved		Exercise price (pence)		Expiry date
20 February 2006				11,880		252.50		20 February 2016
10 August 2006				12,600		238.00		10 August 2016
03 March 2008				311,660		108.50		03 March 2018
03 March 2008		443,970				108.50		03 March 2015
18 September 2008				35,000		85.00		18 September 2018
18 September 2008		115,000				85.00		18 September 2015
30 April 2009				45,550		147.00		30 April 2019
30 April 2009		481,450				147.00		30 April 2016
06 August 2009				22,000		135.00		06 August 2019
06 August 2009		103,000				135.00		06 August 2016
24 December 2009				19,350		155.00		24 December 2019
24 December 2009		10,650				155.00		24 December 2016
12 April 2010		375,000				150.00		12 April 2017
20 May 2010				115,100		140.00		20 May 2020
20 May 2010		389,900				140.00		20 May 2017
13 September 2010		90,000				161.00		13 September 2017
11 October 2012				154,100		186.50		11 October 2021
11 October 2012		302,400				186.50		11 October 2018
9 July 2012		400,000				222.50		9 July 2018
30 July 2012		10,000				254.00		30 July 2018
		2,721,370		727,240

ECO Animal Health Group plc Joint Share Ownership Plan

In accordance with the groups Joint Share Ownership Plan (JSOP), jointly owned shares may be awarded to directors and employees of the company.

The shares are awarded at the market price on the day of the award and are held jointly by the employee concerned and the ECO Animal Health Group plc Employee Benefit Trust. After a three year vesting period, the shares may be sold at the option of the employee. The proceeds of sale are split between the trust and the employee so that the Trust receives the original market value of the shares sold plus a 5.9% per annum carry charge, with the employee receiving any excess over this amount.

Because these are actual issued shares in the company rather than options there is no expiry date associated with jointly owned shares. However, they will normally be forfeit if the employee ceases to be an employee of the company for any reason other than death, injury, redundancy, retirement on or after normal retirement age or disposal by the Group of the employing business entity.

The market price of the shares at 31 March 2013 was 264.0p with a range in the year of 198.5p to 270.0p.

Inputs to the Valuation Model (for options and jointly owned shares)

The fair value of share options granted prior to 31 March 2007 were estimated at the time of grant using trinomial pricing model, taking into account all the terms and conditions upon which the options were granted. For options issued after 1 April 2007, the directors took the decision that a Black-Scholes model would be more appropriate.

The following table lists the inputs to the Black-Scholes model which applies to both options and jointly owned shares.

		2013		2012		2011		2010		2009
Vesting period (years)		3		3		3		3		3
Option expiry (years)		7-10 yrs		7-10 yrs		7-10 yrs		7-10 yrs		7-10 yrs
Dividends expected on the shares		1.40%		1.00%		4.50%		5.00%		4.50%
Risk free rate		0.50%		2.00%		2.00%		2.40%		4.19%
Volatility of share price		25%		27%		45%		40%		30%
Weighted average fair value of options		38.7p		41.0p		37.8p		32.6p		16.8p

The risk free rate has been based on the yield from UK Government treasury coupons. The volatility of the share price was estimated based on standard deviation calculations on the historic share price.

No shares were issued under the Joint Share Ownership Plan during the year. (2012: 2,603,290 shares)

The fair value of the part interest in the jointly owned shares was calculated using a Black-Scholes model with the same assumptions as those used for the options issued during the year.

The weighted average fair value of the Jointly owned shares issued during the year ended 31 March 2012 was 26.1p.

23. Share capital

		2013		2012
		£		£
Authorised
68,100,000 Ordinary shares of 5p each		3,405,000		3,405,000
10,790 Deferred ordinary shares of 10p each		1,079		1,079
32,334 Convertible preference shares of £1 each		32,334		32,334
		3,438,413		3,438,413
Allotted, called up and fully paid
55,345,016 ( 2012: 55,119,201) Ordinary shares of 5p each		2,767,251		2,755,960

During the year a further 16,575 shares were issued at a premium of £39,614 as a result of the take up of the scrip dividend option and 209,240 more shares were issued at a premium of £234,465 as a result of the exercise of options by employees.

24. Minority interests

		2013		2013		2012		2012
		£		£		£		£
Balance at 1 April				1,891,587				1,790,587
Share of subsidiary's profit for the year		436,711				409,299
Share of foreign exchange gain on net investment		129,952				80,282
				566,663				489,581
Share of dividend paid by subsidiary				-				(388,581)
Balance at 31 March				2,458,250				1,891,587

25. Treasury share reserve

		2013		2012
		£		£
Balance at 1 April 2012		5,217,580		-
Arising in the year		-		5,217,580
Balance at 31 March 2013		5,217,580		5,217,580

Treasury share reserve consists of £5,217,580 (2012: £5,217,580), being the cost of 2,603,290 shares in the Company held by the Group’s JSOP.

26. Other reserves

Group and Company		Capital redemption reserve		Special reserve		Reserve for share-based payment		Total
		£		£		£		£
At 31 March 2011		105,829		-		1,224,401		1,330,230
Share-based payments		-		-		290,890		290,890
Transfer to retained earnings on expiry of options		-		-		(96,989)		(96,989)
Transfer on reduction of share premium for protection of creditors		-		3,250,000		-		3,250,000
At 31 March 2012		105,829		3,250,000		1,418,302		4,774,131
Share-based payments		-		-		358,260		358,260
Transfer to retained earnings on expiry of options		-		-		(82,062)		(82,062)
At 31 March 2013		105,829		3,250,000		1,694,500		5,050,329

Included in the Group’s retained earnings are the following exchange movements which have been taken directly to reserves on consolidation of the subsidiaries and joint ventures listed below:

		At 1 April 2012		Movement in the year		At 31 March 2013
		£		£		£
In respect of:
Zhejiang Eco Biok Animal Health Products Limited		409,193		135,255		544,448
Eco Animal Health do Brasil Comercio de Produtos Veterinarios Ltda		28,172		63,799		91,971
ECOpharma Inc.		60,497		(66,714)		(6,217)
ECO Animal Health USA Corp.		-		(475)		(475)
ECO Animal Health de Mexico		-		(16,227)		(16,227)
ECO Animal Health Southern Africa (pty) Ltd		(93)		586		493
Pharmgate LLC		(681)		1,156		475
Pharmgate Canada LLC		-		16		16
Foreign currency differences attributable to owner credited directly to reserves.				117,396

27. Financial commitments

At 31 March 2013 the Group had minimum commitments under non-cancellable operating leases as follows:

		Land and Buildings				Other
		2013		2012		2013		2012
		£		£		£		£
Expiry date:
Within one year		62,137		10,377		-		4,988
Between two and five years		855,766		536,971		42,482		62,136
In over five years		1,621,230		2,197,631		-		-
		2,539,133		2,744,979		42,482		67,124
Minimum expected sublease rental receipts. Between two and five years.		525,370		-		-		-

28. Capital commitments

The group had no authorised capital commitments as at 31 March 2013 (2012: Nil).

29. Directors’ emoluments

		2013		2012
		£		£
Emoluments for qualifying services		541,126		386,008
Company pension contributions to money purchase schemes		117,874		183,024
Share-based payments		213,479		174,979
Benefits in kind		21,421		22,317
		893,900		766,328

During the year the directors exercised 31,640 (2012: 1,059,290) share options realising a gain of £41,607 (2012: £968,243).

The number of directors for whom retirement benefits are accruing under money purchase pension schemes amounted to 3 (2012: 3). No directors accrued benefits under defined benefit schemes for this or the previous year.

The highest paid director received £390,678 (2012: £304,766) including share-based payments and £50,000 (2012: £120,854) of pension contributions.

30. Employees

Number of employees

The average number of employees (including directors) during the year was:

		2013		2012
		Number		Number
Directors		7		7
Production and development		48		49
Administration		36		34
Sales		63		55
		154		145
Employment costs (including amounts capitalised)
		2013		2012
		£		£
Wages and salaries		4,322,201		3,628,585
Share-based payments		358,260		290,890
Social security costs		376,514		329,837
Other pension costs		324,268		319,853
		5,381,243		4,569,165

31. Related party transactions

At the year end ECO Animal Health Group plc owed P A Lawrence, a director of ECO Animal health Group plc and members of his family a balance amounting to £146,502 (2012: £512,337).

During the year, the Group provided management services to Anpario plc, a company in which P A Lawrence is a Director and holds share options. Fees of £29,250 (2012: £26,000) were charged.

During the year, the Group provided the services of two employees to C-Corp Limited, a company in which P A Lawrence is a Director and shareholder. Fees of £43,451 (2012: £48,970) were charged.

During the year ECO Animal Health Limited made sales on an arm’s length basis to the following other companies. The sales and year end balances are given in the table below. Since all of these companies are wholly owned by the Group, these transactions and balances have all been eliminated on consolidation.

Subsidiary companies		Sales		Year end receivables(net)		Sales		Year end receivables
		2013				2012
		£		£		£		£
Zhejiang Eco Biok Animal Health Products Limited		1,707,566		601,240		1,854,311		558,361
Eco Animal Health do Brasil Comercio de Produtos Veterinarios Ltda.		2,273,712		1,116,150		2,196,659		1,250,962
Ecopharma Inc.		1,146,540		101,880		567,577		344,499
ECO Animal Health de Mexico		179,451		550,489		-		175,411
ECO Animal Health USA Corp.		997,534		437,755		-		22,633

Interest and management charges from Parent to the other Group companies

During the year the Company made management charges on an arm’s length basis to ECO Animal Health Limited amounting to £217,259 (2012: £195,598) and charged interest of £425,598 (2012: £397,298) to the Company. Both of these charges were made through the inter-company account and were eliminated on consolidation.

ECO Animal Health Limited also made management charges on an arm’s length basis to ECOpharma Inc. amounting to £113,426 (2012: £32,316). The whole transaction was eliminated on consolidation.

ECO Animal Health Limited also paid £346,682 (2012: £109,011) of service charges to ECO Animal Health USA Corp. which were that company’s share of the excess expenses incurred by Pharmgate LLC during the year. This transaction was eliminated on consolidation.

During the year Zhejiang ECO Biok Animal Health Products Limited paid no dividend to ECO Animal Health Group plc (2012: £31,085) and no dividend to ECO Animal Health Limited (2012: £373,356).

Inter Company Guarantee

ECO Animal Health Group plc and ECO Animal Health Limited have each given a guarantee dated 28 January 1995 to the company’s bankers in respect of the £1,000,000 facility which has been extended to them jointly.

During the year P Lawrence and his family received dividends in the form of cash and shares to the value of £420,320 (2012: £333,185), and the other directors and their families received dividends in the form of cash and shares to the value of £13,916 (2012: £895).

Joint Ventures

During the year ECO Animal Health Limited made sales on an arm’s length basis of £240,590 (2012: £4,515) to ECO Animal Health Canada LLC. The balance outstanding at the year end was £74,443 (2012: £4,515).

Key management compensation

The group regards the executive directors as its key management.

		2013		2012
		£		£
Salaries and short term benefits		612,869		461,639
Retirement benefits		117,874		183,024
Share-based payments		210,886		174,979
		941,629		819,642

The number of directors for which retirement benefits are accruing is 3 (2012: 3).

32. Financial instruments

The Group uses financial instruments comprising borrowings, cash and liquid resources and various items, such as trade receivables, trade payables etc. that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the Group’s operations. The directors are responsible for the overall risk management.

The main risks arising from the Group’s use of financial instruments are interest rate risk, capital and liquidity risk, credit risk and foreign currency risks and they are summarised below. The policies have remained unchanged throughout the year.

Interest rate risk

The Group finances its operations through a mixture of retained earnings and bank borrowings. At the year end the interest rate exposure of the Group arose on currency overdraft facilities of £2,134,765 (2012: £4,492,690), details of which are shown in the note below on capital and liquidity risk. IFRS7 requires the disclosure of a sensitivity analysis that details the effects on the Group’s profit or loss and other equity of reasonably possible fluctuations in market rates. This sensitivity analysis has been determined based on exposure at the year end date. If interest rates had been 1 per cent higher or lower and all other variables were held constant the Group’s profit would have decreased/increased by a maximum of £21,348.

Capital and liquidity risk

The Group manages its capital to ensure continuity as a going concern whilst maximising returns through the optimisation of debt and equity. As part of this, the Board considers the cost and risk associated with each class of capital. The capital structure of the Group consists of debt which includes the borrowings disclosed in note 20, cash and cash equivalents in note 18 and equity attributable to equity holders of the parent comprising issued capital, reserves and retained earnings as disclosed in the Group’s statement of changes in equity.

Liquidity risk is managed by maintaining adequate reserves and banking facilities with continuous monitoring of the latest developments by management.

At 31 March 2013 the Group was contractually obliged to make repayments as detailed below:

		2013		2012
WITHIN ONE YEAR OR ON DEMAND		£		£
Bank overdrafts		2,134,765		4,492,690
Trade payables		6,099,247		5,410,817
		8,234,012		9,903,507

Credit risk

Credit risk is that of financial loss as a result of default by a counterparty on its contractual obligations. The Group’s exposure to credit risk arises principally in relation to trade receivables from customers and on short term bank deposits. Customers’ creditworthiness is wherever possible checked against independent rating databases and filing authorities or otherwise assessed on the basis of trade knowledge and experience. Exposure and customer credit limits are continually monitored both on specific debts and overall.

The credit risk in relation to short term bank deposits and derivatives is limited because the counterparties are banks with good credit ratings.

The Group operates in certain geographical areas which are from time to time subject to restrictions in the free movement of funds (such as those which have recently been experienced in the Venezuelan market). The Board seeks to minimise the group’s exposure to these markets but the nature of our business makes it impossible to eliminate this exposure completely.

Currency risk

The Group operates in overseas markets particularly through its subsidiaries in China, Brazil and Japan and is subject to currency exposure on transactions undertaken during the year. The Group does some simple economic hedging of receivables when the Board feels it is appropriate to do so and foreign exchange differences on retranslation of foreign monetary items are taken to the income statement.

The table below shows the extent to which the Group companies have monetary assets and liabilities in currencies other than in Sterling:

Foreign currency of Group operations
2013		US Dollar		Euros		Rand		Chinese RMB		Japanese Yen		Brazilian Real		Other
Sterling equivalent (000's)		73		670		617		3,841		1,265		921		480
2012
Sterling equivalent (000's)		(1,930)		2,141		266		2,790		438		794		192

At 31 March 2013 the Group was mainly exposed to the Euro, the Chinese RMB, the Japanese Yen and the Brazilian Real. The following table details the effect of a 10 per cent movement in the exchange rate of these currencies against sterling when applied to outstanding monetary items denominated in foreign currency as at 31 March 2013. A positive number indicates the decrease in profit which would arise from a 10 per cent weakening of the foreign currency concerned.

		2013				2012
		£'000				£'000
U S Dollar		7				(175)
Euro		61				195
Chinese RMB		349				254
Japanese Yen		115				72
Brazilian Real		84				40

Analysis of financial instruments by category

Group

		Loans and receivables		Total
2013		£		£
Investments		8,738		8,738
Trade and other receivables (excluding prepayments)		11,057,812		11,057,812
Cash and cash equivalents		9,664,443		9,664,443
2012		Loans and receivables		Total
		£		£
Investments		8,738		8,738
Trade and other receivables (excluding prepayments)		10,385,291		10,385,291
Cash and cash equivalents		14,002,422		14,002,422

Company

All financial liabilities in the Group’s and Company’s statements of financial position are classified as held at amortised cost for both the current and previous year.

33. Post Balance Sheet event

The company issued a total of 19,490 shares at a price of £1.085 each as a result of the exercise of employee share options on 2 May 2013.

Copyright Business Wire 2013