Last checked at 3 Jul 2015 07:00
ECO Animal Health Group plc (‘’ECO”)
(AIM: EAH)
Results for the year ended 31 March 2015
ECO ANIMAL HEALTH REPORTS STRONG PERFORMANCE
HIGHLIGHTS
Financials
22% increase in sales to £39.0 million ( +28% at constant exchange rates ) 23% increase in gross profit to £17.4 million with gross profit margin held at 45% 22% increase in adjusted EBITDA to £8.6 million ( +35% at constant exchange rates) 13% increase in total dividend for the year to 4.75p with second interim dividend of 3.0p Cash generation from operations up 16% to £7.2 million Pre-tax profit up 38% to £5.1 million Net cash of £17.7mOperations
Demand for Aivlosin® continues to grow strongly with sales up over 30% ( +36% at constant exchange rates ) New marketing authorisations gained in UAE Strong performances in North America, China and Europe Further advances in Southeast Asian territories following recent acquisition Major investment in stockholding and production capacity on schedulePeter Lawrence, Executive Chairman of ECO Animal Health Group plc, commented:
‘’ The new financial year has started well with sales maintaining momentum. I look forward with confidence to ECO delivering another impressive performance when the interim results are announced ‘’
| Contacts: | |||||||
| ECO Animal Health Group plc | |||||||
| Peter Lawrence | 020 8336 6190 | ||||||
| Marc Loomes | 020 8447 6906 | ||||||
| Spiro Financial | |||||||
| Anthony Spiro | 020 8336 6196 | ||||||
| Peel Hunt LLP (Nominated Adviser) | |||||||
| Dan Webster, Richard Brown, George Sellar | 020 7418 8900 | ||||||
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 2015
I am delighted to report that ECO Animal Health Group plc has maintained the momentum of its strong first half and delivered an excellent set of results for the year ended 31 March 2015. The recent marketing authorisation granted by the United States Food & Drug Administration (FDA) for the use of our patented drug, Aivlosin®, for pigs is very significant. This approval has reinforced ECO’s position as a supplier that conforms to all the current guidelines governing the judicious use of antimicrobials in the farming industry. Our standing as an important supplier of effective, therapeutic medications to meat producers around the world has strengthened as our penetration of these markets has increased.
Financial Performance
Sales for the year increased by 22% to £39.0m (2014: £31.9m). This increase would have risen to 28% at constant exchange rates (CER) i.e. as if the 2014 sales were recalculated using the same daily average exchange rates that applied in 2015. Earnings before interest, tax, depreciation, amortisation, minority interests, share based payments and foreign exchange differences (EBITDA) grew by 22% to £8.6m (2014: £7.1m). The increase in EBITDA at CER would have been 35%. The pound continued to show strength through the year and that had an impact on the translation of ECO’s results into sterling. An exception was the US dollar which moved in a narrow band against sterling. The dollar/ sterling exchange rate, calculated as the average of each day’s close during the year, was £1 = $1.6133 for the twelve months ended 31 March 2015, weaker than the comparable figure for the previous year which was £1 = $1.5891.
Our balance sheet remains strong and Group cash was £17.7m net of overdrafts (2014: £18.2m) even after our planned strategic stock level increase of almost £3m above the level of the previous year. Cash generated from operations also increased, reaching £7.2m at the year end, an increase of 16%. Pre-tax profit rose 38% to £5.1m (2014: £3.70m) and earnings per share increased by 57% to 6.82 pence per share (2014: 4.35 pence).
The Board is pleased to declare a second interim dividend of 3.0 pence per share to be paid on 2 October 2015 to shareholders on the register on 11 September 2015. This makes a total for the year of 4.75 pence per share (2014: 4.2 pence), an increase of over 13% reflecting the Board’s continued confidence in the growth prospects for the Company.
Operations
The Company is now realising the commercial benefit from the considerable investment it has made over many years in the intellectual property inherent in Aivlosin®, its patented molecule. Aivlosin® is used for the treatment of economically important diseases of pigs and poultry. Aivlosin® is prescribed under strict veterinary control at low but efficacious dose rates for short duration treatment of specified diseases and meets all the guidelines for the judicious use of antimicrobials. Marketing authorisations have now been obtained in nearly all the major markets for pigs and poultry. Our continued investment in highly qualified and experienced staff is reflected in our strong sales performance. We will continue to build stock levels to service the anticipated growth in sales as our global business expands. It is pleasing to report that our production capacity has also been increased substantially during the year. ECO has made important investments in both its business and regulatory software capabilities, which will further enhance productivity.
Worldwide sales of Aivlosin® increased by over 30 % compared with the same period last year (over 36% at CER). Aivlosin®, ECO’s patented molecule, was granted its first marketing authorisation in the USA in 2012 and the subsequent revenue development of this flagship product has been most gratifying. Sales of Aivlosin® in North America, a region that accounts for more than one third of Aivlosin®‘s potential world market, trebled in the year under review. We are well positioned to build on our excellent start in this important market.
In China, our subsidiary, Zhejiang ECO Biok Animal Health Products, which was established over a decade ago, had another successful year with sales rising 8 % in sterling, or 10 % in local currency. The late timing this year of the Chinese Spring Festival vacation delayed the benefit of our annual spring sales campaign until after the Company’s year end. In July 2014 we acquired the business of our long-standing Southeast Asian distributor, based in Kuala Lumpur with representation throughout the region. This operation has performed extremely well with sales up 84% in sterling or 87% in US dollars compared with the same period in the previous year. ECO has completed a strategic review of the opportunities offered by the important Southeast Asian pig and poultry markets. The findings were very encouraging and as a result we are confident that, with renewed focus and greater technical, sales and marketing support, the region will have a very positive commercial impact on future results.
There was a significant upturn in business in Mexico and key tenders were also won in Brazil. In Latin America, the uncertain economic and political situations in Argentina and Venezuela had a significant effect on local currencies. In Japan, the ongoing weakness of the yen continued to affect our results although Aivlosin® sales volumes did increase. Sales in Europe, including the UK, were up almost 19%, continuing the momentum established last year, although the economic climate in this region remains as challenging as ever.
The Company recently announced approvals for both Aivlosin® and Ecomectin® products in the United Arab Emirates. These marketing authorisations should lead to the granting of further licences in the Gulf Cooperation Council, where the UAE is a key member and, in particular, in the Kingdom of Saudi Arabia which is a very important poultry market.
We have continued to invest in our product development pipeline, with the aim of obtaining additional marketing authorisations in the USA, Europe and the key pig and poultry production markets globally.
Board changes
In December 2014 we announced the appointment of Anthony Rawlinson as a Non-Executive Director with effect from 1 January 2015. Mr Rawlinson is a chartered accountant with over 25 years corporate finance experience advising smaller quoted companies; he is a co-founder and partner in Cairn Financial Advisers LLP, AIM Market corporate advisers.
People
While our business performance is driven by animal health, people remain our principal asset. On behalf of all shareholders, I would like to thank everyone associated with the Company for their unceasing commitment and enthusiasm during another year of considerable progress for ECO.
Outlook
The new financial year has started well with revenue maintaining momentum. I look forward with confidence to ECO delivering another impressive performance when the interim results for the first six months of trading are announced.
Peter A Lawrence
2nd July 2015
STRATEGIC REPORT
FOR THE YEAR ENDED 31 MARCH 2015
Group sales in the year to 31 March 2015 rose by 22% to £39m; this increase is 27% at constant exchange rates (CER) i.e. if the 2014 sales are recalculated using the same average exchange rates as applied in 2015. Sales of Aivlosin®, our flagship, patented, therapeutic (disease treating) product, advanced by over 30% in sterling above the level of the previous year. This encouraging performance continues to reflect our strategic decision to focus primarily on our core high margin products and less on lower margin generics. The resulting more profitable product mix was becoming established last year and, despite the strength of sterling, the margins were slightly improved this year.
EBITDA (Earnings before interest, tax, depreciation, amortisation, share based payments, foreign exchange movements and minorities) is our main key performance indicator because we are required to amortise our drug registration costs even though we believe they are increasing in value.
EBITDA advanced by 22% to almost £8.6m, a new record for the Company and, on a like for like basis at CER, the growth would have been approximately 35%. Pre-tax profit increased by almost 38%.
Group cash at the year end was £17.7m net of overdrafts.
Key Performance Indicators
The key performance indicators (‘KPIs’) for the Group are those that communicate the financial performance and strength of the group as a whole to shareholders.
A summary of the KPI’s is as follows:
| 2015 | 2014 | 2013 | |||||||||||||
| Financial | |||||||||||||||
| Revenue £m | 39.0 | 31.9 | 29.0 | ||||||||||||
| Gross Profit £m | 17.5 | 14.1 | 13.1 | ||||||||||||
| Gross Margin % | 44.7 | 44.5 | 45.2 | ||||||||||||
| EBITDA £m | 8.61 | 7.05 | 6.67 | ||||||||||||
| Cash balances, net of borrowing £m | 17.7 | 18.2 | 7.7 | ||||||||||||
| Non Financial | |||||||||||||||
| Health and Safety - major accidents reported to the board in the year | Nil | Nil | Nil |
Currency
Under IFRS rules, financial assets at the period end are translated from foreign currencies using the period end exchange rates. It has been our practice not to convert the majority of the currency balances into sterling, but to use them to pay overseas suppliers in local currency and invest in the business. Therefore the currency losses experienced on bank balances during the last year may well reverse in the current year.
Risks and Uncertainties
All businesses face a number of strategic and operational risks and uncertainties and the Board considers that the following could influence the Group’s performance:
Currency Movements
The Group exports its products to almost 60 counties and is exposed to movements in currency. It has not been the Company’s practice to convert currencies which are used for purchasing raw materials and services in those currencies and this acts as an extensive hedge against currency fluctuations.
Commercial Risks
There is increasing pressure on veterinarians to prescribe antibiotics appropriately and in accordance with the product label. Aivlosin® meets all current guidelines for the judicious and prudent use of antimicrobials for food producing animals and is never used in human health. The Group spends considerable effort and resource liaising with regulatory authorities and leading consultants to ensure that it remains compliant with all prescribing guidelines.
Supply Risks
The Group is dependent on a small number of suppliers for some of its raw materials and maintains business interruption insurance in respect of each of these. In the longer term the Group continues to build strategic manufacturing partnerships internationally and to increase safety stock levels in order to protect its complex global supply chain.
Dependence on key customers
The Group is dependent on a number of customers and distributors in each of the territories into which it sells. The loss of one or more of its key customers could result in lower than expected sales and have a significant impact on the scale of its operations. The Group seeks to minimise reliance on key territories and individual customers and distributors.
Disease
Although outbreaks of diseases for which our products are indicated are generally beneficial to our sales, some disease outbreaks temporarily impact on production, disrupt the free movement of animals and affect trade. In the face of continued global demand for animal protein, however, any reduction in supply leads to increased prices and therefore benefits those who have taken effective measures to prevent or control the disease. In the medium term, most disease outbreaks are generally well controlled by appropriate intervention strategies.
Timing of approval of marketing authorisations
Aivlosin® has been licenced for use in pigs and/or in poultry by the European, USA, Canadian, Japanese, Chinese and many other regulatory bodies globally but the exact timing of new approvals of marketing authorisations is difficult to predict. Regulatory authorities may submit additional questions or require supplementary trial work to be performed prior to granting of a license and this can lead to some delay. Therefore, considerable resource is devoted to our licensing work in order to address any issues that may arise in as timely a manner as is possible.
Strategy
ECO Animal Health Group plc is a leader in the development, registration and marketing of pharmaceutical products for animals. The Company has developed into a significant UK based business with subsidiaries, joint ventures and distributors in 60 countries. ECO has been granted over 600 drug registrations around the world for its pharmaceutical products, which are principally, but not exclusively, for the treatment of various conditions in pigs and poultry. The Company uses advanced science in order to offer a wide and effective range of specialist treatments, underpinned by strong customer service.
The Company will continue to pursue organic growth by developing its markets and expanding its customer base. It will also continue to research and develop additional applications for its established and proven ranges of active pharmaceutical ingredients. ECO will also consider acquisition opportunities as they arise, provided they meet its market, financial and strategic objectives.
Post Balance Sheet Events
The Group issued 55,000 shares in April 2015 as a result of the exercise of options by current and former employees.
The Group purchased 6,487 of its own shares at an average price of £2.41 in April 2015 and a further 2,381 shares at an average price of £3.02 in June 2015.
Trading update and outlook
The current year has started well with major markets maintaining their rate of growth with particularly good demand from customers in the US and Canada. The strength of sterling may remain an issue, but it will not divert the Company from its objective of developing a global business. Aivlosin® sales are growing rapidly, boosted particularly by North American demand where business is still in its early stages but showing very significant and exciting potential.
Peter Lawrence
Executive Chairman
2nd July 2015
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH 2015
| 2015 | 2014 | ||||||||||||||
| Notes | £000's | £000's | |||||||||||||
| Revenue | 2,3,4 | 38,997 | 31,865 | ||||||||||||
| Cost of sales | (21,546) | (17,726) | |||||||||||||
| Gross profit | 17,451 | 14,139 | |||||||||||||
| Other income | 293 | 324 | |||||||||||||
| Administrative expenses | (12,407) | (10,495) | |||||||||||||
| Profit from operating activities | 5 | 5,337 | 3,968 | ||||||||||||
| Finance income | 6 | 68 | 58 | ||||||||||||
| Finance costs | 6 | (327) | (343) | ||||||||||||
| Net finance (expense)/income | (259) | (285) | |||||||||||||
| Profit before income tax | 5,078 | 3,683 | |||||||||||||
| Income tax (charge) | 8 | (457) | (602) | ||||||||||||
| Profit for the year | 4,621 | 3,081 | |||||||||||||
| Profit attributable to: | |||||||||||||||
| Owners of the parent company | 4,094 | 2,431 | |||||||||||||
| Non-controlling interest | 24 | 527 | 650 | ||||||||||||
| Profit for the year | 4,621 | 3,081 | |||||||||||||
| Earnings per share (pence) | 7 | 6.82 | 4.35 | ||||||||||||
| Diluted earnings per share (pence) | 7 | 6.79 | 4.30 |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2015
| 2015 | 2014 | ||||||||||
| Notes | £000's | £000's | |||||||||
| Profit for the year | 4,621 | 3,081 | |||||||||
| Other comprehensive income (net of related tax effects): | |||||||||||
| Foreign currency translation differences | 350 | (651) | |||||||||
| Defined benefit plan actuarial (losses)/gains | 21 | (55) | 25 | ||||||||
| Revaluation of investment property | 35 | - | |||||||||
| Deferred tax on revaluations | - | 10 | |||||||||
| Other comprehensive income for the year | 330 | (616) | |||||||||
| Total comprehensive income for the year | 4,951 | 2,465 | |||||||||
| Attributable to: | |||||||||||
| Owners of the parent company | 4,090 | 1,955 | |||||||||
| Non-controlling interest | 24 | 861 | 510 | ||||||||
| 4,951 | 2,465 |
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 2015
| CONSOLIDATED | Attributable to the owners of the Parent | ||||||||||||||||||||||||||||||||||||||
| Share | Share | Treasury | Revaluation | Other | Retained | Total | Non-controlling | Total | |||||||||||||||||||||||||||||||
| Capital | premium | Reserve | Reserve | Reserves | Earnings | Interest | Equity | ||||||||||||||||||||||||||||||||
| Account | |||||||||||||||||||||||||||||||||||||||
| £000's | £000's | £000's | £000's | £000's | £000's | £000's | £000's | £000's | |||||||||||||||||||||||||||||||
| Balance as at 31 March 2013 | 2,767 | 37,881 | (5,217) | 523 | 5,050 | 16,829 | 57,833 | 2,458 | 60,291 | ||||||||||||||||||||||||||||||
| Profit for the year | - | - | - | - | - | 2,431 | 2,431 | 650 | 3,081 | ||||||||||||||||||||||||||||||
| Other comprehensiveincome: | |||||||||||||||||||||||||||||||||||||||
| Foreign currency differences | - | - | - | - | - | (511) | (511) | (141) | (652) | ||||||||||||||||||||||||||||||
| Actuarial gains on pensionscheme assets | - | - | - | - | - | 25 | 25 | - | 25 | ||||||||||||||||||||||||||||||
| Deferred taxation | - | - | - | 10 | - | 10 | - | 10 | |||||||||||||||||||||||||||||||
| Total comprehensive incomefor the year | - | - | - | 10 | - | 1,945 | 1,955 | 509 | 2,464 | ||||||||||||||||||||||||||||||
| Transactions with owners recorded directly in equity | |||||||||||||||||||||||||||||||||||||||
| Contributions by and distributions to owners | |||||||||||||||||||||||||||||||||||||||
| Issue of shares in the year | 357 | 12,298 | - | - | - | - | 12,655 | - | 12,655 | ||||||||||||||||||||||||||||||
| Share-based payments | - | - | - | - | 307 | - | 307 | - | 307 | ||||||||||||||||||||||||||||||
| Transfer from special reserveto share premium | - | 3,250 | - | - | (3,250) | - | - | - | - | ||||||||||||||||||||||||||||||
| Transfers on expiry ofoptions | - | - | - | - | (291) | 291 | - | - | - | ||||||||||||||||||||||||||||||
| Dividends relation to 2013 | - | - | - | - | - | (2,110) | (2,110) | (799) | (2,909) | ||||||||||||||||||||||||||||||
| Transactions with owners | 357 | 15,548 | - | - | (3,234) | (1,819) | 10,852 | (799) | 10,053 | ||||||||||||||||||||||||||||||
| Balance as at 31 March 2014 | 3,124 | 53,429 | (5,217) | 533 | 1,816 | 16,955 | 70,640 | 2,168 | 72,808 | ||||||||||||||||||||||||||||||
| Profit for the year | - | - | - | - | - | 4,094 | 4,094 | 527 | 4,621 | ||||||||||||||||||||||||||||||
| Other comprehensiveincome: | |||||||||||||||||||||||||||||||||||||||
| Foreign currency differences | - | - | - | - | - | 16 | 16 | 334 | 350 | ||||||||||||||||||||||||||||||
| Actuarial (losses) on pensionscheme assets | - | - | - | - | - | (55) | (55) | - | (55) | ||||||||||||||||||||||||||||||
| Revaluation of investmentproperty | - | - | - | 44 | - | - | 44 | - | 44 | ||||||||||||||||||||||||||||||
| Deferred taxation | - | - | - | (9) | - | - | (9) | - | (9) | ||||||||||||||||||||||||||||||
| Total comprehensive incomefor the year | - | - | - | 35 | - | 4,055 | 4,090 | 861 | 4,951 | ||||||||||||||||||||||||||||||
| Transactions with owners recorded directly in equity | |||||||||||||||||||||||||||||||||||||||
| Contributions by and distributions to owners | |||||||||||||||||||||||||||||||||||||||
| Issue of shares in the year | 33 | 769 | - | - | - | - | 802 | - | 802 | ||||||||||||||||||||||||||||||
| Purchase of shares intotreasury | - | - | - | - | - | (17) | (17) | - | (17) | ||||||||||||||||||||||||||||||
| Share-based payments | - | - | - | - | 252 | - | 252 | - | 252 | ||||||||||||||||||||||||||||||
| Transfers on expiry ofoptions | - | - | - | - | (293) | 293 | - | - | - | ||||||||||||||||||||||||||||||
| Dividends relation to 2014 | - | - | - | - | - | (2,515) | (2,515) | - | (2,515) | ||||||||||||||||||||||||||||||
| Transactions with owners | 33 | 769 | - | - | (41) | (2,239) | (1,478) | - | (1,478) | ||||||||||||||||||||||||||||||
| Balance as at 31 March 2015 | 3,157 | 54,198 | (5,217) | 568 | 1,775 | 18,771 | 73,252 | 3,029 | 76,281 | ||||||||||||||||||||||||||||||
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2015
| COMPANY | Attributable to the owners of the Parent | ||||||||||||||||||||||||||||||
| Share | Share | Treasury | Revaluation | Other | Retained | Total | |||||||||||||||||||||||||
| Capital | premium | Reserve | Reserve | Reserves | Earnings | ||||||||||||||||||||||||||
| Account | |||||||||||||||||||||||||||||||
| £000's | £000's | £000's | £000's | £000's | £000's | £000's | |||||||||||||||||||||||||
| Balance as at 31 March 2013 | 2,767 | 37,881 | (5,217) | 254 | 5,050 | 12,236 | 52,971 | ||||||||||||||||||||||||
| Loss for the year | - | - | - | - | - | (43) | (43) | ||||||||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||||||||||
| Actuarial gains on pension schemeassets | - | - | - | - | - | 25 | 25 | ||||||||||||||||||||||||
| Deferred taxation | - | - | - | 10 | - | - | 10 | ||||||||||||||||||||||||
| Total comprehensive income for theyear | - | - | - | 10 | - | (18) | (8) | ||||||||||||||||||||||||
| Transactions with owners recorded directly in equity | |||||||||||||||||||||||||||||||
| Contributions by and distributions to owners | |||||||||||||||||||||||||||||||
| Issue of shares in the year | 357 | 12,298 | - | - | - | - | 12,655 | ||||||||||||||||||||||||
| Share-based payments | - | - | - | - | 307 | - | 307 | ||||||||||||||||||||||||
| Transfer from special reserve to sharepremium | - | 3,250 | - | - | (3,250) | - | - | ||||||||||||||||||||||||
| Transfers on expiry of options | - | - | - | - | (291) | 291 | - | ||||||||||||||||||||||||
| Dividends relation to 2013 | - | - | - | - | - | (2,110) | (2,110) | ||||||||||||||||||||||||
| Transactions with owners | 357 | 15,548 | - | - | (3,234) | (1,819) | 10,852 | ||||||||||||||||||||||||
| Balance as at 31 March 2014 | 3,124 | 53,429 | (5,217) | 264 | 1,816 | 10,399 | 63,815 | ||||||||||||||||||||||||
| Profit for the year | - | - | - | - | - | 4,760 | 4,760 | ||||||||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||||||||||
| Actuarial (losses) on pension schemeassets | - | - | - | - | - | (55) | (55) | ||||||||||||||||||||||||
| Revaluation of investment property | - | - | - | 44 | - | - | 44 | ||||||||||||||||||||||||
| Deferred taxation | - | - | - | (9) | - | - | (9) | ||||||||||||||||||||||||
| Total comprehensive income for theyear | - | - | - | 35 | - | 4,705 | 4,740 | ||||||||||||||||||||||||
| Transactions with owners recorded directly in equity | |||||||||||||||||||||||||||||||
| Contributions by and distributions to owners | |||||||||||||||||||||||||||||||
| Issue of shares in the year | 33 | 769 | - | - | - | - | 802 | ||||||||||||||||||||||||
| Share-based payments | - | - | - | - | 252 | - | 252 | ||||||||||||||||||||||||
| Purchase of shares into treasury | - | - | - | - | - | (17) | (17) | ||||||||||||||||||||||||
| Transfers on expiry of options | - | - | - | - | (293) | 293 | - | ||||||||||||||||||||||||
| Dividends relation to 2014 | - | - | - | - | - | (2,515) | (2,515) | ||||||||||||||||||||||||
| Transactions with owners | 33 | 769 | - | - | (41) | (2,239) | (1,478) | ||||||||||||||||||||||||
| Balance as at 31 March 2015 | 3,157 | 54,198 | (5,217) | 299 | 1,775 | 12,865 | 67,077 | ||||||||||||||||||||||||
STATEMENTS OF FINANCIAL POSITION (CO. NUMBER: 01818170)
AS AT 31 MARCH 2015
| Group | Company | ||||||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||||||||||
| Notes | £000's | £000's | £000's | £000's | |||||||||||||||||||
| Non-current assets | |||||||||||||||||||||||
| Intangible assets | 11 | 45,660 | 43,172 | - | - | ||||||||||||||||||
| Property, plant and equipment | 12 | 1,619 | 1,002 | 640 | 654 | ||||||||||||||||||
| Investment property | 13 | 189 | 149 | 189 | 149 | ||||||||||||||||||
| Investments | 14 | 9 | 9 | 20,082 | 20,082 | ||||||||||||||||||
| 47,477 | 44,332 | 20,911 | 20,885 | ||||||||||||||||||||
| Current assets | |||||||||||||||||||||||
| Inventories | 15 | 9,833 | 6,972 | - | - | ||||||||||||||||||
| Trade and other receivables | 16 | 11,522 | 9,868 | 36,505 | 33,908 | ||||||||||||||||||
| Income tax recoverable | 39 | 27 | - | - | |||||||||||||||||||
| Other taxes and social security | 110 | 304 | 8 | 102 | |||||||||||||||||||
| Cash and cash equivalents | 18 | 20,091 | 18,240 | 13,219 | 9,230 | ||||||||||||||||||
| Total current assets | 41,595 | 35,411 | 49,732 | 43,240 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Trade and other payables | 19 | (9,542) | (6,343) | (931) | (151) | ||||||||||||||||||
| Short -term borrowings | 20 | (2,356) | - | (2,356) | - | ||||||||||||||||||
| Income tax | (223) | (206) | - | - | |||||||||||||||||||
| Other taxes and social security | (343) | (178) | (69) | (63) | |||||||||||||||||||
| Dividends | (35) | (31) | (35) | (30) | |||||||||||||||||||
| Current liabilities | (12,499) | (6,758) | (3,391) | (244) | |||||||||||||||||||
| Net current assets | 29,096 | 28,653 | 46,341 | 42,996 | |||||||||||||||||||
| Total assets less current liabilities | 76,573 | 72,985 | 67,252 | 63,881 | |||||||||||||||||||
| Non current liabilities | |||||||||||||||||||||||
| Provisions | |||||||||||||||||||||||
| Deferred tax | 17 | (192) | (177) | (75) | (66) | ||||||||||||||||||
| Dilapidations on property leases | (100) | - | (100) | - | |||||||||||||||||||
| TOTAL ASSETS LESS TOTAL LIABILTIES | 76,281 | 72,808 | 67,077 | 63,815 | |||||||||||||||||||
| EQUITY | |||||||||||||||||||||||
| Issued share capital | 23 | 3,157 | 3,124 | 3,157 | 3,124 | ||||||||||||||||||
| Share premium account | 54,198 | 53,429 | 54,198 | 53,429 | |||||||||||||||||||
| Treasury reserve | (5,217) | (5,217) | (5,217) | (5,217) | |||||||||||||||||||
| Revaluation reserve | 568 | 533 | 299 | 265 | |||||||||||||||||||
| Other reserves | 26 | 1,775 | 1,816 | 1,775 | 1,816 | ||||||||||||||||||
| Retained earnings | 18,771 | 16,955 | 12,865 | 10,398 | |||||||||||||||||||
| 73,252 | 70,640 | 67,077 | 63,815 | ||||||||||||||||||||
| Non-controlling interests | 24 | 3,029 | 2,168 | - | - | ||||||||||||||||||
| TOTAL EQUITY | 76,281 | 72,808 | 67,077 | 63,815 | |||||||||||||||||||
Approved by the Board and authorised for issue on 2nd July 2015
Peter Lawrence Director
STATEMENT OF CASHFLOWS
FOR THE YEAR ENDED 31 MARCH 2015
| Group | Group | Company | Company | ||||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||||||||||
| Notes | £000's | £000's | £000's | £000's | |||||||||||||||||||
| Cashflows from operating activities | |||||||||||||||||||||||
| Profit/(loss) before income tax | 5,078 | 3,683 | 4,761 | (36) | |||||||||||||||||||
| Adjustment for: | |||||||||||||||||||||||
| Net finance costs/(income) | 6 | 259 | 285 | 503 | (446) | ||||||||||||||||||
| Depreciation | 12 & 13 | 186 | 173 | 20 | 21 | ||||||||||||||||||
| Losses on disposal of non-current assets | 41 | - | - | - | |||||||||||||||||||
| Amortisation of intangible assets | 11 | 2,538 | 2,336 | - | - | ||||||||||||||||||
| Impairment of intangible assets | 256 | - | - | - | |||||||||||||||||||
| Pension payments | 21 | (59) | (54) | (59) | (54) | ||||||||||||||||||
| Pension operating costs | 21 | 4 | 4 | 4 | 4 | ||||||||||||||||||
| Share based payments | 22 | 252 | 307 | 252 | 307 | ||||||||||||||||||
| Operating cash flows before movements in working capital | 8,555 | 6,734 | 5,481 | (204) | |||||||||||||||||||
| Change in inventories | (2,861) | (546) | - | - | |||||||||||||||||||
| Change in receivables | (1,460) | 1,321 | (2,503) | (3,429) | |||||||||||||||||||
| Change in payables | 3,463 | (653) | 886 | (115) | |||||||||||||||||||
| Cash generated from operations | 7,697 | 6,856 | 3,864 | (3,748) | |||||||||||||||||||
| Finance costs | (31) | (34) | (533) | (32) | |||||||||||||||||||
| Income tax | (446) | (619) | - | (6) | |||||||||||||||||||
| Net cash from operating activities | 7,220 | 6,203 | 3,331 | (3,786) | |||||||||||||||||||
| Cash flows from investing activities | |||||||||||||||||||||||
| Acquisition of property, plant and equipment | 12 | (778) | (32) | (3) | (1) | ||||||||||||||||||
| Disposal of property, plant and equipment | 9 | 15 | - | - | |||||||||||||||||||
| Purchase of intangibles | 11 | (5,280) | (4,340) | - | - | ||||||||||||||||||
| Purchase of own shares | (17) | - | (17) | - | |||||||||||||||||||
| Finance income | 6 | 68 | 58 | 30 | 478 | ||||||||||||||||||
| Net cash (used in)/from investing activities | (5,998) | (4,299) | 10 | 477 | |||||||||||||||||||
| Cash flows from financing activities | |||||||||||||||||||||||
| Proceeds from issue of share capital | 802 | 12,629 | 802 | 12,629 | |||||||||||||||||||
| Dividends paid | (2,510) | (2,885) | (2,510) | (2,086) | |||||||||||||||||||
| Net cash (used in)/from financing activities | (1,708) | 9,744 | (1,708) | 10,543 | |||||||||||||||||||
| Net (decrease)/increase in cash and cash equivalents | (486) | 11,649 | 1,633 | 7,234 | |||||||||||||||||||
| Foreign exchange movements | (19) | (939) | - | - | |||||||||||||||||||
| Balance at 1 April 2014 | 18,240 | 7,530 | 9,230 | 1,996 | |||||||||||||||||||
| Balance at 31 March 2015 | 18 | 17,735 | 18,240 | 10,863 | 9,230 | ||||||||||||||||||
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2015
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. 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.
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 now considers the performance in the UK and Europe, the Far East, Latin America, North America and the Middle East and Africa. This is a change from prior years, so the comparatives have been restated, although the original comparatives are still presented.
Management considers Earnings before Interest, Tax, Depreciation and Amortisation (“EBITDA”), adjusted for share-based payments.
| U.K. | Europe | Far East | Latin America | North America | Middle East and Africa | Total | |||||||||||||||||||||||||
| £000's | £000's | £000's | £000's | £000's | £000's | £000's | |||||||||||||||||||||||||
| Year ended 31 March 2015 | |||||||||||||||||||||||||||||||
| Total segmental revenue | 885 | 6,609 | 21,823 | 9,752 | 15,361 | 1,779 | 56,209 | ||||||||||||||||||||||||
| Inter-segment revenue | - | - | (4,784) | (3,480) | (8,948) | - | (17,212) | ||||||||||||||||||||||||
| Revenue from external customers | 885 | 6,609 | 17,039 | 6,272 | 6,413 | 1,779 | 38,997 | ||||||||||||||||||||||||
| Sale of goods | 885 | 6,609 | 17,039 | 6,272 | 6,413 | 1,579 | 38,797 | ||||||||||||||||||||||||
| Royalties | - | - | - | - | - | 200 | 200 | ||||||||||||||||||||||||
| 885 | 6,609 | 17,039 | 6,272 | 6,413 | 1,779 | 38,997 | |||||||||||||||||||||||||
| Adjusted EBITDA | (1,504) | 1,602 | 5,015 | 742 | 2,215 | 540 | 8,610 | ||||||||||||||||||||||||
| Total assets | 22,775 | 11,581 | 27,193 | 13,547 | 9,166 | 4,810 | 89,072 | ||||||||||||||||||||||||
| Year ended 31 March 2014(Restated) | |||||||||||||||||||||||||||||||
| Total segmental revenue | 784 | 5,534 | 18,923 | 8,487 | 5,033 | 1,536 | 40,297 | ||||||||||||||||||||||||
| Inter-segment revenue | - | - | (3,655) | (1,876) | (2,899) | - | (8,430) | ||||||||||||||||||||||||
| Revenue from external customers | 784 | 5,534 | 15,268 | 6,608 | 2,134 | 1,536 | 31,867 | ||||||||||||||||||||||||
| Sale of goods | 784 | 5,534 | 15,268 | 6,608 | 2,134 | 1,327 | 31,655 | ||||||||||||||||||||||||
| Royalties | - | - | - | - | - | 209 | 209 | ||||||||||||||||||||||||
| 784 | 5,534 | 15,268 | 6,608 | 2,134 | 1,536 | 31,864 | |||||||||||||||||||||||||
| Adjusted EBITDA | (1,209) | 1,378 | 4,467 | 1,248 | 428 | 472 | 6,784 | ||||||||||||||||||||||||
| Total assets | 21,359 | 12,837 | 23,606 | 14,152 | 2,901 | 4,585 | 79,440 |
| U.K. | Europe | China, Japan and the India sub continent | Latin America | North America | Rest of the World | Total | |||||||||||||||||||||||||
| £000's | £000's | £000's | £000's | £000's | £000's | £000's | |||||||||||||||||||||||||
| Original | |||||||||||||||||||||||||||||||
| Year ended 31 March 2014 | |||||||||||||||||||||||||||||||
| Total segmental revenue | 784 | 5,534 | 17,348 | 8,487 | 5,033 | 3,111 | 40,297 | ||||||||||||||||||||||||
| Inter-segment revenue | - | - | (3,655) | (1,876) | (2,899) | - | (8,430) | ||||||||||||||||||||||||
| Revenue from external customers | 784 | 5,534 | 13,693 | 6,611 | 2,134 | 3,111 | 31,867 | ||||||||||||||||||||||||
| Sale of goods | 784 | 5,534 | 13,693 | 6,608 | 2,134 | 2,902 | 31,655 | ||||||||||||||||||||||||
| Royalties | - | - | - | - | - | 209 | 209 | ||||||||||||||||||||||||
| 784 | 5,534 | 13,693 | 6,608 | 2,134 | 3,111 | 31,864 | |||||||||||||||||||||||||
| Adjusted EBITDA | (1,209) | 1,378 | 4,033 | 1,248 | 428 | 906 | 6,784 | ||||||||||||||||||||||||
| Total assets | 21,359 | 12,837 | 19,968 | 14,152 | 2,901 | 8,223 | 79,440 |
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:
| 2015 | 2014 | ||||||||||
| £000's | £000's | ||||||||||
| Adjusted EBITDA for reportable segments | 8,610 | 6,784 | |||||||||
| Depreciation | (186) | (173) | |||||||||
| Losses on disposal of fixed assets | (41) | - | |||||||||
| Amortisation | (2,538) | (2,336) | |||||||||
| Impairment of intangible assets | (256) | - | |||||||||
| Share-based payment charges | (252) | (307) | |||||||||
| Finance (expense) | (259) | (285) | |||||||||
| Profit before tax on continuing activities | 5,078 | 3,683 |
4. Other income
| 2015 | 2014 | ||||||||||
| £000's | £000's | ||||||||||
| Management charges | 145 | 141 | |||||||||
| Rental income | 143 | 127 | |||||||||
| Sundry income | 5 | 56 | |||||||||
| 293 | 324 |
5. Result from operating activities
| 2015 | 2014 | |||||||||
| £000's | £000's | |||||||||
| Result from operating activities is stated after charging/(crediting) | ||||||||||
| Cost of inventories recognised as an expense | 21,474 | 17,635 | ||||||||
| Employee benefits expenses | 4,797 | 3,819 | ||||||||
| Amortisation of intangible assets | 2,538 | 2,336 | ||||||||
| Impairment of intangible assets | 256 | - | ||||||||
| Depreciation (notes 12 &13) | 186 | 173 | ||||||||
| Losses on disposal of assets | 41 | - | ||||||||
| (Profit)/loss on foreign exchange transactions | (41) | 264 | ||||||||
| Research and development | 1 | 11 | ||||||||
| Operating lease rentals | 504 | 410 | ||||||||
| Fees payable to the Company's auditor for the audit of the parent Company and Group annual accounts | 19 | 18 | ||||||||
| For the audit of the Company's subsidiaries | 33 | 31 | ||||||||
| Fees payable for audit of the Company's subsidiaries pursuant tolegislation | 6 | 4 | ||||||||
| 2015 | 2014 | |||||||||
| £000's | £000's | |||||||||
| Earnings due to shareholders before interest, tax, depreciation, amortisation, share-based payments and foreign exchange differences | ||||||||||
| Profit from operating activities | 5,337 | 3,968 | ||||||||
| Depreciation | 186 | 173 | ||||||||
| Loss on disposal of fixed assets | 41 | - | ||||||||
| Amortisation | 2,538 | 2,336 | ||||||||
| Impairment of intangible assets | 256 | - | ||||||||
| Share-based payments | 252 | 307 | ||||||||
| 8,610 | 6,784 | |||||||||
| Foreign exchange differences | (41) | 264 | ||||||||
| 8,569 | 7,048 | |||||||||
6. Finance (expense)
| 2015 | 2014 | ||||||||||
| £000's | £000's | ||||||||||
| Finance costs | |||||||||||
| Interest paid | (31) | (34) | |||||||||
| Foreign exchange differences on bank loans and overdrafts | (296) | (309) | |||||||||
| Finance income | |||||||||||
| On short term bank deposits | 68 | 58 | |||||||||
| Net finance (expense) | (259) | (285) |
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.
| 2015 | 2014 | ||||||||||||||||||||||||||
| Earnings | Weighted average number of shares | Per share amount | Earnings | Weighted average number of shares | Per share amount | ||||||||||||||||||||||
| £000's | 000 | (pence) | £000's | 000 | (pence) | ||||||||||||||||||||||
| Earnings attributable toordinary shareholders oncontinuing operations aftertax | 4,094 | 60,007 | 6.82 | 2,431 | 55,871 | 4.35 | |||||||||||||||||||||
| Dilutive effect of shareoptions | - | 282 | (0.03) | - | 691 | (0.05) | |||||||||||||||||||||
| Fully diluted earnings pershare | 4,094 | 60,289 | 6.79 | 2,431 | 56,562 | 4.30 | |||||||||||||||||||||
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 (2014: 2,603,290).
8. Taxation
| 2015 | 2014 | ||||||||||
| £000's | £000's | ||||||||||
| Current tax year | |||||||||||
| Foreign corporation tax on profits for the year | 451 | 646 | |||||||||
| Deferred tax | |||||||||||
| Due to change in effective rate | - | (23) | |||||||||
| Origination and reversal of temporary differences | 6 | (21) | |||||||||
| Income tax charge | 457 | 602 | |||||||||
| Factors affecting the tax charge for the year | |||||||||||
| Profit on ordinary activities before taxation | 5,078 | 3,683 | |||||||||
| 2015 | 2014 | ||||||||||
| Profit on ordinary activities before taxation multiplied by the applicablerate of UK corporation tax of 21% (2014: 23%) | 1,066 | 847 | |||||||||
| Effects of: | |||||||||||
| Non deductible expenses | 210 | 95 | |||||||||
| Non chargable credits | (190) | (151) | |||||||||
| Witholding tax on inter-company dividends | - | 83 | |||||||||
| Enhanced allowance on research and development expenditure | (829) | (658) | |||||||||
| Different tax rate for foreign subsidiaries | 72 | 84 | |||||||||
| Reduced effective deferred tax rate | - | (23) | |||||||||
| Unused tax losses carried forward | 128 | 325 | |||||||||
| Income tax charge | 457 | 602 | |||||||||
| 2015 | 2014 | ||||||||||
| % | % | ||||||||||
| Applicable tax rate per UK legislation | 21.00 | 23.00 | |||||||||
| Effects of: | |||||||||||
| Non deductible expenses | 4.14 | 2.59 | |||||||||
| Non chargable credits | (3.75) | (4.11) | |||||||||
| Witholding tax on inter-company dividends | - | 2.26 | |||||||||
| Enhanced allowance on research and development expenditure | (16.32) | (17.86) | |||||||||
| Different tax rate for foreign subsidiaries | 1.43 | 2.27 | |||||||||
| Reduced effective deferred tax rate | - | (0.63) | |||||||||
| Unused tax losses caried forward | 2.51 | 8.83 | |||||||||
| Effective tax rate | 9.01 | 16.35 |
The UK corporation tax rate reduced from 23% to 21% with effect from 1 April 2014 and to 20% from 1 April 2015. Deferred tax balances at the year end have been measured at 20%.
9. Profit for the financial year
| 2015 | 2014 | ||||||||||
| £000's | £000's | ||||||||||
| Parent Company's profit/(loss) for the financial year | 4,760 | (43) |
10. Dividends
| 2015 | 2014 | ||||||||||
| £000's | £000's | ||||||||||
| Dividend for the period ended 31 March 2013 of 4.0p per ordinaryshare | - | 2,213 | |||||||||
| Dividend for the period ended 31 March 2014 of 4.2p per ordinaryshare | 2,624 | - | |||||||||
| Dividend waived by Employee Benefit Trust | (109) | (103) | |||||||||
| 2,515 | 2,110 |
The Board is declaring a total dividend of 4.75 pence per share in respect of the year ended 31 March 2015.
11. Intangible fixed assets
| Group | Goodwill | Distribution rights | Drug registrations, patents and license costs | Total | |||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||
| Cost | |||||||||||||||||||
| At 1 April 2013 | 17,930 | 1,266 | 43,912 | 63,108 | |||||||||||||||
| Additions - internally generated | - | - | 4,069 | 4,069 | |||||||||||||||
| Additions- acquired separately | - | - | 271 | 271 | |||||||||||||||
| At 1 April 2014 | 17,930 | 1,266 | 48,252 | 67,448 | |||||||||||||||
| Additions - internally generated | - | - | 4,786 | 4,786 | |||||||||||||||
| Additions- acquired separately | - | 176 | 318 | 494 | |||||||||||||||
| At 31 March 2015 | 17,930 | 1,442 | 53,356 | 72,728 | |||||||||||||||
| Amortisation | |||||||||||||||||||
| At 1 April 2013 | - | 481 | 21,459 | 21,940 | |||||||||||||||
| Charge for the year | 63 | 2,273 | 2,336 | ||||||||||||||||
| At 1 April 2014 | - | 544 | 23,732 | 24,276 | |||||||||||||||
| Charge for the year | - | 71 | 2,467 | 2,538 | |||||||||||||||
| Impairment in the year | - | - | 256 | 256 | |||||||||||||||
| Foreign exchange movements | - | - | (2) | (2) | |||||||||||||||
| At 31 March 2015 | - | 615 | 26,453 | 27,068 | |||||||||||||||
| Net Book Value | |||||||||||||||||||
| At 31 March 2015 | 17,930 | 827 | 26,903 | 45,660 | |||||||||||||||
| At 31 March 2014 | 17,930 | 722 | 24,520 | 43,172 | |||||||||||||||
| At 31 March 2013 | 17,930 | 785 | 22,454 | 41,169 |
The amortisation and impairment charges are 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 8 to 19 years.
The carrying value of goodwill is attributable to the following cash generating units:
| Entity | Date of acquisition | £000’s | |||
| Eco Animal Health Limited (acquired 50%) | 1 October 2004 | 17,359 | |||
| Zhejiang Eco Biok Animal Health Products Limited | 1 April 2007 | 94 | |||
| ECOpharma Inc. (acquired 80%) | 24 December 2009 | 477 | |||
| 17,930 | |||||
| ==================== |
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%. 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 £55 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 £33 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.
The value of Drug registrations and licenses can be broken down as follows:
| £000’s | |||||||
| Aivlosin | 24,061 | ||||||
| Ecomectin | 1,550 | ||||||
| Others | 1,292 | ||||||
| 26,903 |
Aivlosin is a highly effective antibiotic that treats a range of specific enteric (gut) and respiratory diseases in pigs and poultry, ensuring a rapid return to health. In addition to the welfare benefits, healthy animals gain weight faster, digest food more efficiently and get to market earlier which all bring economic benefit to the farmer. Substantial ongoing product development covering more formulations, species and diseases is expected to substantially further increase its revenue generating potential. The remaining amortisation period is from 8 to 20 years.
Ecomectin is an endectocide that controls worms, ticks, lice and mange in grazing stock and pigs. The remaining amortisation period is 0 to 10 years.
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 over £5 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 on this basis.
However, a review of individual projects has identified that an impairment of £256,000 is necessary in respect of Carprofen development costs. This was a project regarding a potential new product to relieve pain in dogs which management have decided is not a current priority.
12. Property, plant and equipment
| Group | Land and Buildings (freehold) | Plant and machinery | Fixtures, fittings and equipment | Motor Vehicles | Total | ||||||||||||||||||
| £000's | £000's | £000's | £000's | £000's | |||||||||||||||||||
| Cost or valuation | |||||||||||||||||||||||
| At 1 April 2013 | 650 | 1,266 | 649 | 102 | 2,667 | ||||||||||||||||||
| Additions | - | 20 | 12 | - | 32 | ||||||||||||||||||
| Foreign exchange movements | - | (81) | - | - | (81) | ||||||||||||||||||
| Disposals | - | - | (188) | (27) | (215) | ||||||||||||||||||
| At 1 April 2014 | 650 | 1,205 | 473 | 75 | 2,403 | ||||||||||||||||||
| Additions | - | 593 | 158 | 27 | 778 | ||||||||||||||||||
| Foreign exchange movements | - | 153 | - | (5) | 148 | ||||||||||||||||||
| Disposals | - | (524) | - | (11) | (535) | ||||||||||||||||||
| At 31 March 2015 | 650 | 1,427 | 631 | 86 | 2,794 | ||||||||||||||||||
| Depreciation | |||||||||||||||||||||||
| At 1 April 2013 | - | 882 | 557 | 52 | 1,491 | ||||||||||||||||||
| Charge for the year | 9 | 113 | 32 | 16 | 170 | ||||||||||||||||||
| Foreign exchange movements | - | (61) | 1 | 1 | (59) | ||||||||||||||||||
| Disposals | - | - | (188) | (12) | (200) | ||||||||||||||||||
| At 1 April 2014 | 9 | 934 | 402 | 57 | 1,402 | ||||||||||||||||||
| Charge for the year | 9 | 117 | 39 | 18 | 183 | ||||||||||||||||||
| Foreign exchange movements | - | 76 | 1 | (2) | 75 | ||||||||||||||||||
| Disposals | - | (474) | - | (11) | (485) | ||||||||||||||||||
| At 31 March 2015 | 18 | 653 | 442 | 62 | 1,175 | ||||||||||||||||||
| Net Book Value | |||||||||||||||||||||||
| At 31 March 2015 | 632 | 774 | 189 | 24 | 1,619 | ||||||||||||||||||
| At 31 March 2014 | 641 | 271 | 71 | 19 | 1,002 | ||||||||||||||||||
| At 1 April 2013 | 650 | 384 | 92 | 50 | 1,176 |
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 £295,000 (2014: £306,000) on a historical cost basis giving rise to the current revaluation surplus of £265,000 net of deferred tax provision. This balance is not distributable to shareholders.
Depreciation has been included in the administrative expenses line on the income statement, except for £72,000 (2014: £90,000) of depreciation of production equipment in the 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 | £000's | £000's | £000's | £000's | |||||||||||||||
| At 1 April 2013 | 650 | 145 | 26 | 821 | |||||||||||||||
| Additions | - | 1 | - | 1 | |||||||||||||||
| At 1 April 2014 | 650 | 146 | 26 | 822 | |||||||||||||||
| Additions | - | 3 | - | 3 | |||||||||||||||
| At 31 March 2015 | 650 | 149 | 26 | 825 | |||||||||||||||
| Depreciation | |||||||||||||||||||
| At 1 April 2013 | - | 141 | 9 | 150 | |||||||||||||||
| Charge for the year | 9 | 2 | 7 | 18 | |||||||||||||||
| At 1 April 2014 | 9 | 143 | 16 | 168 | |||||||||||||||
| Charge for the year | 9 | 2 | 6 | 17 | |||||||||||||||
| At 31 March 2015 | 18 | 145 | 22 | 185 | |||||||||||||||
| Net Book Value | |||||||||||||||||||
| At 31 March 2015 | 632 | 4 | 4 | 640 | |||||||||||||||
| At 31 March 2014 | 641 | 3 | 10 | 654 | |||||||||||||||
| At 1 April 2013 | 650 | 4 | 17 | 671 |
13. Investment property
| Group and Company | |||||||||||
| Land and Buildings (freehold) | Total | ||||||||||
| £000's | £000's | ||||||||||
| Cost | |||||||||||
| At March 2013 and 2014 | 157 | 157 | |||||||||
| Revaluation in the year | 32 | 32 | |||||||||
| At March 2015 | 189 | 189 | |||||||||
| Depreciation | |||||||||||
| At March 2013 | 5 | 5 | |||||||||
| Charge for the year | 3 | 3 | |||||||||
| At March 2014 | 8 | 8 | |||||||||
| Charge for the year | 3 | 3 | |||||||||
| Elimination on revaluation | (11) | (11) | |||||||||
| At March 2015 | - | - | |||||||||
| Net Book Value | |||||||||||
| At 31 March 2015 | 189 | 189 | |||||||||
| At 31 March 2014 | 149 | 149 | |||||||||
| At 1 April 2013 | 152 | 152 |
Depreciation has been included in the administrative expenses line on the income statement.
The property in Western Road, Mitcham was valued at £189,000 as at 31 March 2015 by Mr R. Sworn of Kelion Sworn Chartered Surveyors, London W1.
The value of the investment property would have been recorded at £145,000 on a historical cost basis giving rise to the current revaluation surplus of £34,000 net of deferred tax provision. This balance is not distributable to shareholders.
14. Fixed asset investment
| Group | |||||||||||
| Unlisted investments | Total | ||||||||||
| £000's | £000's | ||||||||||
| Cost, fair value and net book value | |||||||||||
| At March 2013 ,2014 and 2015 | 9 | 9 | |||||||||
| Company | |||||||||||
| Unlisted investments | Total | ||||||||||
| Cost or fair value | £000's | £000's | |||||||||
| At March 2013, 2014 and 2015 | 21,273 | 21,273 | |||||||||
| Impairment | |||||||||||
| At March 2013, 2014 and 2015 | 1,191 | 1,191 | |||||||||
| Net Book Value | |||||||||||
| At March 2013, 2014 and 2015 | 20,082 | 20,082 |
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 | ||||||||||||
| ECO Animal Health Japan 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, S. de R. L. de C. V. | 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 | ||||||
| ECO Animal Health Japan Inc. | Distribution of animal drugs | ||||||
| ECO Animal Health USA Corp. | Distribution of animal drugs | ||||||
| Interpet LLC | Non-trading | ||||||
| ECO Animal Health de Mexico, S. de R. L. de C. V. | 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 | Equity | Profit/loss | ||||||||||||||||
| for the year | for the year | ||||||||||||||||||
| 2015 | 2015 | 2014 | 2014 | ||||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||
| ECO Animal Health Limited | 6,687 | 4,141 | 7,546 | 1,697 | |||||||||||||||
| ECO Animal Health Southern Africa (Pty) Limited | 338 | 15 | 323 | (1) | |||||||||||||||
| Zhejiang ECO Biok Animal Health Products Ltd | 6,178 | 1,076 | 4,420 | 1,326 | |||||||||||||||
| ECO Animal Health do Brasil Comercio de ProdutosVeterinarios Ltda | 1,122 | 231 | 1,196 | 119 | |||||||||||||||
| ECO Animal Health Japan Inc. | 723 | 45 | 704 | 77 | |||||||||||||||
| ECO Animal Health de Mexico, S. de R. L. de C. V. | (201) | (70) | (135) | (95) | |||||||||||||||
| ECO Animal Health USA Corp. | (107) | (62) | (39) | (39) |
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 Biok 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.
ECO Animal Health Japan Inc.
ECO Animal Health USA Corp.
ECO Animal Health de Mexico, S. de R. L. de C. V.
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:
| Holding | Shares | Holding | |||||||||||||
| Pharmgate Animal Health Canada Inc | (shares) | in Issue | % | ||||||||||||
| Common shares | 100 | 200 | 50 | ||||||||||||
| Class A shares | 100 | 100 | 100 | ||||||||||||
| Class B shares | - | 100 | - | ||||||||||||
| Holding | Shares | Holding | |||||||||||||
| Pharmgate Animal Health USA LLC | (shares) | in Issue | % | ||||||||||||
| 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.
| Pharmgate Animal Health | |||||||||||||||||||
| Pharmgate LLC | Canada Inc | ||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||
| Current assets | 1,325 | 214 | 335 | 143 | |||||||||||||||
| Current liabilities | (1,308) | (199) | (335) | (143) | |||||||||||||||
| Sales | 3,660 | 1,400 | 2,627 | 771 | |||||||||||||||
| Margins | 1,639 | 748 | 1,508 | 404 | |||||||||||||||
| Expenses | (662) | (527) | (270) | (151) | |||||||||||||||
15. Inventories
| Group | Company | ||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||
| Raw materials and consumables | 5,868 | 3,111 | - | - | |||||||||||||||
| Finished goods and goods for resale | 3,965 | 3,861 | - | - | |||||||||||||||
| 9,833 | 6,972 | - | - | ||||||||||||||||
The cost of inventories recognised as an expense and included in cost of sales in the period amounted to £21,474,000 (2014: £17,635,000).
16. Trade and other receivables
| Group | Company | ||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||
| Trade receivables | 9,870 | 8,574 | - | - | |||||||||||||||
| Amounts owed by group undertakings | - | - | 36,185 | 33,579 | |||||||||||||||
| Amounts owed by joint ventures | 303 | 234 | - | - | |||||||||||||||
| Other receivables | 688 | 573 | 240 | 258 | |||||||||||||||
| Prepayments and accrued income | 661 | 487 | 80 | 71 | |||||||||||||||
| 11,522 | 9,868 | 36,505 | 33,908 | ||||||||||||||||
As at 31 March 2015, trade receivables of £2,085,000 (2014: £2,336,000) due to the Group and £nil (2014: £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 | ||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||
| Up to 3 months past due | 1,546 | 1,585 | - | - | |||||||||||||||
| 3 to 6 months past due | 504 | 352 | - | - | |||||||||||||||
| Over 6 months past due | 35 | 399 | - | - | |||||||||||||||
| 2,085 | 2,336 | - | - | ||||||||||||||||
As at 31 March 2015, trade receivables of £276,000 (2014: £105,000) 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 | ||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||
| Up to 3 months past due | 17 | 16 | - | - | |||||||||||||||
| 3 to 6 months past due | 17 | 5 | - | - | |||||||||||||||
| Over 6 months past due | 242 | 84 | - | - | |||||||||||||||
| 276 | 105 | - | - | ||||||||||||||||
Movement on the Group provision for impairment of trade receivables is as follows:
| Group | 2015 | 2014 | |||||||||
| £000's | £000's | ||||||||||
| Balance at 1 April | 105 | 60 | |||||||||
| Provided in the year | 173 | 50 | |||||||||
| Written off in the year | (2) | (5) | |||||||||
| Balance at 31 March | 276 | 105 |
The carrying amounts of trade and other receivables are denominated in the following currencies:
| Group | Company | ||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||
| Pounds Sterling | 780 | 771 | 36,505 | 33,908 | |||||||||||||||
| Euros | 2,194 | 2,711 | - | - | |||||||||||||||
| U S Dollars | 4,672 | 3,489 | - | ||||||||||||||||
| Chinese RMB | 1,208 | 682 | - | - | |||||||||||||||
| Brazilian Real | 1,117 | 698 | - | - | |||||||||||||||
| Japanese Yen | 478 | 511 | - | - | |||||||||||||||
| Other currencies | 1,073 | 1,006 | - | - | |||||||||||||||
| 11,522 | 9,868 | 36,505 | 33,908 | ||||||||||||||||
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 | ||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||
| Drug registration expenditure | (2,285) | (2,023) | (2,285) | (2,023) | |||||||||||||||
| Freehold property | (66) | (66) | (66) | (66) | |||||||||||||||
| Investment property | (9) | - | (9) | - | |||||||||||||||
| Plant and equipment | (28) | (4) | (28) | (4) | |||||||||||||||
| Tax losses carried forward | 2,196 | 1,916 | 2,196 | 1,916 | |||||||||||||||
| Amount (payable) after more than one year | (192) | (177) | (192) | (177) | |||||||||||||||
The movement on the deferred tax account can be summarised as follows:
| Drug registration expenditure | Freehold property | Investment property | Total | ||||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||
| At 31 March 2014 | (111) | (66) | - | (177) | |||||||||||||||
| (Charge) for the year through income statement | (6) | - | - | (6) | |||||||||||||||
| (Charge) for the year through revaluation reserve | - | - | (9) | (9) | |||||||||||||||
| At 31 March 2015 | (117) | (66) | (9) | (192) |
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 % withholding tax (reduced to 5% in respect of dividends paid out of profits made in 2014 or after). The deferred tax liability in respect of this has not been recognised.
| Company | 2015 | 2015 | 2015 | 2014 | 2014 | ||||||||||||||||||
| Freehold property | Investment property | Total | Freehold property | Total | |||||||||||||||||||
| £000's | £000's | £000's | £000's | £000's | |||||||||||||||||||
| At 1 April 2014 | (66) | - | (66) | (76) | (76) | ||||||||||||||||||
| Movement in the year throughrevaluation reserve | - | (9) | (9) | 10 | 10 | ||||||||||||||||||
| At 31 March 2015 | (66) | (9) | (75) | (66) | (66) |
No charge or credit (2014: no charge or credit) was recognised in the Company’s income statement for the year. A charge of £9,000 (2014: credit of £10,000) 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 | |||||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||||||
| Cash and cash equivalents | 20,091 | 18,240 | 13,219 | 9,230 | |||||||||||||||||||
| Overdrafts | 20 | (2,356) | - | (2,356) | - | ||||||||||||||||||
| Net funds per cash flow | 17,735 | 18,240 | 10,863 | 9,230 | |||||||||||||||||||
19. Trade and other payables
| Group | Company | ||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||
| Trade payables | 6,751 | 4,973 | 90 | 53 | |||||||||||||||
| Amounts due to joint venture | 99 | - | - | - | |||||||||||||||
| Other payables | 1,950 | 305 | 761 | 56 | |||||||||||||||
| Accruals and deferred income | 742 | 1,065 | 80 | 42 | |||||||||||||||
| 9,542 | 6,343 | 931 | 151 | ||||||||||||||||
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 | ||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||
| Short term borrowings | 2,356 | - | 2,356 | - | |||||||||||||||
Currency analysis of short term borrowings
| Group | Company | ||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||
| U S Dollars | 2,356 | - | 2,356 | - | |||||||||||||||
The Group has the facility to overdraw in specific currencies but no 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 £330,000 (2014: £388,000).
Defined Benefit Pension Scheme
The Group operates a defined benefit scheme in the UK for ex-employees only. The scheme is funded by the Company. Contributions by the Company are calculated by a separate actuarial valuation based on the funding policies detailed in the scheme agreement. It aims to provide its members with a pension on retirement equal to 1/60th of their final salary per year of service to the point they left employment with the Group (inflation adjusted), up to a maximum of two thirds of salary.
The scheme is legally separate from the Group and is administered by a Board of Trustees. The Board is made up of representatives of the Group and also of former employees. By law, the Board is required to act in the best interests of current and potential pensioners and has the responsibility of setting investment contribution and other relevant policies.
A full actuarial valuation was carried out at 6 April 2012 and updated 31 March 2015 by a qualified independent actuary. The major assumptions used by the actuary were:
| 31 March | 1 April | ||||||||||
| 2015 | 2014 | ||||||||||
| Discount rate | 3.20% | 4.30% | |||||||||
| Rate of increase in pension payment | 2.20% | 2.45% | |||||||||
| Inflation assumption with a maximum of 5% p.a. | 2.90% | 3.15% |
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 with reference to members years of birth. 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 as in the previous year.
Under these mortality assumptions, the expected future lifetime for a member retiring at age 65 at the year end would be 22.8 years for males (2014: 22.7 years) and 24.7 years for females (2014: 24.6 years). For members retiring in 20 years time, the expectation of life would be 24.7 years for males (2014: 24.6 years) and 26.0 years for females (2014: 26.0 years).
The weighted average term of the liabilities is 17.0 years (2014: 17.0 years).
The scheme is exposed to a number of risks, including:
1. Interest rate risk: Movements in the discount rate used could affect the present value of the defined benefit pension obligations.
2. Longevity risk: Changes in the estimated mortality rates of former employees could affect the present value of the defined benefit pension obligations.
3. Investment risk: Variations in the actual return from the scheme’s investments could affect the scheme’s ability to meet its future pension obligations.
| Results | 2015 | 2014 | |||||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||
| Assets at start of year | 2,680 | 2,760 | |||||||||||||||||
| Defined benefit obligation at start of year | (2,478) | (2,631) | |||||||||||||||||
| Net asset at 1 April | 202 | 129 | |||||||||||||||||
| Current service cost, including risk benefits | (4) | (4) | |||||||||||||||||
| Operating cost | (4) | (4) | |||||||||||||||||
| Expected return on assets | 115 | 113 | |||||||||||||||||
| Interest cost | (107) | (108) | |||||||||||||||||
| 8 | 5 | ||||||||||||||||||
| Gain on asset return | 78 | 2 | |||||||||||||||||
| Experience gain | 2 | 4 | |||||||||||||||||
| (Loss)/gain on changes in assumptions | (135) | 19 | |||||||||||||||||
| Statement of other comprehensive income | (55) | 25 | |||||||||||||||||
| Employer contributions gross | 59 | 54 | |||||||||||||||||
| Expenses paid by trustees | (7) | (7) | |||||||||||||||||
| 52 | 47 | ||||||||||||||||||
| Net asset at 31 March 2015 | 203 | 202 | |||||||||||||||||
| Actual assets at end of year | 2,985 | 2,680 | |||||||||||||||||
| Actual defined benefit obligation at end ofyear | (2,782) | (2,478) |
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
| 2015 | 2014 | ||||||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||
| Fair value of assets at 1 April | 2,680 | 2,760 | |||||||||||||||||
| Expected return on assets | 115 | 113 | |||||||||||||||||
| Gain on asset return | 78 | 2 | |||||||||||||||||
| Employer contributions (gross) | 59 | 54 | |||||||||||||||||
| Death in service insurance premiums paid | (4) | (4) | |||||||||||||||||
| Expenses paid by trustees | (7) | (7) | |||||||||||||||||
| Increase/(decrease) in secured pensioners'value due to scheme experience | 64 | (238) | |||||||||||||||||
| Fair value of assets at 31 March 2015 | 2,985 | 2,680 | |||||||||||||||||
| Reconciliation of changes in the liability value during the year | |||||||||||||||||||
| Defined benefit obligation at 1 April | 2,478 | 2,631 | |||||||||||||||||
| Interest cost | 107 | 108 | |||||||||||||||||
| Experience (gain) on liabilities | (2) | (4) | |||||||||||||||||
| Loss/(gain) on changes in assumptions | 135 | (19) | |||||||||||||||||
| Increase/(decrease) in secured pensioners'value due to scheme experience | 64 | (238) | |||||||||||||||||
| Defined benefit obligation at 31 March 2015 | 2,782 | 2,478 | |||||||||||||||||
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, (2014: £4,000).
| Year ended 31 March | 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||||
| £000's | £000's | £000's | £000's | £000's | |||||||||||||||||||
| Fair value of plan assets | 2,985 | 2,680 | 2,760 | 2,959 | 2,596 | ||||||||||||||||||
| Present value of defined benefitobligation | 2,782 | 2,478 | 2,631 | 2,957 | 2,684 | ||||||||||||||||||
| Surplus/(deficit) in plan | 203 | 202 | 129 | 2 | 88 | ||||||||||||||||||
| Experience gains on planliabilities | 2 | 4 | (31) | (5) | 1 |
Defined benefit obligation – sensitivity analysis
The following amounts are the effect (on the defined benefit obligation) of reasonably possible changes to one key actuarial assumption, holding all other assumptions constant, as required by IAS 19.
| Actuarial assumption | Reasonably Possible Change | (Decrease)/Increase in Defined Benefit Obligation | |||||||||||||
| £000's | £000's | ||||||||||||||
| Discount rate | (+/- 1%) | (125) | 162 | ||||||||||||
| Increase in inflation | (+/- 1%) | 6 | (7) | ||||||||||||
| Members' life expectancy | (+/- 1year) | 28 | (29) | ||||||||||||
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:
| 2015 | 2014 | ||||||||||
| £000's | £000's | ||||||||||
| Total expense arising from equity settled share-based transactions | 252 | 307 |
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 | ||||||||||||||||||||||||||||||||
| 2015 | 2015 | 2015 | 2015 | 2014 | 2014 | 2014 | 2014 | ||||||||||||||||||||||||||||
| 000's | WAEP | 000's | WAEP | 000's | WAEP | 000's | WAEP | ||||||||||||||||||||||||||||
| £ | £ | £ | £ | ||||||||||||||||||||||||||||||||
| Outstanding at 1 April | 3,441 | 1.94 | 2,603 | 2.00 | 3,449 | 1.50 | 2,603 | 2.00 | |||||||||||||||||||||||||||
| Granted during the period | 874 | 1.89 | - | - | 979 | 2.07 | - | - | |||||||||||||||||||||||||||
| Expired/cancelled during theperiod | (9) | 1.89 | - | - | (185) | 1.54 | - | - | |||||||||||||||||||||||||||
| Exercised during the period | (664) | 1.20 | - | - | (802) | 1.42 | - | - | |||||||||||||||||||||||||||
| Outstanding at 31 March | 3,642 | 1.82 | 2,603 | 2.00 | 3,441 | 1.94 | 2,603 | 2.00 | |||||||||||||||||||||||||||
| Exercisable at 31 March | 1,406 | 1.48 | 2,603 | 2.00 | 1,665 | 1.28 | 315 | 2.00 | |||||||||||||||||||||||||||
The average share price during the year was 183.1p (2014: 217.9p).
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 2015 had a weighted average share price of £1.82 and a weighted average contractual life of 4.9 years (2014: 4.6 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 | 139,455 | 108.50 | 03 March 2018 | ||||||||||||||||
| 18 September 2008 | 30,000 | 85.00 | 18 September 2018 | ||||||||||||||||
| 18 September 2008 | 80,000 | 85.00 | 18 September 2015 | ||||||||||||||||
| 30 April 2009 | 29,600 | 147.00 | 30 April 2019 | ||||||||||||||||
| 30 April 2009 | 172,400 | 147.00 | 30 April 2016 | ||||||||||||||||
| 06 August 2009 | 22,000 | 135.00 | 06 August 2019 | ||||||||||||||||
| 06 August 2009 | 68,000 | 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 | ||||||||||||||||
| 20 May 2010 | 76,100 | 140.00 | 20 May 2020 | ||||||||||||||||
| 20 May 2010 | 338,900 | 140.00 | 20 May 2017 | ||||||||||||||||
| 11 October 2013 | 127,100 | 186.50 | 11 October 2021 | ||||||||||||||||
| 11 October 2013 | 268,400 | 186.50 | 11 October 2018 | ||||||||||||||||
| 09 July 2013 | 375,000 | 222.50 | 09 July 2018 | ||||||||||||||||
| 30 July 2013 | 10,000 | 254.00 | 30 July 2018 | ||||||||||||||||
| 24 April 2013 | 26,060 | 215.00 | 24 April 2020 | ||||||||||||||||
| 20 August 2013 | 13,200 | 226.00 | 20 August 2023 | ||||||||||||||||
| 20 August 2013 | 306,800 | 226.00 | 20 August 2020 | ||||||||||||||||
| 09 October 2013 | 87,940 | 196.00 | 09 October 2023 | ||||||||||||||||
| 09 October 2013 | 478,060 | 196.00 | 09 October 2020 | ||||||||||||||||
| 22 January 2014 | 14,450 | 207.50 | 22 January 2024 | ||||||||||||||||
| 22 January 2014 | 50,550 | 207.50 | 22 January 2021 | ||||||||||||||||
| 07 August 2014 | 79,800 | 161.50 | 07 August 2024 | ||||||||||||||||
| 07 August 2014 | 178,700 | 161.50 | 07 August 2021 | ||||||||||||||||
| 13 February 2015 | 136,300 | 200.50 | 13 February 2025 | ||||||||||||||||
| 13 February 2015 | 479,200 | 200.50 | 13 February 2022 | ||||||||||||||||
| 2,816,660 | 825,835 |
ECO Animal Health Group plc Joint Share Ownership Plan
In accordance with the Group’s 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 2015 was 205.0p with a range in the year of 155.5p to 223.5p.
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.
| 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||||||
| 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 theshares | 2.0-2.3% | 1.4-1.9% | 1.40% | 1.00% | 4.50% | ||||||||||||||||||
| Risk free rate (average) | 1.00% | 0.5-1.2% | 0.50% | 2.00% | 2.00% | ||||||||||||||||||
| Volatility of share price | 15% | 20% | 25% | 27% | 45% | ||||||||||||||||||
| Weighted average fair value | 19.2 | 29.1 | 38.7 | 41.0 | 37.8 |
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 or the previous year.
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 same 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
| 2015 | 2014 | ||||||||||
| £000's | £000's | ||||||||||
| Authorised | |||||||||||
| 68,100,000 Ordinary shares of 5p each | 3,405 | 3,405 | |||||||||
| 10,790 Deferred ordinary shares of 10p each | 1 | 1 | |||||||||
| 32,334 Convertible preference shares of £1 each | 32 | 32 | |||||||||
| 3,438 | 3,438 | ||||||||||
| Allotted, called up and fully paid | |||||||||||
| 63,142,421 (2014: 62,474,231) Ordinary shares of 5p each | 3,157 | 3,124 | |||||||||
During the year the Company bought 8,078 of its own shares into treasury at an average price of £2.08.
During the year 668,190 shares were issued at a premium of £769,000 mostly as a result of the exercise of options by employees.
24. Minority interests
| 2015 | 2015 | 2014 | 2014 | ||||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||
| Balance at 1 April | 2,168 | 2,458 | |||||||||||||||||
| Share of subsidiary's profit for the year | 527 | 650 | |||||||||||||||||
| Share of foreign exchange gain/(loss) on netinvestment | 334 | (141) | |||||||||||||||||
| 861 | 509 | ||||||||||||||||||
| Share of dividend paid by subsidiary | - | (799) | |||||||||||||||||
| Balance at 31 March | 3,029 | 2,168 | |||||||||||||||||
25. Treasury share reserve
| 2015 | 2014 | ||||||||||
| £000's | £000's | ||||||||||
| Balance at 1 April 2014 and 31 March 2015 | 5,217 | 5,217 |
Treasury share reserve consists of £5,217,000 (2014: £5,217,000), 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 payments | Total | |||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||
| At 31 March 2013 | 106 | 3,250 | 1,694 | 5,050 | |||||||||||||||
| Share-based payments | - | - | 307 | 307 | |||||||||||||||
| Transfer to retained earnings on expiry of options | - | - | (291) | (291) | |||||||||||||||
| Transfer to share premium on issue of equity in the year | - | (3,250) | - | (3,250) | |||||||||||||||
| At 1 April 2014 | 106 | - | 1,710 | 1,816 | |||||||||||||||
| Share-based payments | - | - | 252 | 252 | |||||||||||||||
| Transfer to retained earnings on expiry of options | - | - | (293) | (293) | |||||||||||||||
| At 31 March 2015 | 106 | - | 1,669 | 1,775 |
The only material reserve remaining at the year end is the reserve for share based payments which records the total amount which has been charged to the Group’s results in respect of unexpired share based payment arrangements.
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 | Movement | At 31 March | |||||||||||||
| 2014 | in the year | 2015 | |||||||||||||
| £000's | £000's | £000's | |||||||||||||
| In respect of: | |||||||||||||||
| Zhejiang ECO Biok Animal Health Products Limited | 398 | 348 | 746 | ||||||||||||
| ECO Animal Health do Brasil Comercio de ProdutosVeterinarios Ltda | (122) | (305) | (427) | ||||||||||||
| ECO Animal Health Japan Inc. | (135) | (26) | (161) | ||||||||||||
| Eco Animal Health USA Corp. | - | (7) | (7) | ||||||||||||
| ECO Animal Health de Mexico, S. de R. L. de C. V. | (37) | 4 | (33) | ||||||||||||
| ECO Animal Health Southern Africa (pty) Ltd. | - | - | - | ||||||||||||
| Pharmgate LLC | (1) | 2 | 1 | ||||||||||||
| Pharmgate Canada LLC | - | - | - | ||||||||||||
| Foreign currency differences attributable to owner credited directly toreserves. | 16 |
27. Financial commitments
At 31 March 2015 the Group had minimum commitments under non-cancellable operating leases as follows:
| Land and Buildings | Other | ||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||
| Expiry date: | |||||||||||||||||||
| Within one year | 403 | 377 | 70 | 55 | |||||||||||||||
| Between two and five years | 582 | 628 | 95 | 94 | |||||||||||||||
| In over five years | 1,364 | 1,249 | - | - | |||||||||||||||
| 2,349 | 2,254 | 165 | 149 | ||||||||||||||||
| Minimum expected sublease rentalreceipts: | |||||||||||||||||||
| Within one year | 140 | 120 | - | - | |||||||||||||||
| Between two and five years | 194 | 285 | - | - | |||||||||||||||
| 334 | 405 | - | - | ||||||||||||||||
28. Capital commitments
The group had no authorised capital commitments as at 31 March 2015 (2014: Nil).
29. Directors’ emoluments
| 2015 | 2014 | ||||||||||
| £000's | £000's | ||||||||||
| Emoluments for qualifying services | 662 | 545 | |||||||||
| Company pension contributions to money purchase schemes | 94 | 147 | |||||||||
| Share-based payments | 151 | 189 | |||||||||
| Benefits in kind | 23 | 21 | |||||||||
| 930 | 902 |
During the year the directors exercised 112,910 (2014: 698,370) share options realising a gain of £83,000 (2014: £296,000).
The number of directors for whom retirement benefits are accruing under money purchase pension schemes amounted to 3 (2014: 3). No directors accrued benefits under defined benefit schemes for this or the previous year.
The highest paid director received £379,000 (2014: £377,000) including share-based payments and £40,000 (2014: £50,000) of pension contributions.
30. Employees
Number of employees
The average number of employees (including directors) during the year was:
| 2015 | 2014 | ||||||||||
| Number | Number | ||||||||||
| Directors | 7 | 7 | |||||||||
| Production and development | 58 | 52 | |||||||||
| Administration | 40 | 39 | |||||||||
| Sales | 73 | 67 | |||||||||
| 178 | 165 | ||||||||||
| Employment costs (including amounts capitalised) | |||||||||||
| 2015 | 2014 | ||||||||||
| £000's | £000's | ||||||||||
| Wages and salaries | 6,095 | 4,818 | |||||||||
| Share-based payments | 252 | 307 | |||||||||
| Social security costs | 419 | 370 | |||||||||
| Other pension costs | 334 | 392 | |||||||||
| 7,100 | 5,887 | ||||||||||
31. Related party transactions
During the year P Lawrence and his family received dividends in the form of cash and shares to the value of £478,000 (2014: £451,000). At the year end ECO Animal Health Group plc owed P A Lawrence and members of his family a total of £619,000 (2014: £1,000). The maximum amount briefly outstanding from P Lawrence and connected parties during the year was £312,000. No interest was paid or received in respect of these balances which are payable on demand.
The other directors and their families received dividends to the value of £1,000 (2014: £3,000).
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 £33,000 (2014: £33,000) 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 £43,000 (2014: £43,000) 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 (payables)/receivables (net) | Sales | Year end receivables (net) | |||||||||||||||
| 2015 | 2015 | 2014 | 2014 | ||||||||||||||||
| £000's | £000's | £000's | £000's | ||||||||||||||||
| Zhejiang ECO Biok Animal Health Products Limited | 3,814 | 292 | 2,563 | - | |||||||||||||||
| ECO Animal Health do Brasil Comercio deProdutos Veterinarios Ltda. | 3,334 | 162 | 1,590 | (1) | |||||||||||||||
| ECO Animal Health Japan Inc. | 970 | 196 | 1,091 | 177 | |||||||||||||||
| ECO Animal Health de Mexico, S. de R. L. de C. V. | 146 | 839 | 289 | 827 | |||||||||||||||
| ECO Animal Health USA Corp. | 3,324 | 890 | 977 | 551 |
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 £195,000 (2014: £208,000) and charged interest of £490,000 (2014: £455,000) 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 ECO Animal Health Japan Inc. amounting to £30,000 (2014: £66,000). The whole transaction was eliminated on consolidation.
ECO Animal Health Limited also paid £341,000 (2014: £302,000) of service charges to ECO Animal Health USA Corp. during the year. This transaction was eliminated on consolidation.
During the year ECO Animal Health Limited paid interest of £15,000 (2014: nil) to ECO Animal Health Southern Africa (Pty) Limited. 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 (2014: £63,000) and no dividend to ECO Animal Health Limited (2014: £768,000).
During the year ECO Animal Health Limited declared a dividend of £5,000,000 payable to ECO Animal Health Group plc (2014: nil). This has been eliminated on consolidation.
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.
Joint Ventures
During the year ECO Animal Health Limited made sales on an arm’s length basis of £1,962,000 (2014: £520,000) to Pharmgate Animal Health Canada LLC. The balance outstanding at the year end was £286,000 (2014: £197,000).
Key management compensation
The group regards the board of directors as its key management.
| 2015 | 2014 | ||||||||||
| £000's | £000's | ||||||||||
| Salaries and short term benefits | 686 | 566 | |||||||||
| Retirement benefits | 94 | 147 | |||||||||
| Share-based payments | 150 | 189 | |||||||||
| 930 | 902 | ||||||||||
The number of directors for which retirement benefits are accruing is 3 (2014: 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 Group was exposed to interest rates on currency overdraft facilities of £2,356,000 (2014: no exposure).
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 2015 the Group was contractually obliged to make repayments as detailed below:
| 2015 | 2014 | ||||||||||
| WITHIN ONE YEAR OR ON DEMAND | £000's | £000's | |||||||||
| Bank overdrafts | 2,356 | - | |||||||||
| Trade payables | 6,751 | 4,973 | |||||||||
| 9,107 | 4,973 | ||||||||||
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 (for example Venezuela) which are from time to time subject to restrictions in the free movement of funds. 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, the USA and Japan and its Joint Venture in Canada and is subject to currency exposure on transactions undertaken during the year. The Group does some 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 | |||||||||||||||||||||||||||||||
| 2015 | US Dollar | Euros | Rand | Chinese RMB | Japanese Yen | Brazilian Real | Other | ||||||||||||||||||||||||
| Sterling equivalent(000's) | (2,644) | 2,974 | 364 | 3,334 | 422 | 1,227 | 1,750 | ||||||||||||||||||||||||
| 2014 | |||||||||||||||||||||||||||||||
| Sterling equivalent(000's) | 2,951 | 4,206 | 537 | 3,274 | 2,091 | 1,191 | 1,002 | ||||||||||||||||||||||||
At 31 March 2015 the Group was mainly exposed to the Dollar, 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 2015. A positive number indicates the decrease in profit which would arise from a 10 per cent weakening of the foreign currency concerned.
| 2015 | 2014 | ||||||||||
| £000's | £000's | ||||||||||
| U S Dollar | (240) | 268 | |||||||||
| Euro | 270 | 382 | |||||||||
| Chinese RMB | 303 | 298 | |||||||||
| Japanese Yen | 38 | 190 | |||||||||
| Brazilian Real | 111 | 108 |
Analysis of financial instruments by category
Group
| Loans and receivables | Total | ||||||||||
| 2015 | £000's | £000's | |||||||||
| Investments | 9 | 9 | |||||||||
| Trade and other receivables (excluding prepayments) | 10,861 | 10,861 | |||||||||
| Cash and cash equivalents | 20,091 | 20,091 | |||||||||
| 2014 | Loans and receivables | Total | |||||||||
| £000's | £000's | ||||||||||
| Investments | 9 | 9 | |||||||||
| Trade and other receivables (excluding prepayments) | 9,381 | 9,381 | |||||||||
| Cash and cash equivalents | 18,240 | 18,240 |
Company
| Loans and receivables | Total | ||||||||||
| 2015 | £000's | £000's | |||||||||
| Trade and other receivables (excluding prepayments) | 36,425 | 36,425 | |||||||||
| Cash and cash equivalents | 13,219 | 13,219 | |||||||||
| 2014 | Loans and receivables | Total | |||||||||
| £000's | £000's | ||||||||||
| Trade and other receivables (excluding prepayments) | 33,837 | 33,837 | |||||||||
| Cash and cash equivalents | 9,230 | 9,230 |
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 events
ECO Animal Health Group plc issued 30,000 shares on the 14th April 2015 and a further 25,000 shares on 15th April 2015, both as a result of the exercise of options by current and former employees.
ECO Animal Health Group plc purchased 6,487 of its own shares at an average price of £2.41 on 23 April 2015 and a further 2,381 shares at an average price of £3.02 in June 2015.
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