Eco Animal Regulatory News (EAH)

8 Dec 2010 07:00

ECO Animal Health Group plc

Interim Results for the six months ended 30 September 2010

Key features

Turnover on continuing operations rises 39 per cent to £12.3 million (2009: £8.9 million). EBITDA and before share based payments increases 15 per cent to £2.24 million (2009: £1.94 million) Aivlosin® sales 55 per cent ahead of same period last year Preparations for launch of Aivlosin® in USA continue Strong performances in major markets - China, Japan and Latin America Net cash at period end of £9.8 million

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

"The momentum of the first half of the year is being maintained, boosted by further sales growth in our main markets. Overall we look forward with confidence, well placed to deliver another period of sound performance"

Contacts:

ECO Animal Health Group plc
Peter Lawrence		020 8336 6190
Spiro Financial
Anthony Spiro		020 8336 6196
Cenkos Securities plc (Nominated adviser)
Stephen Keys		020 7397 8926
Elizabeth Bowman		020 7397 8928

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.

ECO ANIMAL HEALTH GROUP PLC

DIRECTORS AND OFFICERS		PETER LAWRENCE		(CHAIRMAN)
		MARC LOOMES		(CHIEF EXECUTIVE)
		KEVIN STOCKDALE		(FINANCE DIRECTOR)
		JULIA TROUSE		(EXECUTIVE DIRECTOR AND COMPANY SECRETARY)
		BRETT CLEMO		(EXECUTIVE DIRECTOR)
		DAVID DANSON		(NON-EXECUTIVE DIRECTOR)
		JULIA HENDERSON		(NON-EXECUTIVE DIRECTOR)
REGISTERED OFFICE		78 COOMBE ROAD, NEW MALDEN, SURREY KT3 4QS
		TEL: 020-8336-2900		FAX: 020-8336-0909
COMPANY NUMBER		01818170

Chairman's statement

I am pleased to report that ECO Animal Health Group has delivered a strong set of results for the six months to 30 September 2010. This performance builds on the growth generated in the previous year and reflects our success in achieving international marketing authorisations and selecting appropriate distribution channels for our exciting range of animal pharmaceutical products. We believe that after some ten years study, The Food and Drug Administration in the US is now in the final stage of its assessment of Aivlosin®, our patented macrolide antibiotic. ECO is well advanced in its own preparations so that when the approval is received, the company will be able to move quickly to commence marketing in the US, a territory that comprises some 30 per cent of the world market.

Financial

Turnover on continuing operations increased by almost 39 per cent to £12.3 million (2009: £8.9 million) and EBITDAS (earnings before interest, tax, depreciation, amortisation and share based payments) rose over 15 per cent to £2.24 million (2009: £1.94 million). The second half of the year has historically produced a larger proportion of sales and profit as ECO's markets are boosted in that period by treating winter and spring diseases. ECO's balance sheet is strong; at the period end the Company had net cash of £9.8 million and during the six months to end September 2010 generated £6.2 million (2009: £2.7 million) from operations.

ECO operates in global markets with over 90 per cent of sales generated outside the UK. The Company's principal non sterling currencies are the US dollar and the euro. While management follows a conservative policy of hedging known cash flows, results are inevitably affected by currency movements. Over time the impact of these movements on translating results into sterling may be quite small, in the short term they can have a significant effect.

The dividend of 2.30 pence for the year ended 31 March 2010 was paid to shareholders in September. A scrip alternative was again offered and taken up by investors representing over 42 percent of the Company's issued share capital. This has helped us to preserve cash to invest in and grow the business and I would like to thank these shareholders for their continuing support. Since introducing the scrip alternative in 2008, the Company has conserved over £3.5 million of cash, which has been invested in the business.

Operations and markets

Worldwide demand for animal health products for farmed animals is influenced by many factors ranging from levels of economic activity to the influence of outbreaks of diseases. This was demonstrated by the varying level of demand for our products across the different regions.

Across ECO's global business, while sales were strongly ahead of last year, margins were slightly lower, held back by the regional mix of Aivlosin® sales and currency movements, principally the strength of sterling against the US dollar. Sales of Aivlosin® grew by nearly 55 per cent and continued to command a higher weighting within the product portfolio. The ongoing implementation of aggressive stock and debtor management policies resulted in significant cash flow benefits for the Group.

Trading in our major markets, China, Japan and Latin America, continued to develop positively. In China, sales from our subsidiary, Zhejiang ECO Biok Animal Health Products Limited, were up nearly 30 per cent in sterling, despite a difficult trading environment. In Japan, ECOPHARMA delivered its maiden six months contribution, following its acquisition in December 2009. The result was ahead of budget, reflecting the positive impact of management changes. The performance was achieved in tough market conditions including outbreaks of foot and mouth disease, which affected sales for swine. Sales to markets in Latin America moved ahead strongly, up over 50 per cent in sterling over the corresponding period last year, whilst South East Asia also performed well.

ECO's sales improve during our traditionally stronger second half when the incidence of respiratory disease increases during the winter months and parasite numbers rise during the spring.

The joint venture with Pharmgate LLC in the USA began in April 2010 with the hiring of two managers, who will lead the sales and marketing effort for the launch of Aivlosin®. Inevitably, there is an investment cost of set up and administration in the period before sales can commence. This, together with the investment made to date in order to obtain regulatory approval for Aivlosin®, should be rewarded by significant sales and increased Group profits from a market into which, to date, we have not been authorised to sell.

We understand that the Aivlosin® regulatory timeline has been extended by the Federal Drug Administration (FDA), owing to its excessive workload. The FDA is now unable to commit to the original review timeline for the final component of the development programme, which relates to laboratory testing. Although the approval timeline is not under ECO's control, the Company is making every effort to encourage the FDA to complete the approval of this final component as soon as possible.

In Europe, lower levels of trading reflected the difficult economic environment. However, the last of the Aivlosin® legacy distribution agreements has now been terminated with the final newly appointed distributor starting in January 2011. Sales in the UK, where ECO does direct business rather than through third parties, were up nearly 19 per cent. The new presentation of Aivlosin® water soluble granules for pheasants has been very positively received.

Sales of our Ecomectin® range of antiparasitic drugs were up 21 per cent over the same period last year, a reflection of increased demand in Japan and the launch of the Ecomectin® range in Mexico which has been very well received.

The development of selected, differentiated generic pet medications of potential major importance to ECO's future is progressing well and within our expected timeframes.

Building on the basic research conducted by the Virology Division of the Department of Pathology at the University of Cambridge, funded by the UK Medical Research Council, into the inhibition of viruses by Aivlosin®, ECO has commissioned further research with other institutions and the results will be reported in due course.

Outlook

The momentum of the first half of the year is being maintained, boosted by further sales growth in our main markets. Overall we look forward with confidence, well placed to deliver another period of sound performance.

Peter A Lawrence

Executive Chairman

7 December 2010

CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS TO 30 SEPTEMBER 2010
				Six months		Six months		Six months
				to		to		to
				30.09.10		30.09.09		31.03.10
		Notes		(unaudited)		(unaudited)		(unaudited)
						(as restated)
				£000		£000		£000
Revenue		3		12,313		8,877		21,768
Cost of sales				(7,435)		(5,233)		(12,743)
Gross Profit				4,878		3,644		9,025
Other operating income				87		60		185
Administrative expenses				(2,300)		(1,430)		(3,883)
Currency (losses)				(501)		(390)		(162)
Amortisation of intangible assets				(1,562)		(1,380)		(2,869)
Share based payments				(103)		(72)		(203)
Results from operating activities:				499		432		2,093
Net finance income/(expense)				1		(47)		(88)
Profit before income tax				500		385		2,005
Income tax				(81)		(45)		(337)
Profit for the period from continuing operations				419		340		1,668
Loss for the period on discontinued operations (net of tax)				-		-		(101)
Profit for the period				419		340		1,567
Attributable to:
Owners				183		166		1,239
Minority interest				236		174		328
				419		340		1,567
BASIC EARNINGS PER SHARE		4
Continuing operations				0.35p		0.36p		2.79p
Discontinued operations				-		-		(0.21)p
				0.35p		0.36p		2.58p
FULLY DILUTED EARNINGS PER SHARE		4		0.35p		0.36p		2.58p
PRE TAX BASIC EARNINGS PER SHARE		4		0.46p		0.46p		3.49p
Earnings from continuing activities before interest, taxation, depreciation, amortisation, and share based payments.				2,241		1,941		5,310

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS TO 30 SEPTEMBER 2010
		Six months		Six months		Six months
		to		to		to
		30.09.10		30.09.09		31.03.10
		(unaudited)		(unaudited)		(unaudited)
				(as restated)
		£000		£000		£000
Profit for the period		419		340		1,567
Foreign currency translation differences		(29)		(177)		(41)
Defined benefit pension plan - actuarial losses		-		-		(25)
Revaluation of investment in Kiotech International plc		79		-		269
Deferred tax on revaluation of investment in Kiotech		(19)		-		-
Revaluation of freehold property		52		-		-
Deferred tax on revaluation of freehold property		(72)		-		-
Other comprehensive income for the period		11		(177)		203
Total comprehensive income for the period		430		163		1,770
Attributable to:
Owners		232		78		1,468
Minority interest		198		85		302
		430		163		1,770

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS TO 30 SEPTEMBER 2010
		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
At 1 April 2009		2,320		38,287		939		250		6,113		47,909		1,098		49,007
Effect of prior year adjustment (note 6)		-		-		-		-		590		590		-		590
At 1 April 2009 (as restated)		2,320		38,287		939		250		6,703		48,499		1,098		49,597
Total comprehensive income for the period:
Profit for the period		-		-		-		-		1,239		1,239		328		1,567
Other comprehensive income
Foreign currency translation differences		-		-		-		-		(15)		(15)		(26)		(41)
Actuarial losses on pension scheme		-		-		-		-		(25)		(25)		-		(25)
Revaluation of investment		-		-		-		269		-		269		-		269
Total comprehensive income for the period		-		-		-		269		1,199		1,468		302		1,770
Transactions with owners
Arising on issue of shares in the period		261		7,201		-		-		-		7,462		-		7,462
Dividends		-		-		-		-		(3,333)		(3,333)		-		(3,333)
Share based payments		-		-		203		-		-		203		-		203
Total transactions with owners		261		7,201		203		-		(3,333)		4,332		-		4,332
At March 2010		2,581		45,488		1,142		519		4,569		54,299		1,400		55,699
Total comprehensive income for the period:
Profit for the period		-		-		-		-		183		183		236		419
Other comprehensive income
Revaluation of freehold property		-		-		-		52		-		52		-		52
Revaluation of investments		-		-		-		79		-		79		-		79
Tax effect of revaluations		-		-		-		(91)		-		(91)		-		(91)
Foreign currency translation differences		-		-		-		-		9		9		(38)		(29)
Total comprehensive income for the period		-		-		-		40		192		232		198		430
Transactions with owners
Arising on issue of shares in the period		24		690		-		-		-		714		-		714
Dividends		-		-		-		-		(1,191)		(1,191)		-		(1,191)
Share based payments		-		-		103		-		-		103		-		103
Total transactions with owners		24		690		103		-		(1,191)		(374)		-		(374)
At September 2010		2,605		46,178		1,245		559		3,570		54,157		1,598		55,755
Prior interim period
At 1 April 2009		2,320		38,287		939		250		6,113		47,909		1,098		49,007
Effect of prior year adjustment (note 6)		-		-		-		-		590		590		-		590
At 1 April 2009 (as restated)		2,320		38,287		939		250		6,703		48,499		1,098		49,597
Total comprehensive income for the period:
Profit for the period		-		-		-		-		166		166		174		340
Other comprehensive income
Foreign currency translation differences		-		-		-		-		(88)		(88)		(89)		(177)
Total comprehensive income for the period		-		-		-		-		78		78		85		163
Transactions with owners
Arising on issue of shares in the period		12		358		-		-		-		370		-		370
Dividends		-		-		-		-		(3,333)		(3,333)		-		(3,333)
Share based payments		-		-		72		-		-		72		-		72
Total transactions with owners		12		358		72		-		(3,333)		(2,891)		-		(2,891)
At 30 September 2009		2,332		38,645		1,011		250		3,448		45,686		1,183		46,869

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
				As at		As at		As at
				30.09.10		30.09.09		31.03.10
		Notes		(unaudited)		(unaudited)		(unaudited)
						(as restated)
				£000		£000		£000
ASSETS
Non current assets
Property, plant and equipment		8		1,151		1,152		1,088
Goodwill & other intangibles		7		37,968		35,838		37,544
Investments				385		287		289
				39,504		37,277		38,921
Current assets
Inventories				3,491		5,388		5,697
Trade and other receivables				7,029		6,608		8,984
Income tax recoverable				340		213		340
Other taxes and social security				233		151		261
Cash and cash equivalents				10,970		3,952		9,882
				22,063		16,312		25,164
Total assets				61,567		53,589		64,085
Current liabilities
Trade and other payables				(3,352)		(3,194)		(3,612)
Short term borrowings				(1,138)		(776)		(3,979)
Income tax				(36)		(20)		(42)
Other taxes and social security				(176)		(164)		(102)
Dividends				(397)		(2,563)		(29)
				(5,099)		(6,717)		(7,764)
Total assets less current liabilities				56,468		46,872		56,321
Non current liabilities
Deferred tax				(713)		-		(622)
Provision for pension deficit				-		(3)		-
				55,755		46,869		55,699
Equity
Capital and reserves
Called up share capital				2,605		2,332		2,581
Share premium				46,178		38,645		45,488
Revaluation reserve				559		250		519
Other reserves				1,245		1,011		1,142
Retained earnings				3,570		3,448		4,569
				54,157		45,686		54,299
Minority interest				1,598		1,183		1,400
				55,755		46,869		55,699

CONSOLIDATED STATEMENT OF CASH FLOWS
		Six months to		Six months to		Year ended
		30.09.10		30.09.09		31.03.10
		(unaudited)		(unaudited)		(unaudited)
				(as restated)
		£000		£000		£000
Profit before tax		500		385		1,904
Adjustment for:
Net finance (income)/costs		(1)		47		88
Depreciation of plant and equipment		77		57		145
Amortisation of intangible assets		1,562		1,380		2,869
Pension payments		-		-		(54)
Pension operating costs		-		-		5
Share based payments		103		72		203
Operating cash flow before movement in working capital		2,241		1,941		5,160
Change in inventories		2,206		(466)		(264)
Change in receivables		1,967		1,618		(567)
Change in payables		(185)		(324)		(831)
Cash generated from operations		6,229		2,769		3,498
Interest paid		(39)		(56)		(101)
Income tax paid		(87)		(20)		(62)
Net cash inflow from operating activities		6,103		2,693		3,335
Cash flows from investing activities
Acquisition of undertaking, net of cash acquired		-		-		(801)
Purchase of property, plant and equipment		(88)		(51)		(72)
Purchase of investments		-		(1)		(3)
Cost of acquiring drug registrations		(1,986)		(1,686)		(3,479)
Interest received		40		9		16
Net cash (used in) Investing activities		(2,034)		(1,729)		(4,339)
Cash flows from financing activities
Issue of shares		208		-		5,716
Dividends paid		(319)		(417)		(1,578)
Net cash (used in)/generated from financing activities		(111)		(417)		4,138
Net increase in cash and cash equivalents		3,958		547		3,134
Foreign exchange movements		(29)		(180)		(40)
Cash and cash equivalents at the beginning of the period		5,903		2,809		2,809
Cash and cash equivalents at the end of the period		9,832		3,176		5,903

NOTES TO THE PRELIMINARY RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2010

1. Basis of preparation

The financial information for the period to 30 September 2010 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 2010.

The Group applies revised IAS 1 "Presentation of Financial Statements (2007)", which became effective as of 1 January 2009. 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 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, 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 2010.

3. Revenue is derived from the Group's animal pharmaceutical business.

4. Earnings per share

		Six months to		Six months to		Year ended
		30.09.10		30.09.09		31.03.10
		(unaudited)		(unaudited)		(unaudited)
				(as restated)
Weighted average number of shares in issue (000's)		51,773		46,571		48,025
Fully diluted weighted average number of shares in issue (000's)		51,773		46,593		48,025
Profit attributable to equity holders of the Company (£'s)		183,274		166,895		1,239,068
Pre tax profit attributable to equity holders of the company(£'s)		239,438		212,248		1,676,481
Basic earnings per share (pence)		0.35		0.36		2.58
Fully diluted earnings per share (pence)		0.35		0.36		2.58
Pre tax earnings per share (pence)		0.46		0.46		3.49

5. Dividends

		Six months to		Six months to		Year ended
		30.09.10		30.09.09		31.03.10
		(unaudited)		(unaudited)		(unaudited)
				(as restated)
		£000		£000		£000
Interim dividend in respect of the year ended 31 March 2009
46,402,407 shares at 1.70p per share		-		789		789
Final dividend in respect of the year ended 31 March 2009
46,633,189 shares at 5.45p per share		-		2,544		2,544
Interim dividend in respect of the year ended 31March 2010
51,777,768 shares at 2.30p per share		1,191		-		-
		1,191		3,333		3,333

6. Prior year adjustment

The income statement for the period ended 30 September 2009 has been restated to accurately reflect the results as they would have been for that period in view of the management's decision to reclassify certain expenditure (previously included within goodwill in the Statement of Financial Position as at 31 March 2009) to Distribution Rights and to amortise that expenditure over a 20 year useful life as more fully described in note 11 to the Group's Financial statements for the year ended 31 March 2010. The effect of this restatement has been to reduce the retained profit for the six months ended 30 September 2009 by £27,659 and to reduce the intangible assets and reported equity by £226,450 at that date.

The consolidated statement of changes in equity for the period ended 30 September 2009 has been restated to exclude an interim dividend of £788,841 which as paid in May 2009 but which had been recognised as a liability in the Group financial statements for the year ended 31 March 2009. The effect of this restatement was to increase retained earnings bought forward as at 1 April 2009 by £788,841 and reduce the retained earnings for the period ended 30 September 2009 by the same amount.

The consolidated statement of cash flows for the period ended 30 September 2009 has been restated to reflect the increased amortisation charge mentioned above, to eliminate the non-cash element of dividends paid and share capital issued during the period ended 30 September 2009 as a result of the take up of the scrip alternative and to move exchange differences out of the opening cash flow figure. This has no effect on earnings or net assets for any period.

7. Intangible non current assets

				Distribution		Development
		Goodwill		Rights		Costs		Total
		£000		£000		£000		£000
Cost
Cost at 1 April 2009		19,892		-		26,723		46,615
Prior year adjustment		(2,439)		1,035		-		(1,404)
Cost at 1 April 2009 (restated)		17,453		1,035		26,723		45,211
Additions		-		-		1,686		1,686
Cost at 30 September 2009		17,453		1,035		28,409		46,897
Additions		477		-		1,792		2,269
Acquired with subsidiary		-		-		926		926
Cost at 31 March 2010		17,930		1,035		31,127		50,092
Additions		-		-		1,986		1,986
Cost at 30 September 2010		17,930		1,035		33,113		52,078
Amortisation
Amortisation at 1 April 2009		1,466		-----		9,419		10,885
Prior year adjustment		(1,466)		260		-		(1,206)
Amortisation at 1 April 2009 (as restated)		-		260		9,419		9,679
Charge for the period		-		28		1,352		1,380
Amortisation at 30 September 2009		-		288		10,771		11,059
Charge for the period		-		28		1,462		1,490
Amortisation at 31 March 2010		-		316		12,233		12,549
Charge for the period		-		28		1,534		1,562
Amortisation at 30 September 2010		-		344		13,767		14,111
Net book value at 30 September 2010		17,930		692		19,346		37,968
Net book value at 31 March 2010		17,930		720		18,894		37,544
Net book value at 30 September 2009		17,453		747		17,638		35,838
Net book value at 1 April 2009		17,453		775		17,304		35,532

8. Property, plant and equipment

						Fixtures
		Freehold		Plant and		fittings &
		property		machinery		equipment		Total
		£000		£000		£000		£000
Cost
Cost at 1 April 2009		650		703		520		1,873
Additions		-		47		4		51
Cost at 30 September 2009		650		750		524		1,924
Additions		-		12		8		20
Acquired with subsidiary		-		-		3		3
Cost at 31 March 2010		650		762		535		1,947
Additions		-		51		37		88
Cost at 30 September 2010		650		813		572		2,035
Depreciation
Depreciation at 1 April 2009		39		278		398		715
Charge for the period		6		24		27		57
Depreciation at 30 September 2009		45		302		425		772
Charge for the period		7		57		23		87
Depreciation at 1 April 2010		52		359		448		859
Revaluation in the period		(52)		-		-		(52)
Charge for the period		5		56		16		77
Depreciation at 30 September 2010		5		415		464		884
Net book value at 30 September 2010		645		398		108		1,151
Net book value at 1 April 2010		598		403		87		1,088
Net book value at 30 September 2009		605		448		99		1,152
Net book value at 1 April 2009		611		425		122		1,158

9. Related party transactions

At the date of the consolidated statement of financial position, Eco Animal Health Group plc owed P A Lawrence, a director of Eco Animal Health Group plc, and members of his family, a balance amounting to £4,864 (30 September 2009: £402,489). During the period the Group provided management services to Kiotech International plc, a company in which P A Lawrence is a director and holds share options. Fees charged were £13,083 (six months to 30 September 2009: £20,484).

During the period the Group made sales to Zhejiang Eco Biok Animal health Products Limited on an arm's length basis to the value of £577,551 (six months to 30 September 2009: £562,834). At the end of this period there was an inter company balance owing from this Company of £563,339(six months to 30 September 2009: £545,137).

The Group also made sales on an arm's length basis to Eco Animal health do Brasil Comercio de Productos Veterinarios Ltda to the value of £1,329,221 (six months to 30 September 2009: £542,834). At the end of the period there was an inter company balance of £1,762,146 ( six months to 30 September 2009: £761,166).

The Group also made sales on an arm's length basis to Ecopharma Inc to the value of £621,279. Ecopharma Inc was not a related party during the comparative period, but the comparative figure for the previous year was £525,668. At the end of the period there was an inter company balance of £420,296 (six months to 30 September 2009: £511,061).

Since the last three of these companies are subsidiaries of Eco Animal Health Group plc these transactions and balances have been eliminated on consolidation with the exception of the Ecopharma Inc comparative figures.

10. The Group's principal risks and uncertainties were set out on pages 61-62 of the notes to the consolidated financial statements for the year ended 31 March 2010.

11. This financial information was approved by the board on 6 December 2010.

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.

Copyright Business Wire 2010