Interim Results for six months ended 30 June 2024

Animalcare Group plc

("Animalcare" or the "Group" or the "Company")

Interim Results for the six months ended 30 June 2024

24 September 2024. Animalcare Group plc (AIM: ANCR), the international animal health business, announces its unaudited interim results for the six months ended 30 June 2024.

Animalcare is pleased to report a positive first half performance following strong revenue growth in our operations and improved levels of cash conversion. With our transformed balance sheet following the sale of Identicare and minority interest in STEM, we are focused on utilising this strong financial position in pursuit of opportunities through M&A, licensing, partnerships and investing in our R&D pipeline to accelerate growth and create long-term value for shareholders.

Financial highlights

·    Revenues from continuing operations of £36.9m (H1 2023: £35.2m), up 5.0% (+7.1% at constant exchange rates) with increases in both price and volume and growth across all three product categories, notably in Production Animals and Equine

·    Underlying* EBITDA grew by 2.5% to £6.6m (H1 2023: £6.5m) reflecting improved gross margins and further targeted SG&A investment

·    Statutory profit after tax incorporating non-underlying items and discontinued operations was £18.8m (H1 2023: £1.6m)  

·    Underlying continuing basic EPS decreased by 4.9% to 5.8 pence (H1 2023: 6.1 pence) predominantly driven by increased taxes with reported basic EPS at 31.2 pence (H1 2023: 2.7 pence)

·    Transformational change in the Group's balance sheet following the sale of Identicare and minority stake in STEM, leading to net cash position before accounting for IFRS 16 leases at 30 June 2024 of £32.9m (FY23: £1.7m). Revolving credit facilities renewed to extend the term to 31 March 2029

·    Strong improvement in underlying cash conversion to 78.3% (H1 2023: 52.5%), on track to achieve full year improvement vs FY23

·    Board declares interim dividend of 2.0 pence per share, in line with prior year period

* The Group presents a number of non-GAAP Alternative Performance Measures (APMs) which exclude non-underlying items as set out in note 3. Underlying figures quoted are also based on continuing operations. Underlying EBITDA is defined as underlying earnings before interest, tax, depreciation and amortisation.

Strategic and Operational highlights

·    Organic growth: Both Daxocox and the Plaqtiv+ dental range delivered strong double-digit growth. In connection with the sale of STEM Animal Health Inc, the existing Licence and Distribution Agreement was extended to allow Animalcare access to all sales channels in Europe and the UK. Production Animals has performed strongly in the period across a number of key brands while Equine benefited from continuing momentum in Danilon

·    Inorganic growth: The Group continues to actively explore external opportunities through acquisition, licensing or partnerships. Divestment of Identicare and sale of STEM equity significantly enhances financial flexibility and firepower to execute our M&A strategy

·    New Product Development: We continue to develop our pipeline of products across novel, generic and life cycle management projects in multiple species. Our novel VHH antibody product development programme is progressing, as well as life cycle management activities with certain key brands, notably the recent addition of two new tablet strengths to the Daxocox range. Studies to expand the licensed indications for Daxocox are ongoing

Outlook

We are encouraged by our overall first half performance and the positive start to the second half. While mindful of the wider macroeconomic backdrop, the Board is confident that full year results will be in line with market expectations¹.

Animalcare's Chief Executive Officer, Jenny Winter, commented: "I'm delighted to report that we delivered a positive performance for the first six months of 2024 characterised by increased revenues and profits and improved cash conversion. Production Animals and Equine made notable contributions to sales, underlining the importance of these segments of our markets to our overall business while our Plaqtiv+ dental range and Daxocox osteoarthritis treatment returned strong double-digit revenue growth for Companion Animals.

"The divestment of Identicare and disposal of our minority stake in STEM Animal Health Inc. in the first half have had a transformative effect on our balance sheet yielding cash of £27.7m net of expenses. The resultant positive cash position equips the Group with significantly increased flexibility and firepower as we maintain our pursuit of organic and inorganic investment opportunities to drive sustainable growth in line with our long-term strategy.

"Looking to the rest of 2024, we are confident that the Group's full year results will be in line with market expectations¹."

^1.         The company compiled analyst consensus expectation for FY24 immediately prior to this announcement is £74.5m for revenue and £11.7m underlying EBITDA. FY23 comparatives, presented on the same basis as in this announcement for the six months ended 30 June 2023, will be made available in the appendix of the analyst presentation.

Analyst briefing/webcast

A briefing for analysts will be held at 11:30 BST on Tuesday 24 September 2024 via Zoom webcast. Analysts wishing to join should use the following link to register and receive access details.

https://stifel.zoom.us/webinar/register/WN_n86yxuwrS7yInoq92PvA0Q

A copy of the analyst presentation is available on the Group website using the link below:

https://www.animalcaregroup.com/investors/document-library/results-and-presentations/

Enquiries

About Animalcare

Animalcare Group plc is a UK AIM-listed international veterinary sales and marketing organisation. Animalcare operates in seven countries and exports to approximately 40 countries in Europe and worldwide. The Group is focused on bringing new and innovative products to market through its own development pipeline, partnerships and via acquisition. For more information about Animalcare, please visit www.animalcaregroup.com

Chair's Statement

In what is one of my first public duties since assuming responsibility as Chair of the Board, I have the pleasing task of reflecting on a positive operational performance that further underpins our strong financial position over the first six months of 2024.

The financial details of our performance can be found elsewhere in this report. Instead, I will focus my comments on the progress we have made during this period which is contributing to the achievement of our longer-term goals.

Revenue growth is a key performance indicator for the Group so it's particularly encouraging to see a marked increase in sales from our continuing operations in the first half, notably from Production Animals and Equine. That provides a reminder, if needed, of the valuable contribution these segments make to our overall business. Across our Companion Animals markets I'm particularly encouraged to see how well our Plaqtiv+ dental range and Daxocox osteoarthritis treatment are responding to refocused commercial leadership backed by investment in sales and marketing excellence.

Underlying EBITDA improved versus the prior period, supported by expanding gross margins, which benefited from a favourable product mix as the Group continues to focus on larger volume, more profitable brands. Targeted investment in overheads continues, chiefly related to people and marketing.     

Achieving growth inorganically is an important pillar of the Group's strategy; investing in external opportunities through acquisition, licensing or partnerships is also key to our future success and we continue to assess promising options on a daily basis. Equally, as we demonstrated in the first half, we are able to unlock value in support of our long-term objectives through targeted disposals.

The divestment of Identicare, an excellent though ultimately non-core business, made compelling sense for Animalcare, while the sale of our minority stake in STEM Animal Health Inc. ("STEM") to Dechra Pharmaceuticals not only augmented our business development firepower, we separately secured an enhanced licensing agreement for valuable anti-biofilm products.

The proceeds of these two transactions, alongside a marked improvement in the rate of underlying cash conversion, have genuinely transformed the Group's balance sheet, providing us with a strong net cash balance. This significantly enhanced financial flexibility and resources allow us to seek out a wider range of value-creating opportunities, whether inorganic or organic, that can help grow our portfolio, extend our geographic reach and partner to develop new treatments. A good example of the latter is our ongoing research collaboration with Orthros Medical focused on novel VHH antibody technology.

With an eye on the outlook for the whole of 2024 we are encouraged by our overall first half trading supported by a continuing focus on strategic priorities. While conscious of the macroeconomic pressures that exist in our markets, the Board is confident that full year results will be in line with market expectations. Against that backdrop, the Board has declared an interim dividend of 2.0 pence per share, as we did for the prior year period.

Finally, I'd like to offer my personal thanks to our shareholders for their continuing support while recognising the contribution of the entire Animalcare team for their hard work and commitment that helped deliver the results we see today.

Ed Torr, Non-Executive Chair

Business and Financial review

Overview of underlying financial results

We are pleased with our first half trading performance; positive progress was achieved on sales growth and cash conversion. At the same time, our balance sheet has been significantly strengthened following the disposals of Identicare and our minority interest in STEM and, with this, our financial firepower to accelerate growth in the future.  

A summary of the underlying financial results for the first six months of 2024, which the Directors believe offers a clearer picture of business and trading performance, is shown below. Following the divestment of Identicare announced on 28 February 2024, both the 2024 and 2023 income statements have been presented to show the remaining pharmaceuticals business as continuing operations separately from Identicare, which has been classified as discontinued.

Group pharmaceutical revenues for the period improved to £36.9m, an increase of 5.0% (7.1% at CER) with the key contributors being strong growth in Daxocox and Plaqtiv+ together with double digit growth in our Production Animals and Equine portfolios. Gross margins improved by 50 bps to 56.5% predominantly reflecting sales mix. The 2.5% increase in underlying EBITDA to £6.6m reflects continuing investment in SG&A costs, notably related to our people.     

Revenue performance by product category is shown in the table below:

Overall, Companion Animals revenue was in line with the prior period at £24.4m. This included strong double-digit growth in Daxocox (+41%) and Plaqtiv+ (+36%) which benefited from the organisational changes made in H2 2023 and associated ongoing focus and investment to drive sales and marketing excellence. This very positive performance has been offset by a combination of sales phasing within our International Partner (export) network, delayed new product launches and some continuing disruption in the supply of certain brands, the effects of which we expect to ease, and revenue growth accelerate, as a result, during the second half.

During the period the existing Licence and Distribution Agreement with STEM, which covers veterinary markets worldwide excluding the Americas, was amended to allow Animalcare access to all channels in Europe and the UK. This means the Group has the opportunity to maximise the value of the dental franchise through both veterinary and retail channels including through e-commerce.

Production Animal revenues increased by 14.3% versus the prior period to £8.8m. This strong performance was driven by growth in certain larger-selling brands, phasing of orders and benefit of a one-off competitor out of stock. As a result, we expect growth to moderate to mid-single digit for the full year. The Group's Production Animal expertise is focused in our Southern Europe markets and we are exploring opportunities to build on this expertise and existing sales footprint to grow this important part of our business.

Equine and other sales increased by 20.3% to £3.6m, benefiting from continuing momentum in Danilon within the UK and growth across other equine products. During the first half and shortly after we received approval for a number of territory expansions for Danilon, including France, with commercial launches expected during 2025.

Underlying EBITDA for the Group improved by 2.5% to £6.6m, with EBITDA margin reducing slightly to 18.0%. Gross margins improved by 50 bps to 56.5% predominantly reflecting sales mix. Carefully implemented pricing action has helped to mitigate input cost inflation in cost of goods. We remain alert and continue to be agile in responding to a dynamic inflationary environment. Underlying overheads, defined as gross profit less underlying EBITDA, increased during the first half to £14.2m (H1 2023: £13.2m), an increase of 7.8% principally driven by people and marketing costs. People costs include the impact of inflationary and salary increases across the Group and investment in additional headcount, notably in commercial, R&D and supply chain roles.

Basic underlying continuing EPS decreased by 4.9% to 5.8 pence (H1 2023: 6.1 pence) chiefly due to an increase in the underlying effective tax rate to 27.0% (H1 2023: 21.5%; FY23: 26.6%) driven primarily by an increase in the UK tax rate to 25% and reduced R&D and innovation relief.

Reported results and non-underlying items

Reported Group profit for the period after accounting for the non-underlying items noted below was £18.8m (H1 2023: £1.6m), with reported basic earnings per share at 31.2 pence (H1 2023: 2.7 pence).

Non-underlying items totalling £15.2m (H1 2023: £2.3m loss) relating to profit after tax have been incurred in the period, as set out in note 3. These principally comprise:

·    Gain on disposal of Identicare of £13.7m and profit on sale of our minority interest (33.34%) in STEM of £3.4m. See notes 3 and 5 for further details

·    Amortisation and impairment of acquisition-related intangibles of £2.1m (H1 2023: £2.1m) relating to the reverse acquisition of Ecuphar NV and previous acquisitions made by Ecuphar NV.

Dividend

The Board is pleased to declare an interim dividend of 2.0 pence per share, in line with the prior period. The interim dividend will be paid on 15 November 2024 to shareholders whose names are on the Register of Members at close of business on 18 October 2024. The ordinary shares will become ex-dividend on 17 October 2024.

Cash flow and funding position

During the first half of the year, the proceeds from the divestment of Identicare and the sale of our minority stake in STEM, alongside a marked improvement in the rate of underlying cash conversion, have transformed the Group's balance sheet. Net cash balances at 30 June 2024, pre IFRS 16 leases, were £32.9m, significantly enhancing our financial flexibility and resources to accelerate growth. Our capital allocation is closely aligned to our three strategic priorities: investment in organic growth, carefully selected and value-enhancing acquisitions and increasing the number of novel products in development.

Underlying net cash flow generated by our operations increased to £5.4m (H1 2023: £3.8m) as shown in the table below:

Net working capital increased by £1.2m during the period, the movement chiefly attributable to a £1.7m increase in inventories as the higher than expected inventory reduction during FY23 normalised in the first half.   

We are on track to deliver our targeted cash conversion in the range of 85-90%, the achievement of which will be largely dependent on trading patterns towards the end of the second half and any decisions the Group may take in connection with strategic stock cover to support surety of supply, hence sales, for 2025.    

As noted above, our balance sheet and cash position have been significantly strengthened during the period as summarised below:

Net capital expenditure of £1.3m was in line with the prior period and largely comprised investment in our product development pipeline of £0.8m and £0.4m in IT infrastructure.

We continue to invest in new product development to strengthen our pipeline through a balance of early and later-stage opportunities. Our development pipeline is spread across novel, generic and lifecycle management projects in multiple species. Continued progress has been made with our novel VHH antibody products in collaboration with Orthros Medical. Lifecycle management activities of our key brands are ongoing. We have recently added two new tablet strengths to the Daxocox range as well as submitting regulatory filings to extend the geographic reach into new territories.

As at 31 December 2023 and 30 June 2024, the Group had total facilities of €51.5m, which are due to expire on 31 March 2025, comprising a committed revolving credit facility (RCF) of €41.5m and a €10.0m acquisition line. Post period end, we have increased our existing RCF from €41.5m to €44.0m with an extension of the maturity date to 31 March 2029. The acquisition line has been fully repaid and not extended given the significant cash on balance sheet.

The Group's facilities are, and will remain subject to, the following covenants which are in operation at all times:

•    Net debt to underlying EBITDA ratio of 3.5 times;

•    Underlying EBITDA to interest ratio of minimum 4 times; and

•    Solvency (total assets less goodwill/total equity less goodwill) greater than 25%.

Throughout the period, all covenant requirements were met with significant headroom across all three measures.

Net cash as at 30 June 2024, pre IFRS 16 leases, was £32.9m with the RCF unutilised. Including the net cash balance, total headroom on the Group's facilities (excluding the undrawn acquisition line) was approximately £70.0m at the date of the statement of financial position.

Summary and outlook

Encouraged by the strong performance of our operations over the period and a positive start to trading in the second half, we anticipate a continuation of sales growth for the full year in line with market expectations featuring an accelerated top line contribution from our Companion Animals segment.

Looking further ahead, and while watchful of the macroeconomic pressures that affect our markets, we remain confident in the attractive fundamentals of the animal health sector as we pursue value-enhancing opportunities to invest in our growth strategy, backed by a stronger than ever balance sheet transformed by the divestment of Identicare and the sale of our minority stake in STEM.

Jenny Winter                                                    Chris Brewster

Chief Executive Officer                                  Chief Financial Officer

Condensed consolidated income statement

In order to aid understanding of underlying business performance, the Directors have presented underlying results before the effect of exceptional and other items. These exceptional and other items are categorised as 'non-underlying' and are analysed in note 3.

Condensed consolidated statement of comprehensive income

Condensed consolidated statement of financial position

Condensed consolidated statement of changes in equity

Unaudited

Reverse acquisition reserve

Reverse acquisition reserve represents the reserve that has been created upon the reverse acquisition of Animalcare Group plc.

Other reserve

Other reserve principally relates to currency translation differences. These exchange differences arise on the translation of subsidiaries with a functional currency other than sterling.

Condensed consolidated cash flow statements

Unaudited

Notes to the consolidated interim report

1           General information

Animalcare Group plc ("the Company") is a public company limited by shares incorporated in the United Kingdom under the Companies Act 2006 and is domiciled in the United Kingdom. The address of its registered office is Moorside, Monks Cross, York, YO32 9LB. The condensed set of financial statements as at, and for, the six months ended 30 June 2024 comprises the Company and its subsidiaries (together referred to as the "Group"). The nature of the Group's operations and its principal activities are set out in the latest Annual Report.

2          Basis of preparation and material accounting policies

This interim financial information for each of the six month periods ended 30 June 2024 and 30 June 2023 has not been audited nor reviewed and does not constitute statutory accounts as defined in Section 434s of the Companies Act 2006. The comparative information for the year ended 31 December 2023 does not constitute statutory accounts however is based on the statutory accounts for that year, on which the Group's former auditor, PricewaterhouseCoopers LLP, issued an unqualified report and which have been filed with the Register of Companies.

As presented in note 5, in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the income statement and related notes have been presented to show the disposed Identicare Limited subsidiary as discontinued and the remaining pharmaceuticals business as continuing. Comparative information has been represented to align with this format. In assessing the value of the net assets disposed, the Group was required to allocate a portion of goodwill to the Identicare Limited business. Goodwill allocated to the pharmaceuticals cash-generating unit ("CGU"), of which Identicare Limited formed a part, includes goodwill recognised as a result of past business combinations. In assessing the portion of this goodwill that should be disposed as part of the sale of the Identicare business, the transaction value was taken as a percentage of the total Group's market capitalisation at the point of disposal.

The consolidated financial statements are presented in thousands of pound sterling (£k or thousands of £) and all "currency" values are rounded to the nearest thousand (£000), except when otherwise indicated.

The Interim Report for the six months ended 30 June 2024 was approved by the Board of Directors and authorised for issue on 24 September 2024.

The condensed consolidated interim financial information for the six months ended 30 June 2024 has been prepared using UK adopted international accounting standards and accounting policies consistent with those of the Company's annual accounts for the year ended 31 December 2023.

The accounts have been prepared on a going concern basis, the justification for which is set out in the Going Concern section below.

New standards, interpretations and amendments adopted by the Group

The following new Standards, Interpretations and Amendments issued by the IASB and the IFRIC as adopted by the European Union are effective for the financial period:

-      Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as current or non-current

-      Amendments to IAS 7 'Statement of Cash Flows' and IFRS 7 'Financial Instruments: Disclosures': Supplier Finance Arrangements

-      Amendments to IFRS 16 'Leases': Lease Liability in a Sale and Leaseback

The adoption of these new standards and amendments has not led to major changes in the Group's accounting policies.

New and revised standards not yet adopted

The Group elected not to early adopt the following new Standards, Interpretations and Amendments, which have been issued by the IASB and the IFRIC but are not yet effective as of June 30, 2024, and/or not yet adopted by the European Union as of June 30, 2024. Standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

-      Amendments to IAS 21 'The Effects of Changes in Foreign Exchange Rates: Lack of Exchangeability' (effective 1 January 2025).

-      Amendments to IFRS 9 and to IFRS 7: the Classification and Measurement of Financial Instruments (effective on 1 January 2026).

-      IFRS 18 Presentation and Disclosure in Financial Statements (effective on 1 January 2027).

-      IFRS 19 Subsidiaries without Public Accountability: Disclosures (effective on 1 January 2027).

Going Concern

Banking Facilities and Covenants

As at 30 June 2024, the Group had total facilities of €51.5m, due to expire 31 March 2025, provided by a syndicate of four banks, comprising a committed revolving credit facility (RCF) of €41.5m and a €10.0m acquisition line, the latter of which cannot be utilised to fund operations. The loans have a variable, Euribor-based interest rate, with a margin of 1.50% (RCF) or 1.75% (acquisition line). The revolving credit facilities and the acquisition financing had a bullet maturity in March 2025.

As from September 2024 we have increased our existing RCF from €41.5m to €44.0m with an extension of the maturity date to 31 March 2029. The acquisition line, which was drawn down by €2.3m as at 30 June 2024, has been settled. The covenant requirements in the RCF remain unchanged from the current RCF agreement, details of which are provided below. The Group manages its banking arrangements centrally through cross-currency cash pooling. Funds are swept daily from its various bank accounts into central bank accounts to optimise the Group's net interest payable position.

 The facilities remain subject to the following covenants which are in operation at all times: 

• Net debt to underlying EBITDA ratio of 3.5 times;
• Underlying EBITDA to interest ratio of minimum 4 times; and    
• Solvency (total assets less goodwill/total equity less goodwill) greater than 25%.    

Net cash as at 30 June 2024, pre IFRS 16 leases, was £32.9m with the RCF unutilised. Including the net cash balance, total headroom on the Group's facilities (excluding the undrawn acquisition line) was approximately £70.0m at the date of the statement of financial position. As at 30 June 2024 and throughout the financial period, all covenant requirements were met with significant headroom across all three measures.

3          Non-underlying items

The amortisation and impairment of acquisition-related intangibles charge totalling £2,080k (2023: £2,084k) largely relates to the historic Esteve acquisition of £565k (2023: £577k) and the reverse acquisition of Animalcare Group plc of £1,515k (2022: £1,497k).

On 12 April 2024 the Group sold its minority interest (33.34%) in STEM Animal Health Inc. for a cash payment of US$4.7m (£3,780k). In total, a gain of £3,375k was realised resulting from two distinct agreements. The sale of the Group's equity holding generated a profit on disposal of £2,654k. In addition, the Group's requirement to pay a capital contribution of CAD$0.5m (£289k) in September 2024 was terminated. As part of a separate agreement, future milestone commitments totalling CAD$748k (£432k) were renounced.

On 28 February 2024 the Group disposed of its subsidiary Identicare Ltd, resulting in a gain on disposal of £13,723k (note 5).

Other non-underlying items from discontinued operations primarily relates to share-based payment arrangements in respect of growth shares in the disposed subsidiary (net of tax). The fair value of this long-term incentive plan was connected to the future value of the subsidiary and not trading; hence it has been treated as non-underlying since inception on 1 January 2022.

4          Segment information - from continuing operations

The Pharmaceutical segment is active in the development and marketing of innovative pharmaceutical products that provide significant benefits to animal health.

The measurement principles used by the Group in preparing this segment reporting are also the basis for segment performance assessment. The Board of Directors of the Group acts as the Chief Operating Decision Maker. As a performance indicator, the Chief Operating Decision Maker controls performance by the Group's revenue, gross margin, Underlying EBITDA and EBITDA. EBITDA is defined by the Group as net profit plus finance expenses, less financial income, plus income taxes and deferred taxes, plus depreciation, amortisation and impairment and is an alternative performance measure. Underlying EBITDA equals EBITDA plus non-underlying items and is an alternative performance measure. EBITDA and underlying EBITDA are reconciled to statutory measures below.

The following table summarises the segment reporting from continuing operations for 2024 and 2023. As management's controlling instrument is principally revenue and profit-based, the reporting information does not include assets and liabilities by segment and is as such not presented per segment.