Eco Animal Regulatory News (EAH)

10 Dec 2018 07:00

10 December 2018

ECO Animal Health Group plc (‘’ECO”)(AIM: EAH)

Results for the six months ended 30 September 2018

ECO REPORTS ANOTHER STRONG PERFORMANCE

HIGHLIGHTS

Financials

9% increase in sales to £31.7m (2017: £29.2m) equivalent to 11% increase at CER 15% increase in pre-tax profit to £6.8m (2017: £5.9m) 19% increase in earnings per share to 7.62.p (2017: 6.39p) 36% increase in free cash flow to £3.8m (2017: £2.7m 5% increase in adjusted EBITDA to £8.6m (2017: £8.2m) equivalent to c. 7.4 % increase at CER 25% increase in interim dividend to 4.0p (2017: 3.2p) and additional distribution of 3.5p per share Net cash of £24.7m at the period end (2017: £20.3m)

Operations

Demand for Aivlosin® continues to grow strongly. Recovery in Latin America. New vaccine development & distribution agreement signed for the UK, Europe, the Commonwealth of Independent States (CIS), with Japan and Brazil added after period end. New marketing authorisations gained in Vietnam with further authorisations expected in Canada, USA and South East Asia. Continued investment in new routes to market, product development and people to support future growth.

Peter Lawrence, Non-executive Chairman of ECO Animal Health Group plc, commented:

“The second half of the year has started well with a strong and growing order book. ECO has a sound balance sheet with good and reliable cash generation. The Company continues to invest in product development programmes, such as our recently announced vaccine initiatives. We are also working to broaden our portfolio, obtain additional Aivlosin® marketing authorisations and further improve efficiencies in production. I look forward with confidence to reporting another set of impressive results in 2019.”

Contacts:
ECO Animal Health Group plc
Peter Lawrence				020 8336 6190
Marc Loomes				020 8447 6906
Spiro Financial
Anthony Spiro				020 8336 6196
N+1 Singer (Nominated Advisor)
Mark Taylor, Brough Ransom				020 7496 3000
Peel Hunt LLP (Joint Broker)				020 7418 8955
James Steel, Dr Christopher Golden				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

I am pleased to report that ECO Animal Health Group has delivered another set of record results for the six months to 30 September 2018. ECO provides essential medications to the ever growing global animal protein production industry. The success of the Company is built on its investment over many years in obtaining marketing authorisations, which are a legal requirement in all of the countries it serves. Currently ECO holds over seven hundred marketing authorisations and its products are prescribed and sold in some 70 countries. Our operations are managed by our 14 offices around the world.

Eight per cent of ECO’s sales are to EU markets and we have protected the Company’s position in Europe post Brexit by establishing a subsidiary, ECO Animal Health Europe Ltd, in Dublin. We expect to have our EU marketing authorisations transferred into this legal entity well before March 2019 at minimal cost to the Company. In addition, this new company formed a joint venture in April 2018 with our North American partner, Pharmgate LLC, to market Pharmgate’s range of swine vaccines in the UK, the EU and the Commonwealth of Independent States; the right to sell in other territories is under discussion. We have recruited a number of experts in the field of vaccine development and registration to support this new venture. Shortly after the end of the period under review, the scope of this joint venture was extended to include Brazil and Japan. It is expected that further vaccine products will flow from our biological research and development pipeline.

Financial performance

Profit before tax in the period under review increased by over 15 per cent to £6.8m (2017: £5.9m) on sales up almost 9 per cent to £31.7m (2017: £29.2m) equivalent to 11 per cent increase at CER. Gross profit advanced by over 6 per cent to £15.1m (2017: £14.2m) and earnings per share rose 19 per cent to 7.62 pence per share (2017: 6.30 pence). Cash generated from operations remained robust advancing to £8.9m (2017: £7.2m) with free cash flow at £3.8m (2017: £2.7m). Net cash at the period end had risen to £24.7m (2017: £20.3m). Earnings before interest, tax, depreciation, amortisation, share based payments and non-controlling (minority) interests were £8.6m (2017: £8.2m), an increase of 5 per cent (c.7.4 per cent increase at CER).

Dividends

The board is pleased to declare an interim dividend of 4.0 pence per share (2017: 3.2 pence) to be paid on 12 April 2019 to shareholders on the register on 1 March 2019 ( Ex dividend 28 February 2019). This increase of 25 per cent reflects the board’s continued confidence in the sustainable growth of our international business. In addition, the board, after a detailed review of the Company’s cash requirements and taking into account the significant cash balance at the period end, has declared a special distribution of 3.5 pence per share to be paid on 9 January 2019 to shareholders on the register on 21 December 2018 (Ex dividend 20 December 2018).

Operations:

Sales of Aivlosin®, our patented molecule for the treatment of economically important diseases in pigs and poultry, increased by almost 6 per cent in sterling (8.5 per cent CER). Aivlosin® is prescribed under strict veterinary control at low, yet efficacious, dose rates for short duration treatments of specified diseases. It meets all current guidelines for the responsible use of antimicrobials, which when used appropriately, help to promote animal welfare and food safety. This growth was organic and achieved without the benefit of new marketing authorisations.

The pattern of sales in the period reflects both the global reach of our business and the nature of the production of pork and poultry as commodities. Revenue growth across Latin America was strong, led by our subsidiaries in Mexico and in Brazil where the early signs of a recovery are evident.

In China, our subsidiary, Zhejiang ECO Biok Animal Health Products Co. Ltd (ECO Biok) posted solid growth despite the challenge of softer pork prices, trade wars and disease and in advance of marketing authorisations to target poultry producers. The recently declared outbreak of African Swine Fever (ASF) in China has affected ECO Biok’s ability to sell on farm for fear of spreading infection. The authorities are trying to contain the disease, which appears to be affecting producers mostly in northern China, although business in the south, while competitive, remains positive. Pork however is a global commodity and there will always be winners and losers amongst the major producing and exporting countries. ECO has experienced many years of animal disease outbreaks and with our global reach and experience, it is hoped that while not yet certain, the current situation can be managed.

In Canada, business was robust, whilst in the USA producers were adversely affected by lower pork prices during the period under review but subsequently prices have started to recover. Sales in Japan, our most mature market, showed a modest increase compared to the prior year.

Revenue in the UK, where ECO has developed very good relationships with key swine and poultry (layer) producers, grew strongly. In Europe, sales were hampered by distribution restructuring and the timing of third party manufacturing audits by external regulatory authorities.

In late August, ECO received a marketing authorisation in Vietnam, the fourth largest egg producing country in Southeast Asia, for the use of Aivlosin® 625 mg/g water soluble granules for both pigs and poultry. This authorisation allows ECO to start selling Aivlosin® in Vietnam for the medication of drinking water for the treatment and prevention of porcine proliferative enteropathy (PPE) caused by Lawsonia intracellularis in pigs, the treatment and prevention of respiratory disease associated with Mycoplasma gallisepticum in chickens and the treatment of respiratory disease in turkeys associated with Ornithobacterium rhinotracheale. Importantly, this license allows ECO to submit the EU approved Aivlosin® regulatory files for the treatment of commercial layers in Vietnam, The granting of a zero withdrawal period is a significant advantage to egg producers, who as a result, are not required to destroy eggs laid while birds are being treated.

ECO Animal Health India became fully operational after the period end. It is expected that further ECO subsidiaries will be established in key countries which produce protein of animal origin in the future.

Outlook:

The second half of the year has started well with a strong and growing order book. ECO has a sound balance sheet with good and reliable cash generation. The Company continues to invest in product development programmes, such as our recently announced vaccine initiatives. We are also working to broaden our portfolio, obtain additional Aivlosin® marketing authorisations and further improve efficiencies in production. I look forward with confidence to reporting another set of impressive results in 2019.

Peter A Lawrence

Non-executive Chairman

7 December 2018

CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS TO 30 SEPTEMBER 2018
				Six months		Six months		Year
				to		to		ended
				30.09.18		30.09.17		31.03.18
		Notes		(unaudited)		(unaudited)		(audited)
				£000		£000		£000
Revenue		3		31,745		29,204		67,201
Cost of sales				(16,659)		(14,970)		(34,986)
Gross Profit				15,086		14,234		32,215
Other operating income				30		138		436
Administrative expenses				(6,801)		(6,050)		(13,363)
Currency profits/(losses)				105		(300)		(970)
Amortisation of intangible assets				(1,999)		(1,700)		(3,428)
Share based payments				(375)		(380)		(778)
Profit from operating activities:				6,046		5,942		14,112
Net finance income/(costs)				697		(102)		(247)
Share of profit of associate				27		24		7
Profit before income tax				6,770		5,864		13,872
Income tax charge				(765)		(641)		(2,225)
Profit for the period from continuing operations				6,005		5,223		11,647
Attributable to:
Owners				5,052		4,188		9,315
Minority interest				953		1,035		2,332
				6,005		5,223		11,647
BASIC EARNINGS PER SHARE		5		7.62p		6.39p		14.19p
FULLY DILUTED EARNINGS PER SHARE		5		7.46p		6.37p		14.06p
Earnings from continuing activities before
interest, taxation, depreciation, amortisation
and share based payments
EBITDA				8,597		8,185		18,601
Exclude foreign exchange differences				(105)		300		970
EBITDA excluding foreign exchange differences				8,492		8,485		19,571

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS TO 30 SEPTEMBER 2018
		Six months		Six months		Year
		to		to		ended
		30.09.18		30.09.17		31.03.18
		(unaudited)		(unaudited)		(audited)
		£000		£000		£000
Profit for the period		6,005		5,223		11,647
Foreign currency translation differences		(282)		(482)		(372)
Defined benefit pension plan - actuarial losses		-		-		(15)
Other comprehensive income for the period		(282)		(482)		(387)
Total comprehensive income for the period		5,723		4,741		11,260
Attributable to:
Owners		4,873		3,858		9,028
Minority interest		850		883		2,232
		5,723		4,741		11,260

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS TO 30SEPTEMBER 2018
		Share		Share		Other		Revaluation		Retained		Total		Non-Controlling Minority		Total
		Capital		Premium		Reserves		Reserves		Earnings				Interest		Equity
		Account		Account
		£000		£000		£000		£000		£000		£000		£000		£000
At 1 April 2017		3,271		58,154		2,449		664		29,293		93,831		4,342		98,173
Profit for the year		-		-		-		-		9,315		9,315		2,332		11,647
Other comprehensive income:
Foreign currency differences		-		-		-		-		(272)		(272)		(100)		(372)
Actuarial (losses) on pension scheme assets		-		-		-		-		(15)		(15)		-		(15)
Total comprehensive income for the year		-		-		-		-		9,028		9,028		2,232		11,260
Transactions with owners recorded directly in equity
Contributions by anddistributions to owners
Issue of shares in the year		20		693		-		-		-		713		-		713
Share-based payments		-		-		778		-		-		778		-		778
Transfers on expiry of options		-		-		(404)		-		404		-		-		-
Dividends relating to 2017		-		-		-		-		(4,660)		(4,660)		(1,389)		(6,049)
Transactions with owners		20		693		374		-		(4,256)		(3,169)		(1,389)		(4,558)
At 31 March 2018		3,291		58,847		2,823		664		34,065		99,690		5,185		104,875
Total comprehensive incomefor the period:
Profit for the period		-		-		-		-		5,052		5,052		953		6,005
Other comprehensive income
Foreign currency translation differences		-		-		-		-		(179)		(179)		(103)		(282)
Total comprehensive income for the period		-		-		-		-		4,873		4,873		850		5,723
Transactions with owners
Issue of shares in the year		67		3,058		-		-		-		3,125		-		3,125
Share based payments		-		-		375		-		-		375		-		375
Dividends relating to 2018		-		-		-		-		(2,106)		(2,106)		(1,643)		(3,749)
Total transactions with owners		67		3,058		375		-		(2,106)		1,394		(1,643)		(249)
At 30 September 2018		3,358		61,905		3,198		664		36,832		105,957		4,392		110,349

														Non-
														Controlling
		Share		Share		Other		Revaluation		Retained		Total		Minority		Total
		Capital		Premium		Reserves		Reserves		Earnings				Interest		Equity
		Account		Account
		£000		£000		£000		£000		£000		£000		£000		£000
Prior interim period
At 1 April 2017		3,271		58,154		2,449		664		29,293		93,831		4,342		98,173
Total comprehensive incomefor the period:
Profit for the period		-		-		-		-		4,188		4,188		1,035		5,223
Other comprehensiveincome
Foreign currency translation differences		-		-		-		-		(330)		(330)		(152)		(482)
Total comprehensive income for the period		-		-		-		-		3,858		3,858		883		4,741
Transactions with owners
Issue of shares in the year		17		568		-		-		-		585		-		585
Share based payments		-		-		380		-		-		380		-		380
Transfer to retained earnings on option expiry		-		-		(294)		-		294		-		-		-
Dividends		-		-		-		-		(1,635)		(1,635)		(1,389)		(3,024)
Total transactions with owners		17		568		86		-		(1,341)		(670)		(1,389)		(2,059)
At 30 September 2017		3,288		58,722		2,535		664		31,810		97,019		3,836		100,855

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
				As at		As at		As at
				30.09.18		30.09.17		31.03.18
				(unaudited)		(unaudited)		(audited)
		Notes		£000		£000		£000
ASSETS
Non current assets
Goodwill and other intangibles		8		59,840		55,956		57,631
Property,plant and equipment		9		2,127		1,888		1,866
Investment property		10		200		185		200
Investments				125		113		98
				62,292		58,142		59,795
Current assets
Inventories				18,302		18,830		17,663
Trade and other receivables				18,528		14,583		17,193
Income tax recoverable				362		470		113
Other taxes and social security				1,004		961		1,160
Cash and cash equivalents				24,729		20,304		21,261
				62,925		55,148		57,390
Total assets				125,217		113,290		117,185
Current liabilities
Trade and other payables				(11,635)		(10,260)		(10,715)
Income tax				(378)		(244)		(152)
Other taxes and social security				(1,405)		(702)		(108)
Dividends				(50)		(40)		(42)
				(13,468)		(11,246)		(11,017)
Total assets less current liabilities				111,749		102,044		106,168
Non current liabilities
Deferred tax				(1,400)		(1,189)		(1,293)
				110,349		100,855		104,875
Equity
Capital and reserves
Called up share capital				3,358		3,288		3,291
Share premium				61,905		58,722		58,847
Revaluation reserve				664		664		664
Other reserves				3,198		2,535		2,823
Retained earnings				36,832		31,810		34,065
				105,957		97,019		99,690
Minority interest				4,392		3,836		5,185
Total equity				110,349		100,855		104,875

CONSOLIDATED STATEMENT OF CASH FLOWS
		Six months to		Six months to		Year ended
		30.09.18		30.09.17		31.03.18
		(unaudited)		(unaudited)		(audited)
		£000		£000		£000
Cashflows from operating activities
Profit before tax		6,770		5,864		13,872
Adjustment for:
Net finance (income)/costs		(697)		102		247
Depreciation of property plant and equipment		149		139		297
Revaluation of investment property		-		-		(15)
Amortisation of intangible assets		1,999		1,700		3,428
Pension payments		(29)		-		(39)
Share of associate's results		(27)		(24)		(7)
Share based payments		375		380		778
Operating cash flow before movement in working capital		8,540		8,161		18,561
Change in inventories		(639)		845		2,012
Change in receivables		(1,179)		1,511		(1,298)
Change in payables		2,246		(3,318)		(3,432)
Cash generated from operations		8,968		7,199		15,843
Finance costs		-		-		(14)
Income tax (paid)		(681)		(548)		(1,763)
Net cash inflow from operating activities		8,287		6,651		14,066
Cash flows from investing activities
Purchase of property plant and equipment		(431)		(194)		(324)
Disposal of property plant and equipment		-		-		1
Costs of acquiring drug registrations		(4,208)		(3,773)		(7,176)
Finance income		70		61		138
Net cash (used in) investing activities		(4,569)		(3,906)		(7,361)
Cash flows from financing activities
Proceeds from issue of share capital		3,125		585		713
Dividends paid		(3,741)		(3,024)		(6,046)
Net cash (used in) financing activities		(616)		(2,439)		(5,333)
Net increase in cash and cash equivalents		3,102		306		1,372
Foreign exchange movements		366		(604)		(713)
Cash and cash equivalents at the beginning of the period		21,261		20,602		20,602
Cash and cash equivalents at the end of the period		24,729		20,304		21,261
Free cash flow		3,648		2,648		6,580

NOTES TO THE PRELIMINARY RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2018

1. Basis of preparation

The financial information for the period to 30 September 2018 does not constitute statutory accounts as defined by Section 435 of the Companies Act 2006. It has been prepared in accordance with the accounting policies set out in, and is consistent with, the audited financial statements for the twelve months to 31 March 2018.

The Group applies revised IAS 1 “Presentation of Financial Statements (2007)”. As a result, the Group presents all non-owner changes in equity in consolidated statements of comprehensive income and all owner changes in equity in consolidated statements of changes in equity.

2. Statement of compliance

The interim financial statements do not include all of the information required for full annual financial statements and do not comply with all of the disclosure requirements in IAS 34 “Interim Financial Reporting”. Accordingly, whilst the interim statements have been prepared in accordance with IFRS, and have been reviewed by the Group’s auditors, Kreston Reeves LLP, in the interests of improved Corporate Governance, they cannot be construed as being in full compliance with IFRS and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 March 2018.

3. Revenue is derived from the Group’s animal pharmaceutical businesses.

4. Principal risks and uncertainties

These were set out on pages 80-81 of the notes to the consolidated financial statements for the year ended 31 March 2018. The key exposures are to foreign currency exchange rates, potential delays in obtaining marketing authorisations and single sources of supply for some raw materials and have remained unchanged since the year end.

5. Earnings per share

	Six months to		Six months to		Year ended
	30.09.18		30.09.17		31.03.18
	(unaudited)		(unaudited)		(audited)
Weighted average number of shares in issue (000's)	66,326		65,517		65,646
Fully diluted weighted average number of shares in issue (000's)	67,757		65,787		66,251
Profit attributable to equity holders of the company (£'s)	5,052		4,188		9,315
Basic earnings per share (pence)	7.62		6.39		14.19
Fully diluted earnings per share (pence)	7.46		6.37		14.06

5. Earnings per share

6. Dividends

		Six months to		Six months to		Year ended
		30.09.18		30.09.17		31.03.18
		(unaudited)		(unaudited)		(audited)
		£000		£000		£000
Dividend in respect of the year ended 31 March 2017
at 2.5p/7.1p per ordinary share		-		1,635		4,660
Dividend in respect of the year ended 31 March 2018
at 3.2p per ordinary share		2,106		-		-
		2,106		1,635		4,660
Dividend paid by subsidiary to non-controlling interests (minorities)		1,642		1,389		1,389
		3,748		3,024		6,049
The company paid a further dividend of 6p per share on 17 October 2018, after the period end.
The total paid was £4.03 million.

7. Related party transactions

At the balance sheet date ECO Animal Health Group plc owed no balances to persons connected to P A Lawrence, a director of ECO Animal Health Group plc (30 September 2017: £271,986).

During the period the Group provided management services to Anpario plc and Emmelle Construction Limited, both companies in which P A Lawrence is a director and holds equity interests. Fees charged were: Anpario plc £6,667 (2017: £20,000) and Emmelle Construction Limited £18,035 (2017: £22,000).

8. Intangible non-current assets

				Distribution		Development
		Goodwill		Rights		Costs		Total
Cost		£000		£000		£000		£000
Cost at 1 April 2017		17,930		1,442		67,643		87,015
Additions		-		-		3,773		3,773
Cost at 30 September 2017		17,930		1,442		71,416		90,788
Additions		-		-		3,403		3,403
Cost at 31 March 2018		17,930		1,442		74,819		94,191
Additions		-		-		4,208		4,208
Cost at 30 September 2018		17,930		1,442		79,027		98,399
Amortisation
Amortisation at 1 April 2017		-		759		32,373		33,132
Charge for the period		-		39		1,661		1,700
Amortisation at 30 September 2017		-		798		34,034		34,832
Charge for the period		-		33		1,695		1,728
Amortisation at 31 March 2018		-		831		35,729		36,560
Charge for the period		-		39		1,960		1,999
Amortisation at 30 September 2018		-		870		37,689		38,559
Net book value at 30 September 2018		17,930		572		41,338		59,840
Net book value at 1 April 2018		17,930		611		39,090		57,631
Net book value at 30 September 2017		17,930		644		37,382		55,956
Net book value at 1 April 2017		17,930		683		35,270		53,883

9. Property, plant and equipment

						Fixtures,
		Freehold		Plant and		fittings &		Motor
		Property		Machinery		equipment		Vehicles		Total
Cost		£000		£000		£000		£000		£000
Cost at 1 April 2017		730		1,541		865		75		3,211
Additions		-		51		143		-		194
Foreign exchange movements		-		(30)		-		(5)		(35)
Cost at 30 September 2017		730		1,562		1,008		70		3,370
Additions		-		55		75		-		130
Disposals		-		(14)		-		(5)		(19)
Foreign exchange movements		-		(1)		-		(4)		(5)
Cost at 1 April 2018		730		1,602		1,083		61		3,476
Additions		-		261		150		21		432
Disposals		-		(19)		-		-		(19)
Foreign exchange movements		-		(27)		-		(8)		(35)
Cost at 30 September 2018		730		1,817		1,233		74		3,854
Depreciation
Depreciation at 1 April 2017		13		737		587		9		1,346
Charge for the period		6		76		52		5		139
Foreign exchange movements		-		(3)		-		-		(3)
Depreciation at 30 September 2017		19		810		639		14		1,482
Charge for the period		7		78		67		7		159
Disposals		-		(14)		-		(5)		(19)
Foreign exchange movements		-		(10)		-		(2)		(12)
Depreciation at 1 April 2018		26		864		706		14		1,610
Charge for the period		5		81		57		6		149
Disposals		-		(18)		-		-		(18)
Foreign exchange movements		-		(14)		-		-		(14)
Depreciation at 30 September 2018		31		913		763		20		1,727
Net book value
Net book value at 30 September 2018		699		904		470		54		2,127
Net book value at 1 April 2018		704		738		377		47		1,866
Net book value at 30 September 2017		711		752		369		56		1,888
Net book value at 1 April 2017		717		804		278		66		1,865

10 Investment property

		Freehold
		Property		Total
Valuation		£000		£000
Valuation at 1 April 2017 and 30 September 2017		189		189
Revaluation in March 2018		11		11
Valuation at 31 March 2018 and 30 September 2018		200		200
Depreciation
Depreciation at 1 April 2017 and 30 September 2017		4		4
Revaluation in March 2018		(4)		(4)
Depreciation at 31 March 2018 and 30 September 2018		-		-
Net Book Value
Net Book Value at 31 March 2018 and 30 September 2018		200		200
Net Book Value at 1 April 2017 and 30 September 2017		185		185

This financial information was approved by the board on 07 December 2018.

Copies of this interim report are being sent to all of the Company’s shareholders. Further copies can be obtained from the Company’s registered office at 78 Coombe Road, New Malden, Surrey, KT3 4QS.

DIRECTORS ANDOFFICERS		Peter Lawrence		(Non-Executive Chairman)
		Marc Loomes		(Chief Executive)
		Kevin Stockdale		(Finance Director)
		Julia Trouse		(Executive Director andCompany Secretary)
		Brett Clemo		(Executive Director)
		Andrew Jones		(Non-Executive Director,)
		Anthony Rawlinson		(Non-Executive Director)
REGISTERED OFFICE		78 Coombe Road, New Malden, Surrey. KT3 4QS
		Tel: 020-8336-2900		Fax: 020-8336-0909
COMPANY NUMBER		01818170
INFORMATION AT		www.ecoanimalhealthgroupplc.com

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