Eco Animal Health Group: Half-year Report

LONDON--(BUSINESS WIRE)--

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.'

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

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

5.Earnings per share

6.Dividends

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

9.Property, plant and equipment

10Investment property

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.

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Eco Animal Health Group Plc

Source: Eco Animal Health Group Plc