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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Eco Animal Health Group Plc | LSE:EAH | London | Ordinary Share | GB0032036807 | ORD 5P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 94.00 | 93.00 | 95.00 | 94.00 | 93.50 | 93.50 | 27,984 | 08:00:04 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Chem,fertlizer Minrl Mng,nec | 85.31M | 1.01M | 0.0149 | 63.09 | 63.68M |
TIDMEAH
RNS Number : 9847N
Eco Animal Health Group PLC
04 February 2021
ECO Animal Health Group plc ("ECO")
(AIM: EAH)
Results for the year ended 31 March 2020
ECO REPORTS A RESILIENT PERFORMANCE
HIGHLIGHTS
Financials
-- Sales 7% higher at GBP72.1m (2019 restated: GBP67.3m) -- Gross margin consistent to within 1% (2020 46%, 2019 47%)
-- Increased R&D investment results in adjusted EBITDA 33% lower at GBP8.4m (2019 restated: GBP12.5m)
-- Earnings per share 65% lower at 3.82p (2019 restated: 10.86p) -- Strong cash generation from operations of GBP5.5m (2019 restated: GBP7.1m) -- New product development expenditure 17% higher at GBP10.9m (2019 GBP9.3m) -- Net cash lower at GBP9.8m (2019 restated: GBP16.9m)
Operations
-- Demand for Aivlosin(R) continued to grow strongly, with two new marketing authorisations gained in Europe and Indonesia for breeding chickens and laying chickens, respectively.
-- Strong revenue in China in second half as market recovers from worst effects of African Swine Fever (ASF).
-- Sales growth and margin recovery in the USA as trade tensions between the USA and China recede.
-- Two new poultry vaccine collaborations signed during the year with the Pirbright Institute. -- Transition to remote working and COVID-19 safe working seamless and uninterrupted -- Continued corporate governance improvements.
Marc Loomes, CEO of ECO Animal Health Group plc, commented: "These results reflect a solid recovery in our key markets, particularly in the second half of the year and we have continued our investment at record levels in new product development. We are proud of the Group's ability to seamlessly adapt to safe working during the Coronavirus pandemic. We are confident that our development programmes will deliver exciting new products which will augment the natural growth from current products and sustain long term growth. For the year ahead we expect to report profitable growth and to perform in line with the market expectations."
The information contained within this announcement is deemed by the Group to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). Upon the publication of this announcement via a Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.
This announcement is the entire text of the Annual report and Accounts for Eco Animal Health Group plc, except for the Corporate Governance Report, Directors Report and Strategic Report. The Annual Report is published today in its entirety on the Company's website at https://www.ecoanimalhealthgroupplc.com
Contacts:
ECO Animal Health Group plc Marc Loomes (CEO) Christopher Wilks (CFO) Andrew Jones (Chairman) 020 8447 8899 IFC Advisory Graham Herring Zach Cohen 020 3934 6630 N+1 Singer (Nominated Adviser & Joint Broker) Mark Taylor Iqra Amin 020 7496 3000 Peel Hunt LLP (Joint Broker) James Steel Dr Christopher Golden 020 7418 8900
ECO Animal Health Group plc ("ECO" or "the Group") researches, develops and commercialises products for livestock. Our business strategy is to generate shareholder value by achieving the maximum sales potential from the existing product portfolio whilst investing in Research and Development ("R&D") for new products, particularly vaccines, and seeking to in-license new products.
CHAIRMAN'S STATEMENT
FOR THE YEARED 31 MARCH 2020
This has been a challenging year for our business. The combination of the ASF outbreak in Asia and the USA trade war with China particularly impacted our business in the first half of the year, although this was partly offset by very strong performance in other parts of the world. Performance in the second half of the year saw substantial recovery in revenues from the USA and China. The net result was revenue ahead of the prior year but below our internal budget.
The ECO Board is confident that our R&D portfolio has the potential to deliver major value to our shareholders and so despite the lower than budget top line revenue, we decided to maintain the budgeted increased investment in R&D to keep our portfolio progressing towards commercialisation.
This has resulted in a reduction in our immediate profits in the 2019-20 year, but we are confident this will be more than offset by the growth in long term value of the company through progression of our R&D portfolio.
We have decided not to pay a dividend for the financial year 2019-20 in order to maintain cash reserves at a prudent level, particularly in the light of the economic uncertainty arising from the COVID-19 pandemic, and to build value by continued investment in key R&D programs.
The Board places the highest priority on good corporate governance. We have taken several actions in this important area during the year:
-- We appointed new auditors and undertook a major revision of the application of accounting standards across our business and we are now confident that our approach is fully compliant and reflects best practice.
-- We recruited a new, highly experienced CFO and have significantly expanded and strengthened the finance team. We have also established an internal audit capability.
We have worked with a major city advisor to thoroughly review our key codes and policies and procedures and to institute training programs where needed.
We made significant changes at Board level during the year including the addition, shortly after the year end, of a new and highly experienced Non-Executive Director. The board now has a good base of experience and skills to lead the Company from the current period of challenge and change through its next stage of development and value-based growth.
We are disappointed that the release of our annual results was delayed due to the scale of work needed for the audit combined with the restrictions in working associated with COVID-19, but believe it was essential to enable completion of an extensive and thorough review of our accounting policies and statements with our new auditors.
This is my first statement as Chairman, having succeeded Richard Wood in August 2019; I am grateful for his leadership and implementing various change initiatives.
I started my report by noting that is has been a challenging year for the Company. I am hugely grateful for how the Board, Executive and wider ECO team have risen to the challenges, delivered a strong performance considering the conditions and have kept motivation and energy to keep ECO moving and developing value. Finally, I sincerely thank our shareholders for their patience and much valued strong support through this period.
Current trading and prospects
Performance in the current financial year ending 31 March 2021 has been strong with the strength seen in both our Chinese and US markets towards the end of the last financial year continuing into the current financial year. In October 2020, we announced that the revenue performance in the first six months of the current financial year was "significantly ahead of management expectations and the prior year". We also advised that notwithstanding the historical second half weighting to the Group's revenue, if these revenue trends continued through the second half of the financial year the Board expected that the Group's full year revenue for the year ending 31 March 2021 would exceed market expectations. This resulted in an upgraded market expectation both for revenue and profitability
On 24 November 2020 we confirmed that strong trading had continued during November and, being mindful of the continuing global uncertainties and four months remaining until the end of the financial year, we were confident of meeting the upgraded market expectations.
On 21 January 2021 we issued a positive trading update, confirming Group revenues and EBITDA were expected to be significantly ahead of market expectations for the year ending 31 March 2021. We noted that the strength in the Chinese market, supported by the rebuilding of pig herds and the high price for pork, continued through the third quarter and the outlook for the final quarter sales continued these strong trading trends.
We look forward to the rest of this financial year and our reporting prospects for 2021 with continuing optimism.
Dr Andrew Jones
Chairman
3 February 2021
CHIEF EXECUTIVE'S REPORT
FOR THE YEARED 31 MARCH 2020
I am pleased to report that ECO demonstrated considerable fortitude during a particularly challenging year for the Company. The impact of African Swine Fever (ASF) in China which then spread into neighbouring territories, the ongoing tensions between Washington and Beijing and the onset of the COVID-19 pandemic presented significant challenges to the business. The determination, dedication and resilience of our employees combined with the value of our product offering delivered a strong second half performance during the year ended 31 March 2020 with results for the full year being in line with the adjusted market expectations.
Operational Review
Global revenue grew by 7% to GBP72.1 million illustrating the value of ECO's global footprint, with sales generated in more than seventy countries, in the face of significant headwinds, and the commoditised nature of pork and poultry production.
Sales of Aivlosin(R), our patented antimicrobial which is used under veterinary prescription for the treatment of economically important diseases in pigs and poultry, increased by 16%, accounting for 84% of total revenue.
Sales of the smaller Ecomectin(R) anti-parasitic range at GBP4 million, increased by 7% and represented 6% of the Group revenue.
Sales of all other products were GBP7.5 million (2019 - GBP11.4 million) and mainly comprised a range of supportive antimicrobial products for pigs in China.
The China revenue from external customers declined by 17% reflecting a year of two remarkably different periods. In December 2019, we reported for the six month period ended 30 September 2019 ("Interims") that the well-publicised effects of the ASF outbreak in China provided significant headwinds in our largest market whist noting encouraging signs for the second half of the financial year with a reported reduction in the rate of new ASF outbreaks in China and an indication of some restocking of pig herds by certain high value producers, including some of our customers. These early encouraging signs were supported by rapidly rising pork prices resulting in a strong second half ("H2") with revenue ahead of the prior year. Our Chinese subsidiary has focused on the respiratory health of replacement breeding sows whose numbers at the major producers have increased rapidly in response to the pork shortage and very high pork prices. The high value of these sows and their offspring has enabled the subsidiary to secure the business of an increasing number of key accounts.
Revenue in Japan rose by 16%, driven again by growth in the swine business to large producers.
North American revenue from external customers increased by 10% reflecting the growing importance of Aivlosin(R)'s low yet effective dose rate and short treatment duration in medication protocols as veterinarians and producers adhere to responsible use of antimicrobial guidelines.
In the USA, revenue was 22% higher, reflecting a strong H2 performance. The first half had been marred by China-USA trade tensions which had left US pig producers with limited ability to capitalise on the anticipated export market created by the pork shortage in China which led to overproduction of pigs with depressed prices and margins. The strong H2 was marked by better pork prices linked to global supply shortages brought about by ASF in China, an increase in commercial activities by a strengthened sales and technical team during the autumn and winter months armed with adjusted customer incentive programmes for the year 2020. Canadian revenue fell by 11% largely as a result of restrictions imposed by China on Canadian pork imports. These restrictions were lifted but the poor first half performance was not fully recovered in the second half of the financial period.
Latin America revenue rose strongly by 17%, with the Brazilian and the Mexican subsidiaries up 80% and 23% respectively, reflecting the benefits of ECO's key account management approach and the development of strong partnerships with local third party distributors in these two key markets. Argentina delivered a record result and important tenders were again won in Cuba although these results were tempered by challenging market conditions in Central America and other Latin American countries such as Columbia and Peru.
In South and Southeast Asia, revenue was 75% higher. Thailand was the best performing market with Aivlosin(R) on all major account approved product lists resulting in both swine and poultry revenue growth. New business was won in Malaysia resulting in almost a doubling of sales over the prior year. These two outstanding performances were moderated by extremely challenging conditions in India, where the poultry market contracted significantly amidst a transition to a more consolidated integrated market with higher quality standards and away from an informal market characterised by small producers, and in Vietnam and The Philippines, both affected by ASF.
European revenue declined by 4%. Aivlosin(R) sales were strong in key markets such as Spain and Poland although overall revenue into continental markets fell slightly.
Sales in the United Kingdom, which represent just over 2% of global revenue, rose 25%, across all products, led by strong Aivlosin(R) sales during an outbreak of swine dysentery.
In Russia, an increasingly active exporter of meat, revenue was affected by disease outbreaks in swine and in poultry although market share gains were made with the most important customers. The previously reported delays to the inspection of manufacturing facilities and laboratories by the Russian authorities have been resolved.
Sales in the Rest of the World declined by half a million pounds to GBP1.2million reflecting in equal parts a declining presence in South Africa and softer demand in Middle East and North Africa.
Product Research and Development
The Company's early stage research and proof of concept development activities are outsourced to leading research institutions and universities with later stage full development work managed in-house. This model mitigates the significant costs associated with in-house laboratories and owned research functions.
Product Approvals
Two Aivlosin(R) for poultry marketing authorisations were received. The first, from the European Medicines Agency (EMA), allowed ECO to market Aivlosin(R) 625 mg/g Water Soluble Granules in Europe for the treatment and metaphylaxis (control) of respiratory infections caused by Mycoplasma gallisepticum in breeding chickens, whilst the second allows the use of the same Aivlosin(R) formulation in chickens laying eggs for human consumption, with a zero day drug withdrawal period for eggs in Indonesia the most important market in Southeast Asia for laying birds. The Aivlosin(R) approval for high value breeding chickens will, like the commercial layer indication, be rolled out to the multi-million dollar international poultry markets.
Pipeline
ECO is building a significant product portfolio pipeline with a mix of well-established concepts and novel, highly competitive technologies, and approaches with the emphasis on vaccines and other new products to complement our existing antimicrobial business. The pipeline is focused on providing solutions to respiratory and gastrointestinal (gut) diseases of major economic importance in pigs and poultry. Two worldwide exclusive research partnerships with The Pirbright Institute, United Kingdom were signed in September 2019 to develop novel poultry vaccines against respiratory and systemic viral diseases in commercial chicken flocks globally. Several additional new proprietary concepts and third-party opportunities entered ECO's product development screening programme during the year. New product development expenditure in the year rose by 17% to GBP10.9 million (2019: GBP9.3 million) and is being continued at a significant level in 2020/21. This will ensure that we have several mid and late stage projects able to deliver early revenues from 2022/23.
Covid-19 Impact
ECO transitioned smoothly to home working during the final weeks of the year building on the new ways of communicating with customers developed during the ASF outbreak and without losses of efficiency. Outsourced manufacturing and the Group's supply chain operated smoothly through the year end.
Brexit
ECO's EU marketing authorisations have been transferred to the European subsidiary, ECO Animal Health Europe Limited registered in Dublin, Republic of Ireland and all our Brexit contingency plans are in place. The financial and operational impact of Brexit is expected to be minimal, particularly given the recently announced trade deal between the UK and the EU. ECO's sales to the EU (excluding the UK) represented 8% of total revenue for the year.
People
I would like to thank all our employees for their extraordinary levels of energy, engagement, and professionalism in addressing the challenges of the year. Individually and collectively their ability to innovate and to adapt combined with sheer hard work underpins these results and ECO's prospects.
Marc Loomes
Chief Executive Officer
3 February 2021
FINANCE DIRECTOR'S REPORT
FOR THE YEARED 31 MARCH 2020
Introduction
I was delighted to join ECO in September 2019 as Group Finance Director.
It has been a significant year of change for the Group. In addition to the many commercial challenges faced by the Group during the year such as African Swine Fever in China, USA-China trade tensions and, in the latter part of the financial period, the advent of the COVID-19 pandemic, we have continued our journey of improvements in governance. These improvements have been previously signalled and were introduced in last year's Annual Report. During the year ended 31 March 2020 we appointed new external auditors (this is their first audit report on ECO), we established a new internal audit function, overhauled much of the control environment around the group - in particular around financial controls and processes and, with the assistance of external professional advisors, moved the governance agenda forward, particularly in relation to the group leadership and the Board. The financial control environment has been significantly strengthened - specifically in relation to custodianship of assets, banking and cash. These actions protect the business and individuals working within the business with customary segregation of duties and multiple authorisations. From a finance and governance point of view we are now well positioned to support the strong growth the Group is experiencing and driving.
Prior Year Restatements
One of the results of the changes described in my introductory comments was to consider the accounting policies adopted by the Group previously and to review the implementation of IFRS across the Group. In a number of areas, technical non - conformance with IFRS was identified and in other areas, interpretation of the relevant standard was considered to have been incorrect. As a result, in our interim report, released in December 2019, we published extensive prior year restatements, describing the nature of the adjustments and their financial effect. Those restatements form part of these Financial Statements and have been audited for the first time. The principles of the prior year restatements are as previously described and fall into the following categories:
-- Accounting for revenue in accordance with IFRS15 - revenue recognition and accounting for sales discounts (note 3.1)
-- Accounting for expenditure on research and development - in particular the portion of expenditure which should be capitalised under IAS38 (note 3.2)
-- Accounting for our Joint Arrangements in the USA and Canada under IFRS11 (note 3.3) -- Accounting for bonus payments on an accruals basis (note 3.4) -- Accounting for leases under IFRS16 (note 3.5) -- Accounting for foreign exchange (note 3.6) -- Accounting for Free Goods Incentive (note 3.7) -- Accounting for share based payments (note 3.8 and 3.9(Company only))
The notes to these accounts describe these changes in detail.
Audit
As stated earlier this was the first audit of the group performed by BDO. This also coincided with a period of remote working and lock-down amidst COVID-19 affecting the world. This added some distinct challenges to the audit task.
The first and most obvious challenge was that, except in China where COVID-19 was ahead of the initial European and US impact, the auditors were unable to physically attend our year end stock takes. Attendance at stock takes is a fundamental audit test. The Institute of Chartered Accountants in England and Wales suggests that auditors seek alternative means of satisfying themselves in the event of being unable to attend stock takes. Notwithstanding that the Group's stock is held at third party warehouses (and third party certification of quantities on hand was provided by these warehouses) and there was no indication that the valuation of inventory was incorrect, the audit opinion is limited in scope regarding inventory. The stock take was attended in China and therefore this limitation in scope qualification is in respect of stock held elsewhere in the group and amounted to 82% of the stock value (GBP14 million).
The effect of the prior year restatements, described above, was to reduce profitability in the year ended 31 March 2019. Accordingly, our new auditors considered that the materiality threshold to which our previous auditors worked (GBP757,000) was no longer appropriate and took a decision to reduce it. As a result, BDO have performed a re-audit of the statement of financial position at 31 March 2019. A significant balance within this statement of financial position is the net book value of Intangible Assets representing the accumulated capitalised and amortised costs historically incurred by the Group. These costs are in the main related to the development and commercialisation of Aivlosin(R) and Ecomectin(R), the Group's main families of marketing authorisations. The capitalised net book value of these intangible assets at 31 March 2020 was GBP22.9 million and the revenue during the year ended 31 March 2020 derived from Aivlosin(R) and Ecomectin(R) was GBP64.6 million; the net book value of these assets was therefore only about one third of the annual revenue derived from their usage. However, in order to verify the original costs within the net book value of these assets our auditors required evidence of costs dating back to 2004. The Group retains invoices and records from third parties for seven years in line with statutory practice but, unfortunately, we were unable to provide some support for the audit sampling requests prior to this. In addition, for expediency, it was decided that provision of evidence to support the audit would be confined to the trading periods being audited. As a result, BDO has further limited the scope of their audit opinion in respect of Intangible assets. The net book value at 31 March 2020 relating to costs capitalised more than seven years previously (and therefore the element of audit sampling not able to be supported by physical invoices) was GBP8.4 million.
Trading
During the year ended 31 March 2020, ECO recorded its highest second half revenue weighting to date being 60% of the full year revenue. This compares to an equivalent second half weighting in the year ended 31 March 2019 of 55%. Year on year the second half of this financial year was 18% greater than the prior year reversing a shortfall at the half year and resulting in an overall revenue improvement for the year ended 31 March 2020 of 7% compared with the year ended 31 March 2019. The primary driver of this strong second half performance was a recovery in China (from the effects of African Swine Fever, described in our Chief Executive's report) and strong performance in the USA. A geographical analysis of revenue is as follows:
Year ended 31 Revenue Summary March 2020 2019 % change 2019 to (GBP'm) (GBP'm) 2020 Restated China and Japan 23.1 26.8 (14%) North America (USA and Canada) 11.6 10.5 10% South and South East Asia 14.2 8.1 75% Latin America 12.6 10.8 17% Europe 7.6 7.9 (4%) Rest of World and UK 3.0 3.2 (6%) -------- --------- --------- 72.1 67.3 7% --------------------------- -------- --------- ---------
Revenue from China in the second half of the year was GBP14.4 million compared to the equivalent six months ended 31 March 2019 of GBP12.4 million underlining the recovery in that market. Trade with India (included within Asia in the above analysis) softened towards the end of the financial year, however the rest of the region including Indonesia, Malaysia, Thailand and the Philippines continued the trend set in the first half of the year resulting a year on year increase in Asia of 75% becoming the Group's second largest segment this year. The thawing in trade tensions between the USA and China resulting in strengthening swine market conditions in the second half of the year is also evident in the second half revenue from the USA of GBP5.8 million (2019 - GBP3.6 million). Latin America, and in particular Brazil, continued to benefit from pig exports to China, resulting in buoyant commodity prices and a consequent strong market for the Group's products. Europe benefitted from pork exports to China, in particular from Spain.
Gross margins at 46% in the year ended 31 March 2020 (2019: 47%) were reasonably consistent and represented a strong recovery from poor first half margins (43%) - this being associated in the main with improvements in the USA.
Overheads, at GBP28.3million were significantly greater in the year ended 31 March 2020 compared with the year ended 31 March 2019 (GBP21.8million). The greatest contributors to this increase were expenditure on Research and Development, employment costs and foreign exchange movements. Expensed research and development expenditure increased from GBP5.8 million in the year ended 31 March 2019 to GBP8.8 million in the year ended 31 March 2020. This increase of GBP3.0 million reflects the nature of the earlier stage projects being undertaken (and therefore expensed to the income statement) particularly in respect of vaccine development as well as an overall increase of 18% in the cash expenditure in R&D. Expensed employment costs increased from GBP9 million in the year ended 31 March 2019 to GBP10 million in the year ended 31 March 2020. Whilst the staff numbers reduced from an average of 217 in 2019 to 204 in 2020, the amount of capitalised in house labour in research and development also fell resulting in the greater charge to the income statement. The foreign exchange loss in 2020 amounted to GBP0.5 million whereas a gain of GBP0.7 million was recorded in 2019.
Total cash expenditure on research and development in the year was GBP10.9 million (2019: GBP9.3 million). This expenditure was expensed to the extent that it related to projects at the research phase and capitalised in accordance with IAS38 to the extent that it related to projects in the later stage (development phase) of the project life-cycle. The total cash expenditure in R&D can be analysed as follows:
Year ended 31 March 2020 2019 GBP000's GBP000's (Restated) Research expenditure - included in administrative expenses 8,775 5,868 Development expenditure - capitalised in intangible assets 2,115 3,477 Total cash expenditure (excluding employment costs) 10,890 9,345
EBITDA is considered by the Board and the Group leadership team to represent a key performance measure; the removal of amortisation (which is a significant annual non-cash charge to profits) and depreciation provides a good indication of the underlying trading performance of the business. The EBITDA margin (EBITDA expressed as a percentage of revenue in the period) was 11.6% in the year ended 31 March 2020 compared with 18.5% in the year ended 31 March 2019. This reduction arises in part from the small reduction in gross margin (1%) as well as the increased investment in R&D, referred to previously.
The Group continues to benefit from a low effective tax rate. In the year ended 31 March 2020 the effective tax rate for the Group was 19.8% (2019 - 12.3%). The historical low effective tax rate is largely a result of the significant R&D investment on which the Group receives tax credits. These tax credits continue but in 2020 a prudent assessment has been taken of the likely taxes due in foreign jurisdictions carrying a higher tax rate than the UK and no account has been taken of the likely benefit that will accrue from "patent box claims". Historic tax losses result in zero tax payable in the year. Discussions with HMRC will commence concerning the tax treatment of the prior year restatements; the accounting treatment to expense previously capitalised R&D investment may result in a reduction in prior year taxable profits. No benefit of this tax re-computation has been recognised in this Annual Report.
The consolidated cash position in the Group has declined from GBP16.9 million at 31 March 2019 to GBP11.9 million at 31 March 2020. This consolidated cash position at 31 March 2020 includes GBP5.3 million (2019 - GBP4.0 million) which is held in the Group's subsidiary in China. A portion of this cash is repatriated from China once per annum by dividend declaration; the Group's share which is received in the UK is 51%.
The cash generated from operations was 23% lower in the year ended 31 March 2020 at GBP5.5 million (2019 - GBP7.1 million) which fell less than the lower profitability due to better working capital management. From operating cash, dividends of GBP8.4 million were paid in September 2019 and investment of GBP2.1 million in capitalised development costs, together with income tax paid of GBP1.1 million, acquisitions of tangible fixed assets (GBP0.8 million) and other sundry cash movements (GBP0.2 million) resulted in an overall net cash draw down of GBP7.1 million and the lower cash balance at 31 March 2020.
Post balance sheet event
There have been no material post balance sheet events to note.
Christopher Wilks
Finance Director
3 February 2021
INDEPENT AUDITOR REPORT
TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEARED 31 MARCH 2020
Independent auditor's report to the members of ECO Animal Health Group Plc
Qualified opinion
We have audited the financial statements of ECO Animal Health Group Plc (the 'Parent Company') and its subsidiaries (the 'Group') for the year ended 31 March 2020, which comprise the consolidated statement of comprehensive income, the consolidated and company statements of financial position, the consolidated and company statements of changes in equity, the consolidated and company statements of cashflow and notes to the financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and international accounting standards in conformity with the requirements of the Companies Act 2006 and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
In our opinion, except for the possible effects of the matters described in the basis for qualified opinion section of our report:
-- the financial statements give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 31 March 2020 and of the Group's profit for the year then ended;
-- the Group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006;
-- the Parent Company financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and as applied in accordance with the provisions of the Companies Act 2006; and
-- the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
INDEPENT AUDITOR REPORT
TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEARED 31 MARCH 2020
Basis for qualified opinion
a) Physical inventory observations (Group)
We were not able to observe the counting of physical inventories around the Group, except for the China locations, ("non-China Group inventories") held at 31 March 2020 due to restrictions and control measures arising as a result of the COVID 19 pandemic. We were unable to satisfy ourselves by alternative means concerning the non-China Group inventories quantities held at 31 March 2020, which are included in the consolidated statement of financial position at a value of GBP14,003,000 (representing 82% of total inventory) by using other audit procedures. Consequently, we were unable to determine whether any adjustment to this amount was necessary.
If any adjustment to the non-China Group inventories quantities and derived values were to be required, there would be an impact on recorded cost of sales, recorded tax amounts, results recorded in the statement of comprehensive income, inventory values and total assets less total liabilities values recorded in the statement of financial position.
b) Verification of capitalised distribution rights, drug registrations, patents and license costs (together referred to as "capitalised development costs") (Group)
Given the issues connected to the recording of capitalised development costs that resulted in a prior year adjustment (as described in note 3.2 to the financial statements), we requested access to supporting information for all development costs originally capitalised in the statement of financial position. Historic accounting records for periods prior to 2013 were not required to be retained by the Group; certain sample accounting records and explanations for periods between 2013 and 1 April 2018, were not made available due to the impracticable time estimated to be required by the Directors, after commencing and carefully assessing the scope of the exercise. As a result, we were unable to obtain sufficient appropriate audit evidence concerning the net carrying value of capitalised development costs, as restated, totalling GBP21,726,000 at 1 April 2018.
Consequently, we were unable to determine whether any adjustment to this amount, related amortisation and deferred tax liabilities thereon, were necessary, either in respect of the current year to 31 March 2020, or the opening balances at 31 March 2019.
For the same reasons described above, we were unable to audit the prior year adjustment described in note 3.2 to the financial statements. We were not able to audit the adjustment to the net carrying value of historically capitalised costs, totalling GBP18,207,000, recorded as a prior year adjustment, as of 1 April 2018.
If any adjustment to the capitalised development costs were to be required, there would be an impact on recorded amortisation recognised in administrative expenses, related deferred tax charges/credits, results recorded in the statement of comprehensive income, intangible asset carrying values, deferred tax on related timing differences and total assets less total liabilities values recorded in the statement of financial position.
INDEPENT AUDITOR REPORT
TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEARED 31 MARCH 2020
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
-- the Directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
-- the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group's or the Parent Company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
In addition to the matters described in the basis for qualified opinion section of our report, we have determined the matters described below to be the key audit matters to be communicated in our report.
INDEPENT AUDITOR REPORT
TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEARED 31 MARCH 2020
Revenue recognition and discount accounting Key Audit Matter How We Addressed the Key Audit Matter in the Audit The Group's revenue recognition We reviewed the revenue recognition policy is included within policy applied by the Group the accounting policies in and considered its compliance note 2 and the components with IFRS 15 'Revenue from of revenue are set out in Contracts with Customers'. note 4. Our work included review of management's identification The Group's revenue is a key of performance obligations performance indicator for and assessment of contractual the market upon which the terms to determine when these results of the Group will performance obligations were be assessed. met, both throughout the year and around year-end. The Group has one main source of revenue representing direct We tested a sample of the sales of animal pharmaceutical Group's revenue transactions products into UK, European to verify that revenue was and global markets. The Group accurately recorded in the recognises revenue at the correct accounting period. point its performance obligation This testing was performed is met, which is generally through review of contracts, on delivery of product to invoices and delivery notes the customer, but may occur and agreement to the recognition at different points in the of revenue in the accounting revenue cycle dependent on system. contractual terms. Certain revenue arrangements Prior period errors were identified include the offering of volume in the Group's original revenue and other discounts to customers. recognition policies, and We reviewed management's assessment application thereof, as explained of the value of these discounts in note 3. at year end, reviewed contractual terms and re-performed calculations Given the potential for misstatement for a sample of accrued balances. of revenue whether due to fraud or error, the inherent Where the Directors identified judgements and estimates involved errors in prior periods, we in revenue recognition and reviewed the underlying support cut-off assessments, as well for adjustments proposed, as the identified misstatements testing to supporting documents in the prior period, we considered such as delivery and shipment revenue recognition a significant details and agreed the correct risk of material misstatement application of IFRS 15 in in the financial statements. respect of these adjustments. Key Observations Based on the work performed, and following the restatements explained in note 3, we consider that revenue has been recognised in accordance with the Group's revenue recognition accounting policy and the requirements of IFRS 15. --------------------------------------- -------------------------------------- Intangible assets - Capitalised development expenditure Key Audit Matter How We Addressed the Key Audit Matter in the Audit The Group's accounting policy We reviewed the Directors' for intangible assets is included narrative re-assessment of within the accounting policies the appropriateness of intangible in note 2 and the components assets capitalised in the of intangible assets are set past, against the Group's out in note 12. revised accounting policy included in note 2.8. The Group's policy is to capitalise development expenditure in Where management concluded accordance with IAS 38. During that past costs were appropriately the period, the Directors capitalised, for all periods reviewed past capitalised up to 31 March 2019, we sampled development expenditure and those costs and planned to identified misstatements in agree the cost to underlying prior periods as a result supporting documentation and of the Group capitalising to management's assessment items which did not meet the of whether the cost met the criteria of IAS 38. criteria of IAS 38 at the point of capitalisation. We As a result of the errors performed the same procedures identified, there was a significant on capitalised costs for the audit risk that past capitalised year ended 31 March 2020. expenditure was not appropriately capitalised and capitalised We also sampled amortisation costs, in respect of projects entries during the period not yet available for use, 1 April 2018 to 31 March 2020, are impaired. to ensure amortisation commenced in the correct period and Given the potential for misstatement over the useful life in accordance of capitalised development with Group policy. We reviewed expenditure, as well as the the useful lives applied, identified misstatements in for appropriateness, by corroborating the prior period, we considered the historical periods during development expenditure capitalisation which the Group's products a key audit matter. have been sold and the periods over which competitor's products have been marketed. Our work was limited for the periods prior to 1 April 2018, where certain information was not available for review, as set out in the Basis for qualified opinion section of our report. Our work was not limited for movements in capitalised development costs for the period from 1 April 2018 to 31 March 2020. We reviewed management's impairment assessment at 31 March 2020, for capitalised development costs not yet available for use. We challenged the future estimated forecast cashflows and whether or not technical feasibility continued to be highly probable. Key Observations We consider the Group's revised accounting policy to be appropriate, Our audit scope was limited in respect of the capitalised development expenditure assets' carrying value brought forward as of 1 April 2018. We did not identify anything to suggest that the judgements applied by management, in respect of capitalisation and amortisation from 1 April 2018, and their impairment assessment as of 31 March 2020, were inappropriate. ----------------------------------------- ---------------------------------------- Unauthorised related party transactions and subsequent investigation Key Audit Matter How We Addressed the Key Audit Matter in the Audit As reported in note 31, during In response to the Directors' the year ended 31 March 2020 findings, we included internal
a longstanding former Director forensic specialists as part and Company Secretary of the of the audit team. Group withdrew cash from the Company totalling GBP25,748 (2019 - GBP46,920) which was recorded in the Parent Company The audit team's work included and Group's financial statements review of the subsequent reports as administrative costs in produced, both those of internal each year. Further cash was audit and the external law withdrawn over an extended firm, and assessment of the period starting in 2014, the completeness of their procedures cumulative amount identified and enquiries. was GBP322,109 as at 31 March 2020. Following our review of the initially produced findings These withdrawals were not reports, we recommended a approved, were outside the subsequent extended scope normal course of the Group's of work, and procedures were business and were in excess performed by the external of contractual remuneration law firm and internal audit levels. department, supported by senior management. These extended The Group's internal audit procedures covered further department identified the electronic record investigation, payments and reported their examination of bank payments findings to the Board in April over a period of 7 years and 2020. The Internal Audit department an investigation into the and an external law firm performed appropriateness of supplier further work to assess the and payroll payments. These full extent of the withdrawals. reports were subsequently reviewed by the audit team, Repayment of GBP307,113 was including forensic audit specialists, made to the Group in August which included re-performance 2020. of certain procedures. A significant risk had been Our overall audit approach identified, that further unauthorised included testing designed transactions remain undetected. to identify and detect material We considered this to be a misstatements in order to key audit matter. obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement due to fraud. Key Observations The results of the extended scope of work, and our enquiries thereon, did not identify further material undetected unauthorised transactions. We consider the accounting for, and disclosure of, the transactions identified to be appropriate. ---------------------------------------- ---------------------------------------- Prior period errors and opening balance sheet propriety Key Audit Matter How We Addressed the Key Audit Matter in the Audit As disclosed in note 3, prior Given the extent of prior period errors were identified period errors identified by in respect of the following the Directors and the audit areas: process, we have re-audited the opening statement of financial * IFRS15 Revenue from contracts with customers position at 31 March 2019. To the extent that our scope * IAS38 Intangible Assets was not limited in respect of capitalised development costs, procedures included * IFRS11 Joint Arrangements the audit of the opening statement of financial position to current period materiality and, where * Bonuses prior period errors were corrected, audit of those adjustments. This included a review of * IFRS 16 - Leases management's revised assessment, calculations and disclosures in note 3, by agreement to * Foreign exchange supporting documentation and inspection of underlying evidence on a sample basis. * Accruals accounting Our audit procedures were designed to provide reasonable * Share-based payments assurance that the restated opening statement of financial position is materially correct. * Related party transaction disclosures This was required to ensure that the starting point for the movement between the opening * Taxation and closing statements of financial position, reflected by the income statement and statement of cashflows for Given the extent of the errors the year ended 31 March 2020, identified in the prior periods, are also materially correct. our audit of the opening balance sheet at 31 March 2019, formed a key part of the audit. Key Observations A significant risk of material misstatement was identified Based on the work performed, relating to whether: and except for the capitalised * the assets recorded in the opening balance sheet development cost limitation exist; described in the Basis for Qualified Opinion section of our report, we have obtained * the liabilities in the opening balance sheet were sufficient assurance on the complete; opening statement of financial position in order to form our opinion for the year ended * both assets and liabilities were accurately recorded; 31 March 2020. and * all disclosures required were made ------------------------------------------------------------------- --------------------------------------
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect or misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower level, "performance materiality", to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial, as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
The materiality for the Group financial statements as a whole was set at GBP250,000. This was determined by reference to the Group's profit before tax and was set at 5%. Profit before tax is considered the most appropriate measure in assessing the performance of the Group given it is an AIM listed PLC and therefore the number of users and level of interest in the financial statements is expected to be higher. Performance materiality was set at 50% of the Group materiality level, being GBP125,000. Performance materiality was set at this level based on the risks identified in respect of prior period errors and that this was the first year we conducted an audit of the Group.
Where financial information from components was audited separately, component materiality was set for this purpose at lower levels, varying between GBP45,000 and GBP180,000. Component performance materiality levels varied between GBP22,500 and GBP90,000.
The materiality for auditing the Parent Company financial statements, on a standalone basis, was determined with reference to 1.9% of the Parent Company's net assets. Materiality for assessing the parent company financial statements was therefore set at GBP1,450,000 and performance materiality was set at GBP725,000.
Materiality applied for group opinion purposes (component materiality) was limited to an appropriate proportion of Group materiality, and set at GBP45,000 for this purpose; performance materiality was set at 50% of component materiality, GBP22,500.
We agreed with the Audit Committee that we would report to the committee all individual audit differences in excess of GBP5,000. We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.
INDEPENT AUDITOR REPORT
TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEARED 31 MARCH 2020
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group's system of internal control, and assessing the risks of material misstatement in the financial statements at the Group level.
We obtained an understanding of the internal control environment related to the financial reporting process and assessed the appropriateness, completeness and accuracy of Group journals and other adjustments performed on consolidation.
At 31 March 2020, the Group comprised the Parent Company; one UK trading company, ECO Animal Health Limited, a two entity sub-Group in China headed by Zhejang Eco Biok Animal Health Products Limited; a US joint operation in Pharmgate Animal Health LLC and 16 other entities.
The Parent, the UK trading entity, the sub-Group in China and the US joint operation were deemed to be the significant components of the Group. Full scope audits were carried out, for the Parent Company and ECO Animal Health Limited, by the Group audit team. The audit of the Pharmgate Animal Health LLC component was carried out by the Group audit team. The audit of the sub-Group, headed by Zhejang ECO Biok Animal Health Products Limited, was conducted by BDO China under instruction from and reporting to BDO LLP as the Group auditor. We received reporting documents from the component auditor relating to the period under audit as well as opening balance sheet procedures; we conducted file reviews of the underlying audit evidence.
Significant components for the year ended 31 March 2020 comprise 77% of consolidated Group revenue, 128% of consolidated Group profit before tax (due to losses in non-significant components) and 100% of consolidated Group net assets (due to a combination of net assets and net liabilities in non-significant components).
The remaining entities were deemed insignificant to the Group due to the size of operations and balances within each entity. Audit work on these components has been limited to analytical review and sample revenue cut-off procedures carried out by the Group audit team.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
INDEPENT AUDITOR REPORT
TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEARED 31 MARCH 2020
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
As described in the basis for qualified opinion section of our report, we were unable to satisfy ourselves concerning the inventory quantities held at 31 March 2020 and the intangible assets carrying value at 31 March 2019 and 31 March 2020. We have concluded that where the other information refers to these balances or related balances, it may be materially misstated for the same reason.
Opinions on other matters prescribed by the Companies Act 2006
Except for the possible effects of the matters described in the basis for qualified opinion section of our report, in our opinion, based on the work undertaken in the course of the audit:
-- the information given in the strategic report and the Directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
-- the strategic report and the Directors' report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
Except for the possible effect of the matters described in the basis for qualified opinion section of our report, in the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors' report.
Arising solely from the limitations on the scope of our work relating to inventory and intangible assets referred to above:
-- we have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and
-- we were unable to determine whether adequate accounting records have been kept by the Parent Company.
INDEPENT AUDITOR REPORT
TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEARED 31 MARCH 2020
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
-- returns adequate for our audit have not been received from branches not visited by us; or
-- the Parent Company financial statements are not in agreement with the accounting records and returns; or
-- certain disclosures of Directors' remuneration specified by law are not made.
Responsibilities of Directors
As explained more fully in the Directors' responsibilities statement the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group's and the Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website : www.frc.org.uk/auditorsresponsibilities . This description forms part of our auditor's report.
INDEPENT AUDITOR REPORT
TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEARED 31 MARCH 2020
Use of our report
This report is made solely to the Parent Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Ian Oliver (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
Reading
United Kingdom
3 February 2021
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 31 MARCH 2020
20 20 2019 Notes GBP000's GBP000's Restated * Revenue 4 72,106 67,253 ( 35,448 Cost of sales (38,742) ) --------- --------- Gross profit 33,364 31,805 Other income 5 105 35 Administrative expenses (28,274) (21,772) Profit from operating activities 6 5,195 10,068 Finance income 7 112 127 Finance costs 7 (142) (124) --------- --------- Net finance (cost)/income (30) 3 --------- --------- Share of profit of associate 16 42 14 42 14 --------- --------- Profit before income tax 5,207 10,085 Income tax charge 9 (1,032) (1,239) --------- --------- Profit for the year 4,175 8,846 ========= ========= Profit attributable to: Owners of the parent Company 2,582 7,253 Non-controlling interest 26 1,593 1,593 --------- --------- Profit for the year 4,175 8,846 ========= ========= Earnings per share (pence) 8 3.82 10.86 ========= ========= Diluted earnings per share (pence) 8 3.67 10.71 ========= ========= Earnings before Interest, Tax, Depreciation, Amortisation, Share Based Payments and Foreign Exchange Differences 6 8,362 12,452 ========= =========
*Please refer to Note 3 for further details on prior year restatements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 MARCH 2020
2020 2019 Notes GBP000's GBP000's Restated * Profit for the year 4,175 8,846 Other comprehensive income (losses) (net of related tax effects): Revaluation of freehold property 13 ( 92) - Foreign currency translation differences 98 (8) Remeasurement of defined benefit pension schemes 23 12 (36) Other comprehensive income (losses) for the year 18 (44) --------- --------- Total comprehensive income for the year 4,193 8,802 Attributable to: Owners of the parent Company 2,561 7,200 Non-controlling interest 26 1,632 1,602 --------- --------- 4,193 8,802 ========= =========
All items listed in other comprehensive income have been recorded directly through reserves and are shown in the consolidated statement of changes in equity.
*Please refer to Note 3 for further details on prior year restatements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 MARCH 2019
Share Share Revaluation Other Foreign Retained Total Non-controlling Total Capital Premium Reserves Reserves Exchange Earnings Interest Equity Account Reserves GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's Balance as at 31 March 2018 3,291 58,847 664 2,823 - 34,065 99,690 5,185 104,875 Adjustment re revenue cut-off (Note 3.1A) - - - - - (632) (632) 33 (599) Adjustment re intangible assets (Note 3.2) - - - - - (17,153) (17,153) - (17,153) Adjustment re bonuses (Note 3.4) - - - - - (954) (954) - (954) Adjustment re foreign exchange (Note 3.6) - - - - 484 (484) - - - Adjustment re discounts (Note3.7A) - - - - - (109) (109) (105) (214) Adjustment re provisions (Note 3.7C) - - - - - 43 43 41 84 Adjustment re Share based payments (Note 3.8) - - - (2,717) - 2,956 239 - 239 --------- --------- ------------ --------- --------- --------- --------- ---------------- --------- Balance as at 1 April 2018 - restated 3,291 58,847 664 106 484 17,732 81,124 5,154 86,278 Adjustment on implementation of IFRS16 - - - - - (17) (17) 1 (16) Further IFRS16 adjustment (Note 3.5) - - - - - (37) (37) (12) (49) --------- --------- ------------ --------- --------- --------- --------- ---------------- --------- IFRS 16 adjusted balance as at 1 April 2018 - restated 3,291 58,847 664 106 484 17,678 81,070 5,143 86,213 Profit for the year - restated* - - - - - 7,253 7,253 1,593 8,846 Other comprehensive income Foreign currency differences - - - - (17) - (17) 9 (8) Actuarial gains/ (losses) on pension scheme assets - - - - - (36) (36) - (36) --------- --------- ------------ --------- --------- --------- --------- ---------------- --------- Total comprehensive income for the year - - - - (17) 7,217 7,200 1,602 8,802 --------- --------- ------------ --------- --------- --------- --------- ---------------- --------- Transactions with owners recorded directly in equity Issue of shares in the year 81 3,803 - - - - 3,884 - 3,884 Share-based payments - - - - - 631 631 - 631 Deferred tax on share-based payments - - - - - 173 173 - 173 Dividends - - - - - (8,485) (8,485) (1,643) (10,128) --------- --------- ------------ --------- --------- --------- --------- ---------------- --------- Transactions with owners 81 3,803 - - - (7,681) (3,797) (1,643) (5,440) --------- --------- ------------ --------- --------- --------- --------- ---------------- --------- Balance as at 31 March 2019 - restated 3,372 62,650 664 106 467 17,214 84,473 5,102 89,575 ========= ========= ============ ========= ========= ========= ========= ================ =========
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 MARCH 2020
Share Share Revaluation Other Foreign Retained Total Non-controlling Total Capital Premium Reserves Reserves Exchange Earnings Interest Equity Account Reserves GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's Balance as at 31 March 2019 - restated* 3,372 62,650 664 106 467 17,214 84,473 5,102 89,575 Profit for the year - - - - - 2,582 2,582 1,593 4,175 Other comprehensive income: Foreign currency differences - - - - 59 - 59 39 98 Revaluation of freehold property - - (92) - - - (92) - (92) Actuarial gains on pension scheme assets - - - - - 12 12 - 12 --------- --------- ------------ --------- --------- --------- --------- ---------------- --------- Total comprehensive income for the year - - (92) - 59 2,594 2,561 1,632 4,193 --------- --------- ------------ --------- --------- --------- --------- ---------------- --------- Transactions with owners recorded directly in equity Issue of shares in the year 5 232 - - - - 237 - 237 Share-based payments - - - - - 284 284 - 284 Deferred tax on share-based payments - - - - - (373) (373) - (373) Dividends - - - - - (7,453) (7,453) (968) (8,421) --------- --------- ------------ --------- --------- --------- --------- ---------------- --------- Transactions with owners 5 232 - - - (7,542) (7,305) (968) (8,273) --------- --------- ------------ --------- --------- --------- --------- ---------------- --------- Balance as at 31 March 2020 3,377 62,882 572 106 526 12,266 79,729 5,766 85,495 ========= ========= ============ ========= ========= ========= ========= ================ =========
*Please refer to Note 3 for further details on prior year restatements
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 MARCH 2019
Company
Share Share Other Revaluation Retained Total Capital Premium Reserves Reserves Earnings Account GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's Balance as at 31 March 2018 3,291 58,847 2,823 395 7,189 72,545 Prior year adjustments: Adjustment re bonuses (Note 3.4) - - - - (172) (172) Adjustment re Share based payments (Note 3.8) - - (2,717) - 2,807 90 Adjustment re share-based payments (Note 3.9) - - - - 1,324 1,324 --------- --------- --------- ------------ --------- --------- Balance as at 31 March 2018 - restated 3,291 58,847 106 395 11,148 73,787 Adjustment on implementation of IFRS16 (Note 3.5) - - - - (7) (7) IFRS 16 adjusted balance as at 1 April 2018 - restated 3,291 58,847 106 395 11,141 73,780 --------- --------- --------- ------------ --------- --------- Profit for the year - as reported - - - - 15,041 15,041 Prior year adjustments: Adjustment re bonuses (Note 3.4) - - - - 71 71 Adjustment re IFRS16 (Note 3.5) - - - - (3) (3) Adjustment re share payments (Note 3.9) - - - - 154 154 --------- --------- --------- ------------ --------- --------- Profit for the year - restated - - - - 15,263 15,263 Other comprehensive income: Actuarial gains/(losses) on pension scheme assets - - - - (36) (36) --------- --------- --------- ------------ --------- --------- Total comprehensive income for the year - - - - 15,227 15,227 --------- --------- --------- ------------ --------- --------- Transactions with owners recorded directly in equity Issue of shares in the year 81 3,803 - - - 3,884 Share-based payments - - - - 631 631 Adjustment re share-based payments (Note 3.8) - - - - (5) (5) Dividends - - - - (8,485) (8,485) Transactions with owners 81 3,803 - - (7,859) (3,975) --------- --------- --------- ------------ --------- --------- Balance as at 31 March 2019 - restated 3,372 62,650 106 395 18,509 85,032 ========= ========= ========= ============ ========= =========
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 MARCH 2020
Company
Share Share Other Revaluation Retained Total Capital Premium Reserves Reserves Earnings Account GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's Balance as at 31 March 2019 - restated 3,372 62,650 106 395 18,509 85,032 Loss for the year - - - - (151) (151) Other comprehensive income: Revaluation of freehold property - - - (92) - (92) Actuarial gains on pension scheme assets - - - - 12 12 Total comprehensive loss for the year - - - (92) (139) (231) --------- --------- --------- ------------ --------- --------- Transactions with owners Issue of shares in the year 5 232 - - - 237 Share-based payments - - - - 284 284 Deferred tax on share-based payments - - - - (63) (63) Deferred tax on property revaluations - - - (1) - (1) Dividends - - - - (7,453) (7,453) --------- --------- --------- ------------ --------- --------- Transactions with owners 5 232 - (1) (7,232) (6,996) --------- --------- --------- ------------ --------- --------- Balance as at 31 March 2020 3,377 62,882 106 302 11,138 77,805 ========= ========= ========= ============ ========= =========
*Please refer to Note 3 for further details on prior year restatements.
STATEMENTS OF FINANCIAL POSITION (CO. NUMBER: 01818170)
AS AT 31 MARCH 2020
Group Company 2020 2019 2018 2020 2019 2018 Notes GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's Restated* Restated* Restated* Restated* Non-current assets Intangible assets 12 41,439 41,009 39,656 - - - Property, plant and equipment 13 2,426 2,144 1,866 622 769 716 Investment property 14 305 200 200 305 200 200 Right of use assets 15 1,658 1,675 - 25 57 - Investments 16 166 116 98 20,032 20,077 20,077 Amounts due from subsidiary Company 18 - - - 59,295 59,988 47,650 --------- ---------- ---------- --------- ---------- ---------- Total non-current assets 45,994 45,144 41,820 80,279 81,091 68,643 Current assets Inventories 17 17,264 19,477 18,654 - - - Trade and other receivables 18 28,353 23,333 15,219 55 46 213 Income tax recoverable 1,265 827 343 - 14 22 Other taxes and social security 652 462 1,160 36 145 518 Cash and cash equivalents 20 11,877 16,863 20,343 177 4,236 4,959 --------- ---------- ---------- --------- ---------- ---------- Total current assets 59,411 60,962 55,719 268 4,441 5,712 --------- ---------- ---------- --------- ---------- ---------- TOTAL ASSETS 105,405 106,106 97,539 80,547 85,532 74,355 Current Liabilities Trade and other payables 21 (14,486) (13,363) (10,983) (567) (296) (428) Borrowings 22 (2,032) - - (2,001) - - Income tax payable (940) (816) (128) - - - Other taxes and social security - (533) (108) - (90) (98) Lease liabilities 22 (342) (330) - (24) (36) - Dividends (50) (49) (42) (50) (49) (42) --------- ---------- ---------- --------- ---------- ---------- Current liabilities (17,850) (15,091) (11,261) (2,642) (471) (568) --------- ---------- ---------- --------- ---------- ---------- Net current assets / (liabilities) 41,561 45,871 44,458 (2,374) 3,970 5,144 --------- ---------- ---------- --------- ---------- ---------- Total assets less current liabilities 87,555 91,015 86,278 77,905 85,061 73,787 Non-current liabilities Deferred tax 19 (636) - - (95) - - Lease liabilities 22 (1,424) (1,440) - (5) (29) - TOTAL ASSETS LESS TOTAL LIABILITIES 85,495 89,575 86,278 77,805 85,032 73,787 ========= ========== ========== ========= ========== ========== EQUITY Issued share capital 25 3,377 3,372 3,291 3,377 3,372 3,291 Share premium account 62,882 62,650 58,847 62,882 62,650 58,847 Revaluation reserve 572 664 664 302 395 395 Other reserves 27 106 106 106 106 106 106 Foreign exchange revaluation reserve 27 526 467 484 - - - Retained earnings 12,266 17,214 17,732 11,138 18,509 11,148 --------- ---------- ---------- --------- ---------- ---------- Shareholders' funds 79,729 84,473 81,124 77,805 85,032 73,787 Non-controlling interests 26 5,766 5,102 5,154 - - - --------- ---------- ---------- --------- ---------- ---------- Total equity 85,495 89,575 86,278 77,805 85,032 73,787 ========= ========== ========== ========= ========== ==========
Dr Andrew Jones, Chairman.
*Please refer to Note 3 for further details on prior year restatements. The notes on pages 63 to 149 form part of these financial statements.
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 MARCH 2020
Group Group Company Company 2020 2019 2020 2019 Restated* Restated* Notes GBP000's GBP000's GBP000's GBP000's Cash flows from operating activities Profit/(loss) before income tax 5,207 10,085 (151) 15,272 Adjustment for: Finance income 7 (112) (127) (895) (917) Finance cost 7 142 124 30 - Foreign exchange gain/(loss) 62 (504) - - Depreciation 13 334 340 17 17 Amortisation of right-of-use assets 15 389 380 32 15 Revaluation of investment property (64) (55) (64) (55) Amortisation of intangible assets 12 1,685 1,745 - - Pension payments 23 (59) (59) - (59) Share of associate's results 16 (42) (14) - - Impairment of investments 16 - - 45 - Share based charge 24 284 631 114 305 Dividends received - - (77) - --------- ---------- --------- ---------- Operating cash flows before movements in working capital 7,826 12,546 (949) 14,578 Change in inventories 2,212 (1,814) - - Change in receivables (5,209) (5,738) 962 (11,472) Change in payables 662 2,141 253 (103) --------- ---------- --------- ---------- Cash generated from operations 5,491 7,135 266 3,003 Finance costs (17) - (30) (2) Income tax (1,076) (862) - (13) --------- ---------- --------- ---------- Net cash from operating activities 4,398 6,273 236 2,988 --------- ---------- --------- ---------- Cash flows from investing activities Acquisition of property, plant and equipment 13 (767) (566) (1) (2) Disposal of property, plant and equipment 13 - 5 - - Purchase of intangibles 12 (2,115) (3,098) - - Finance income 7 112 127 895 938 Dividends received - - 77 - --------- ---------- --------- ---------- Net cash (used in)/from investing activities (2,770) (3,532) 971 936 --------- ---------- --------- ---------- Cash flows from financing activities Change in borrowings 22 2,032 - 2,001 - Proceeds from issue of share capital 237 3,884 237 3,884 Interest paid on lease liabilities (125) (139) (13) (22) Principal paid on lease liabilities (364) (338) (38) (31)
Dividends paid (8,421) (10,121) (7,453) (8,478) Net cash (used in)/from financing activities (6,641) (6,714) (5,266) (4,647) --------- ---------- --------- ---------- Net (decrease) in cash and cash equivalents (5,013) (3,973) (4,059) (723) Foreign exchange movements 27 493 - - Balance at the beginning of the period 16,863 20,343 4,236 4,959 --------- ---------- --------- ---------- Balance at the end of the period 20 11,877 16,863 177 4,236 ========= ========== ========= ==========
A net cash reconciliation has been provided in note 22.
*Please refer to Note 3 for further details on prior year restatements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 31 MARCH 2020
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. Summary of significant accounting policies 2.1 Basis of preparation
The Group has presented its annual report and accounts in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS.
The preparation of financial statements, in conformity with international accounting standards in conformity with the requirements of the Companies Act 2006, 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. Further details of estimates and judgements are provided in note 2.30.
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.
Going Concern
After making appropriate enquiries, the Directors have, at the time of approving the financial statements, formed a judgement that there is a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements.
This conclusion is based on a review of the resources available to the Group, taking account of the Group's financial projections together with available cash and committed borrowing facilities. The Directors have performed a reverse stress test on the business, by considering what quantum of revenue and gross margin reduction would be required to exhaust all available funds within 12 months of the date of approving the accounts. The Directors concluded that the likelihood of such a reduction was remote, and therefore that no material uncertainty exists with respect of going concern.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
2.2 Adoption of new and revised standards
The following new standards, amendments and interpretations for existing standards have been published and are mandatory for accounting periods beginning after 1 January 2019 (unless otherwise stated) and have been applied in preparing these consolidated financial statements. These did not result in any material changes.
-- IFRS 9- Financial Instruments (amendments) -- IFRIC 23 - Uncertainty over income tax -- IAS 28 - Investments in associates and joint ventures -- IAS 19 - Employee benefits
The following amendments to existing standards and interpretations will be effective and adopted for period ended 31 March 2021 and the adoption of these amendments to existing standards and interpretations are not expected to have a material impact on the financial statements of the Group:
-- IFRS 3 Business combinations - Definition of a business
-- IAS 1 Presentation of financial statements, and IAS 8 Accounting policies, changes in accounting estimates and errors - Definition of material
-- IFRS 11 - Joint Arrangements -- IAS 12 - Income Taxes -- IAS 23 - Amendments under 2015-2017 Cycle of Annual Improvements
The following new standards, amendments and interpretations for existing standards have been published that are mandatory for accounting periods beginning after 1 January 2020 (unless otherwise stated) and have not been applied in preparing these consolidated financial statements.
-- IFRS 9, IAS 39 and IFRS 17 - Interest rate benchmark reform
The Directors do not expect that the adoption of the Standards and Interpretations listed above will have a material impact on the financial statements of the Group in future periods.
Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review has been completed.
2.3 Basis of consolidation
The consolidated financial statements comprise the accounts of the Company and its subsidiaries drawn up to 31 March 2020.
An entity is classed as a subsidiary of the Company when as a result of contractual arrangements, the Company has the power to govern its financial and operating policies so as to obtain benefits from its activities.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured, as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and contingent liabilities assumed in a business combination are measured
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
2.3 Basis of consolidation (continued)
initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value, the difference is recognised directly in the income statement.
Accounting policies of subsidiaries have been changed where material to ensure consistency with the policies adopted by the Group. Although the subsidiaries in Brazil and China and the joint operations in the USA and Canada all have December year ends, the Group uses management accounts to the end of March to prepare the Group accounts.
Subsidiaries are wholly consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation.
2.4 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting to the chief operating decision-maker. The chief operating decision-maker who is responsible for allocating resources and assessing performance of the operating segments has been identified as the Board.
2.5 Foreign currency translation (a) Functional and presentation currency
Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("functional currency"). The consolidated financial statements are presented in Pounds Sterling, which is the Company's functional and the Group's presentation currency.
(b) Transactions and balances
Monetary assets and liabilities denominated in foreign currencies are translated into Pounds Sterling at the rates of exchange ruling at the date of the financial statements.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement within administrative expenses.
Foreign exchange gains and losses that relate to borrowing and cash and cash equivalents are presented in the income statement within administrative expenses.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
2.5 Foreign currency translation (continued) (c) Group companies
The results and financial position of all Group entities that have a functional currency different from the Group's functional and presentation currency are translated into the Group's functional and presentation currency as follows;
-- assets and liabilities for each Statement of financial position presented are translated at the closing exchange rate at the date of the Statement of financial position;
-- income and expenses for each income statement are translated at average exchange rates unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case the income and expenses are translated at the rate on the dates of the transaction; and
-- all resulting exchange differences are recognised through other comprehensive income as a separate component of equity.
When a foreign operation is partially disposed or sold, exchange differences that were recognised in equity are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are
treated as assets and liabilities of the foreign entity and translated at the closing exchange rate.
2.6 Financial instruments
Financial assets
The Group's financial assets comprise mainly trade and other receivables and cash and cash equivalents in the consolidated statement of financial position. These financial assets arise principally from the provision of goods to customers and are measured at amortised cost.
Impairment provisions for current and non-current trade receivables are recognised based on the simplified approach within IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. During this process, the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within Administrative expenses in the consolidated income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.
Impairment provisions for receivables from related parties and loans to related parties are recognised based on a forward looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses along with gross interest income are recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
2.7 Financial instruments (continued)
with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised.
Financial liabilities
The Group's financial liabilities comprise mainly trade and other payables and bank overdrafts in the consolidated statement of financial position. These financial liabilities are initially recognised at fair value and subsequently measured at amortised cost in accordance with IFRS 9.
2.7 Goodwill
Goodwill arising on the acquisition of an entity represents the excess of the costs of acquisition over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity recognised at the date of acquisition.
Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is not subject to amortisation but is tested for impairment annually.
Negative goodwill arising on an acquisition is recognised directly in the income statement. On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss recognised in the income statement on disposal. Goodwill arising before the date of transition to IFRS, on 1 April 2004, has been retained at the previous UK GAAP amounts, subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.
2.8 Other intangible assets
IAS 38 - Intangible Assets includes guidance on the accounting for Research and Development expenditure. Such an intangible asset is a resource that is controlled by the entity as a result of past events (for example, purchase or self-creation) and from which future economic benefits (inflows of cash or other assets) are expected. The three critical attributes of an intangible asset are:
-- identifiability -- control (power to obtain benefits from the asset) -- future economic benefits (such as revenues or reduced future costs)
Identifiability: an intangible asset is identifiable when it:
-- is separable (capable of being separated and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract) or
-- arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.
Development expenditure - whether purchased or self-created (internally generated) is an example of an intangible asset, governed under IAS 38.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
2.8 Other intangible assets (continued)
Recognition criteria: IAS 38 requires an entity to recognise an intangible asset (at cost) if, and only if:
-- it is probable that the future economic benefits that are attributable to the asset will flow to the entity; and
-- the cost of the asset can be measured reliably.
IAS 38 includes additional recognition criteria for internally generated intangible assets.
Expenditure on the research phase of an internal project is expensed as incurred. Expenditure in the development phase of an internal project is capitalised if the entity can demonstrate:
(a) the technical feasibility of completing the intangible asset so that it will be available for use or sale.
(b) its intention to complete the intangible asset and use or sell it.
(c) its ability to use or sell the intangible asset.
(d) how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.
(e) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.
(f) its ability to measure reliably the expenditure attributable to the intangible asset during its development.
The probability of future economic benefits must be based on reasonable and supportable assumptions about conditions that will exist over the life of the asset.
Initial recognition: research and development costs
-- Charge all research cost to expense.
-- Development costs are capitalised only after technical and commercial feasibility of the asset for sale or use have been established. This means that the entity must intend and be able to complete the intangible asset and either use it or sell it and be able to demonstrate how the asset will generate future economic benefits.
If an entity cannot distinguish the research phase of an internal project to create an intangible asset from the development phase, the entity treats the expenditure for that project as if it were incurred in the research phase only.
If recognition criteria are not met.
If an intangible item does not meet both the definition of and the criteria for recognition as an intangible asset, IAS 38 requires the expenditure on this item to be recognised as an expense when it is incurred.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
2.8 Other intangible assets (continued)
The Group context of IAS 38
Since the early start-up stages of the business, the Group has and continues to invest significant expenditure in research and development into new animal treatments and therapies. This has resulted in a significant family of pharmaceutical treatments for pigs and poultry. Branded as Aivlosin, this product has developed over 20 years into treatments for multiple respiratory and intestinal infections - each of which have separate regulatory and marketing approvals in each target market. The work to bring Aivlosin from the laboratory to the commercial farm has moved through the classical phases of pharmaceutical development and the ECO Animal Health R&D model can be described by the following broad phases:
-- The discovery phase - in vitro, in laboratory -- The proof of concept phase - key efficacy trials in small groups of animals -- The exploratory development phase - optimisation of dose, economic validation -- The full development phase - building the data set for dossier submission -- Submission of an application for regulatory approval -- Marketing and regulatory approval granted - commercial revenue begins
The application of the principles of IAS 38 to the above model is to treat expenditure on Research and Development as an expense until the likely commercial benefits that will flow from the project can be judged to be highly probable. This means that the technical feasibility (judged by reference to efficacy) must be certain, the economic feasibility (judged by reference to manufacturing methodology, market intelligence, overall programme cost) has to be highly probable and the likelihood of gaining regulatory approval must be judged to be highly probable. The Directors consider that capitalisation will generally commence once a project enters the full development phase.
In practice, work that is undertaken to build towards regulatory approval for a new treatment claim using Aivlosin (or other product) or an approval for marketing Aivlosin in a new geographical market can be viewed as starting at the full development phase and are likely to meet the capitalisation criteria whereas costs in relation to some of the Group's more recently announced projects (for example the vaccine collaboration projects with The Pirbright Institute) would be considered to have not yet met the criteria for capitalisation and should have therefore been expensed. Such projects' costs are likely to meet the capitalisation requirements once they are approved internally to commence the full development phase, subject to careful consideration of residual technical feasibility/risk.
Amortisation of capitalised expenditure is determined with reference to the point at which regulatory approval is given to the product to which the expenditure relates. For historic periods, the approach adopted has been to amalgamate the expenditure incurred on all projects relating to the same product, since the last regulatory approval and then identify the next nearest regulatory approval given for that product in either the same or a subsequent half-year. Amortisation begins in the half-year following the receipt of regulatory approval. A full six months of amortisation is charged in the first half-year for which costs are amortised.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
2.8 Other intangible assets (continued)
Where the Group has capitalised costs which relate to multiple products, a proportional method is adopted to determined what ratio of costs capitalised to date should be subject to amortisation. This method first looks at capitalised costs that relate to specific products and identifies the proportion of such costs that are subject to amortisation at the end of any given half-year period. The ratio thus calculated is then applied to those costs that relate to multiple products to determine the portion that should be subject to amortisation.
These approaches have been modified where it is possible to allocate an individual capitalised cost to a single identifiable project. In these cases the start date for amortisation is the half-year following the half-year period in which the project receives regulatory approval. Where regulatory approval has not been received for a project, the amortisation has not started.
Amortisation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows:
Aivlosin 5% on cost Ecomectin 10% on cost Trade marks and patents 10% on cost 2.9 Property, plant and equipment and depreciation
Plant and equipment are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows:
Plant and machinery 10%-20% on cost Fixtures, fittings and equipment 10%-20% on cost Motor vehicles 25% on cost
Freehold land and buildings valuations are measured as a level 3 recurring fair value measurement. The property is professionally valued by a qualified surveyor at least once every three years. Surpluses (which are not reversals of previous deficits) arising from the periodic valuations are taken to other comprehensive income, and deficits (which are not reversals of previous surpluses) are taken to the income statement within administrative expenses. Depreciation is provided at a rate calculated to expense the valuation less estimated residual value over the remaining useful life of the building at a rate of 2% per annum on a straight line basis. Land is not depreciated.
2.10 Impairment of non-financial assets
The carrying amounts of the Group's assets are reviewed at each year end, to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated in order to determine the impairment loss if any. The recoverable amount is the higher of its fair value and its value in use. For intangible assets with an indefinite useful life or not available for use, an impairment test is performed at each year end.
In assessing value in use, the expected future cashflows from the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
2.10 Impairment of non-financial assets (continued)
An impairment loss is recognised in the income statement whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.
A previously recognised impairment loss for costs other than goodwill is reversed if the recoverable amount increases as a result of a change in the estimates used to determine the recoverable amount, but not to an amount higher than the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognised in prior years and no reversal of impairment losses recognised on goodwill.
2.11 Investment property
Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is measured at fair value as a level 3 recurring fair value measurement.
The property is professionally valued by a qualified surveyor at least once every three years. Surpluses and deficits arising from the periodic valuations are taken to the income statement within administrative expenses.
2.12 Investments in subsidiaries
An investment in a subsidiary is where the Group own a controlling interest in an entity. Non-current asset investments are stated at fair value. They are recognised or derecognised on the date when the contract for acquisition or disposal requires the delivery of that investment.
Investments in subsidiaries are stated at cost less impairment in the Parent Company's statement of financial position.
An impairment is recognised in profit or loss when there is objective evidence that the asset is impaired and is measured as the difference between the investment's carrying amount and the present value of estimated future cashflows discounted at the effective interest rate adjusted for a risk premium. Impairment losses are reversed in subsequent periods when an increase in the investment's recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised costs would have been had the impairment not been recognised.
2.13 Joint Arrangements
A joint arrangement is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control; that is, when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
2.13 Joint Operations (continued)
The group classifies its interests in joint arrangements as either:
- Joint ventures: where the group has rights to only the net assets of the joint
arrangement
- Joint operations: where the group has both the rights to assets and obligations for
the liabilities of the joint arrangement.
In assessing the classification of interests in joint arrangements, the Group considers:
- The structure of the joint arrangement
- The legal form of joint arrangements structured through a separate vehicle
- The contractual terms of the joint arrangement agreement
- Any other facts and circumstances (including any other contractual arrangements).
The Group has interests in joint operations. The Group recognises its share of the assets, liabilities, income, expenses and cashflows of joint operations combined with the equivalent items in the consolidated financial statements on a line by line basis.
2.14 Investments in Associates
An associate is an entity in which an investor has significant influence but not control or joint control. Significant influence is defined as "the power to participate in the financial and operating policy decisions but not to control them".
The Group reports its interests in associates using the equity method of accounting. Under this method, an equity investment is initially recorded at cost (subject to initial fair value adjustment if acquired as part of the acquisition of a subsidiary) and is subsequently adjusted
to reflect the Group's share of the net profit or loss of the associate. If the Group's share of losses of an associate equals or exceeds its "interest in the associate", the Group discontinues recognising its share of further losses. If the associate subsequently reports profits, the investor resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised.
2.15 Leasing
The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Group applies a single recognition and measurement approach for all leases under IFRS 16, as applied from the transition date of 1 April 2018, except for short-term leases and leases of low-value assets.
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease, which is the date the underlying asset is available for use. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any re-measurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date, less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the lease term.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
2.15 Leasing (continued)
If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.
The right-of-use assets are also subject to impairment. Refer to the accounting policies in the section 2.10.
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of the lease payments to be made over the lease term. The lease liabilities include the present value of the following lease payments:
-- fixed payments (including in-substance fixed payments), less any lease incentives receivable;
-- variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date;
-- amounts expected to be payable by the Group under residual value guarantees;
-- the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and
-- payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. In addition, the carrying amount of lease liabilities is re-measured if there is a modification, a change in the lease term, a change in the lease payments (for example, changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Extension and termination options
Extension and termination options are included in a number of property and equipment leases across the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group's operations. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
2.15 Leasing (continued)
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term leases, being those leases that have a lease term of twelve months or less from the commencement date and do not contain a purchase option. The Group also applies the recognition exemption to leases of which the underlying asset is of low value, comprising assets below the Group's capitalisation threshold. Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.
Practical expedients
The Group used a number of practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17.
In particular, the Group applied:
-- not to reassess whether a contract is, or contains, a lease at the date of initial application;
-- application of a single discount rate to a portfolio of leases with reasonably similar characteristics;
-- exclusion of initial direct costs from the measurement of the right-of-use asset at the date of initial application;
-- hindsight to determine the lease term;
-- exclusion of low-value leases - leases for which the underlying assets are below the Group's capitalisation threshold; and
-- exclusion of short-term leases - leases with lease term ending within twelve months of the date of initial application.
2.16 Inventories
Inventories are valued at the lower of cost and net realisable value. Cost is determined using the historical batch price of the principal raw materials and the historical average cost for other ingredients and other product costs. The cost of finished goods comprises raw materials, packaging costs and sub-contracted manufacturing costs. Net realisable value is the estimated selling price in the ordinary course of business, less any costs which would be incurred in completing the goods ready for sale.
2.17 Trade receivables
Trade receivables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method. Trade receivables are presented net of discounts or other variable consideration adjustments earned, where the expectation and intention is to settle the balance net. Impairment provisions are recognised based on the simplified approach in accordance with IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. See impairment section in section '2.6 Financial instruments' for more details.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020 2.18 Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held on call with banks, other short-term highly liquid investments with original maturities of three months or less. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position.
2.19 Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
2.20 Bank borrowings and loans
Interest-bearing bank loans and overdrafts are recorded as the proceeds received, net of direct issue costs (which equate to fair value). Finance charges including premiums payable on settlement or redemption and direct issue costs are accounted for on an amortised cost basis in profit or loss using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
2.21 Trade payables
Trade payables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method.
2.22 Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be required to settle the obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation outstanding at the year end and are discounted to present value where the effect is material.
2.23 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the Group's activities. Revenue is shown net of value added tax, returns, rebates and discounts and after eliminating sales within the Group. Transaction price is determined by the contract and variable consideration relating to discounts, free goods or volume rebates have been constrained in estimating contract revenue that is highly probable by using the most likely amount method.
The Group's contracts for delivery of goods are less than 12 months, there are no warranties within its sales contracts.
Revenue is recognised when the performance obligation is fulfilled and the amount can be measured reliably. The performance obligation is fulfilled when control of the goods passes to the customer, which is normally in accordance with Incoterms or receipt by customer. No goods are dispatched on a sale or return basis. Distributors trade on their own account and not as agents.
The Group also receives interest, royalty income. The amounts are small and are recognised on an accruals basis.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
2.24 Pensions
Defined Contribution Scheme
The pension costs charged against operating profits represent the amount of the contributions payable to the schemes in respect of the accounting period.
Defined Benefit Scheme
The regular cost of providing retirement pensions and related benefits is charged to the income statement over the employees' service lives on the basis of a constant percentage of earnings. The present value of the defined benefit obligation less the fair value of the plan assets is disclosed as an asset or liability in the statement of financial position in accordance with IAS 19. The disclosure of a net defined benefit asset is limited to the present value of any economic benefit available in the form of refunds from the plan or reductions in future contributions to the plan.
Actuarial gains or losses are recognised through other comprehensive income.
2.25 Share-based payments
The Group issues equity-settled share options to certain employees in exchange for services from those employees. Equity-settled share options are measured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant.
The fair value determined at the grant date of such equity-settled share options is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non-market based vesting conditions (with a corresponding movement in equity).
Fair value is measured by use of the Black-Scholes model. The expected life used in the model has been established based on management's best estimate of the effects of non-transferability, exercise restrictions and behaviour considerations.
Further details of the inputs to the Black-Scholes model can be found in note 24 to the accumulating share based payment charges in reserves. Share-based payment charges are credited to retained earnings only; subsequent to the prior year adjustment explained in note 3, the share-based payment reserve account balance is subsumed within retained earnings.
2.26 Taxation
Tax expense for the period comprises current and deferred tax.
Current tax, including UK corporation tax and foreign tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted by the year end. Tax expenses are recognised in profit or loss or other comprehensive income according to the treatment of the transactions which give rise to them.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax basis of assets and liabilities and their carrying amount in the financial statements.
Deferred income tax is determined using tax rates (and laws) that have been enacted, or substantially enacted, by the date of the statement of financial position and are expected to apply when the related deferred tax asset is realised or deferred tax liability is settled.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
2.26 Taxation (continued)
Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.
IFRIC 23 Uncertainty over Income Tax Treatments
IFIRC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The interpretation requires:
-- The Group to determine whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution;
-- The Group to determine if it is probable that the tax authorities will accept the uncertain tax treatment; and
-- If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty. The measurement is required to be based on the assumption that each of the tax authorities will examine amounts they have a right to examine and have full knowledge of all related information when making those examinations.
2.27 Equity
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
Amounts arising on the restructuring of equity and reserves to protect creditor interests are credited to the capital redemption reserve.
Amounts arising from share-based payment expenses recorded in the Group's results are recorded within retained earnings.
The cost of its own shares bought into treasury by the Company is debited to retained earnings as required by the Companies Act 2006. A subsequent sale of these shares would result in this entry being wholly or partly reversed with any profit on the sale being credited to Share Premium.
Amounts arising from the revaluation of non-monetary assets and liabilities held in foreign subsidiaries, and joint operations are held within the foreign exchange revaluation reserve.
Amounts arising from revaluations of assets not taken through the income statement or other comprehensive income are held within the Revaluation reserve.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
2.28 Non-controlling (minority) interest
For each business combination, the Group elects to measure any non-controlling interest in the acquiree either at fair value or at their proportionate share of the acquiree's identifiable net assets. Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as transactions with owners in their capacity as owner. Adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary. No adjustments are made to goodwill and no gain or loss is recognised in the statement of profit or loss.
2.29 Dividend distribution
Dividends are recorded when they become a legal obligation of the Company. For final dividends, this will be when they are approved by the shareholders at the AGM. For interim dividends, this will be when they have been paid.
2.30 Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are:
-- Capitalisation and impairment review of intangible assets
The Group assesses development costs incurred for capitalisation in accordance with the requirements of IAS38 and the Group's accounting policy described in Note 2.8. The stage of development and assessment of technical and commercial feasibility, in particular, require the use of judgements and estimates in consultation with the new product development team.
The Group tests annually whether intangible assets with indefinite life, or not yet available for use, have suffered any impairment. Other intangible assets are reviewed for impairment when an indication of potential impairment exists. Impairment provisions are recorded as applicable based on Directors' estimates of recoverable values.
The recoverable amounts of the Cash Generating Units (CGU's) to which intangible assets are allocated 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. The Group also reviews and quantifies the tax implications related to any recognised impairments and these are included within tax calculations as appropriate.
Further details of the impairment reviews performed can be found in note 12 of the financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
2.30 Critical accounting estimates and judgements (continued) -- Income taxes
The Group is subject to income taxes predominantly in the United Kingdom but also in other jurisdictions.
Significant estimates are required in determining the provision for income taxes. There are some transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises assets and liabilities based on estimates of the final agreed position.
Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
Deferred tax assets on timing differences are recognised to the extent by which future profits will be generated to utilise the underlying costs or losses to which they relate.
-- Pension scheme
The Group maintains one defined benefit pension scheme which has been accounted for according to the provisions of IAS 19. Although the assumptions were determined by a qualified actuary, any change in those assumptions may materially impact the financial position and results of the Group. Details of the assumptions used can be found in note 23 of the financial statements.
-- Share-based payments
The charge to the Income Statement in respect of share-based payments has been externally calculated using management's best estimates of the amount of options expected to vest and various other inputs to the Black-Scholes valuation model, as disclosed in note 24. Variations in those assumptions in the model may have a material impact on the Group's results and financial position at the time of valuation.
-- Leases - estimating the incremental borrowing rate
Where the Group cannot readily determine the interest rate implicit in the lease, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the
Group 'would have to pay', which requires estimation when no observable rates are available or when they need to be adjusted to reflect the terms and conditions of the lease.
In practice, the Group considered the following aspects in the assessment of IBR. Once decided, the IBR will remain unchanged unless there are modifications in lease terms or changes in the assessment of an option to purchase the underlying asset.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
2.30 Critical accounting estimates and judgements (continued)
- A base rate that reflects economic environment and the term of the lease. This is mainly derived from the yield of a government bond issued by the country in which the Group has in scope leases. Where the term of the lease does not conform with the maturity period of the bond, the Group considered other available information such as yields on the bonds with the nearest maturity period, or the yield curve published by the country's treasury department. Considering there is often a difference in the cash flow profile between a lease and government bond, the Group has decided to reduce the base rate by 0.05% to 0.10%.
- Financing factors that reflect the lessee companies' risk premium on borrowing. Management considered the financial strength and credit risk of lessee companies and estimated the credit spread to be in the range of 1.50% to 5.00%.
- Asset factors that reflect the quality of hypothetical security. Depending on the location and type of underlying assets, the Group expects the quality of security in this hypothetical borrowing transaction to vary. For example, the right to use a warehouse in rural areas may provide less relevant security compared to commercial office in a major city's central business district. Based on the Group's assessment, the asset factor ranges between -0.45% to -0.50%.
At 31 March 2020, the Group used a weighted average discount rate of 7.10% (2019 restated: 7.84%).
Transition 2019 date 1 2020 Restated* April 2018 Property 5.9% 5.8% 5.9% Vehicle 29.0% 29.0% 29.0% Other 4.0% 4.0% 4.0% ------- ----------- ------------ Weighted average 7.10% 7.84% 7.03% ------- ----------- ------------
*Please refer to Note 3 for further details on prior year restatements.
-- Fair value measurement
A number of assets and liabilities included in the Group's financial statements require measurement, and/or disclosure of, fair value.
The fair value measurement of the Group's financial and non0financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are (the 'fair value hierarchy'):
- Level 1 : Quoted prices in active markets for identical items (unadjusted) - Level 2 : Observable direct or indirect inputs other than Level 1 inputs - Level 3 : Unobservable inputs (i.e. not derived from market data).
The classification of an item into the above levels is based on the lowest level of inputs used that has a significant effect on the fair value measurement of the item.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
2.30 Critical accounting estimates and judgements (continued)
The Group measures a number of items at fair value.
- Revalued land and buildings (note 13) - Investment property (note 14) - Pension and other post-retirement benefit commitments (note 23) - Share-based payments (note 24) - Initial recognition of Financial instruments (note 32)
For more detailed information in relation to the fair value measure of the items above please refer to the applicable notes.
3. Prior year restatements
The following corrections to the application of the Group's accounting policies to comply with International Financial Reporting Standards have been made as restatements of prior period financial statements for the correction of errors in accordance with IAS 8.
3.1 IFRS 15 Revenue from Contracts with Customers
The Group adopted IFRS 15 - Revenue from Contracts with Customers with effect from 1 April 2018. It was noted in the consolidated financial statements of the Group for the year ended 31 March 2019 that the effect of adoption of this standard was immaterial to the Group.
IFRS 15 provides a single, principles-based five step model to be applied to all sales contracts, based on the transfer of control of goods and services to customers. It replaced the separate guidance in IAS 11 for Construction Contracts and IAS 18 for Revenue. Under IAS 18, the guiding principle for determining when revenue should be recognised was to establish when the transfer of risk and reward of ownership in the goods had passed to customers. IFRS 15 requires a determination of when transfer of control has passed to customers in order to establish when revenue can be recognised.
IFRS 15 (and IAS 18) also requires that sales discounts, commissions, rebates and other sales incentives provided to customers are accounted for as an offset to Revenue.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued) 3.1 IFRS 15 Revenue from Contracts with Customers (continued) 3.1A Revenue recognition Historical Treatment Revised treatment and impact Revenue has been recognised Having reference to the contractual when goods have been dispatched trading terms with customers, from the Group's warehouses the shipping and transportation and factories (third party methods, Incoterms guidance and owned facilities). Historically other GAAP guidance the moment certain revenue recognition when control is judged to have has occurred prior to satisfying passed to the customer was in the performance obligation. most cases later than the date that the goods left the warehouse. Accordingly, some revenue previously incorrectly recorded shortly before the relevant period end was moved to the subsequent month and the subsequent accounting period. ----------------------------------------- The associated cost of sale was similarly moved to the subsequent accounting period. ----------------------------------------- The carrying value of Trade Debtors and Inventory at the relevant Statement of financial position date was consequently adjusted. A retained earnings adjustment reflects the cumulative value of net profit so adjusted in the financial period. ----------------------------------------- 3.1B Sales Discounts Historical Treatment Revised treatment and impact Sales incentives provided to These allowances have been set customers comprising volume off against revenue in the relevant rebates, discounts and commissions period and cost of sale appropriately have historically been incorrectly adjusted. accounted for as a cost of Trade receivables are presented sale. net of discounts or other variable consideration adjustments earned, where the expectation and intention
is to settle the balance net. There is no impact on gross profit or net profit. ------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued) 3.2 IAS 38 - Intangible Assets Historical Treatment Revised treatment and impact Certain costs relating to the Historical costs have been considered Research and Development team in the light of IAS 38 and the including regulatory affairs ECO Animal Health R&D model. were incorrectly capitalised IAS 38 (and IAS 36 in respect and amortised over a period of amortisation) have been applied of 10 or 20 years. Amortisation to each year and where expenses commenced immediately from meet the criteria for capitalisation the date the costs were capitalised. such costs have remained as capitalised intangible assets, as explained in more detail in note 2.8. Development costs for projects not yet generating sales are subject to annual impairment reviews. Development costs are amortised over their useful economic lives starting from the half year after regulatory approval is obtained to commence product sales, which is the best estimate of when the asset is available for use. -------------------------------------------- All other expenses incurred in research, development, technical and regulatory affairs and technical support to the organization have been expensed. -------------------------------------------- The impact has been to increase the Research and Development expense (and reduce the amortisation) in the Income Statement in each year and to reduce the value of capitalised intangible assets on the Statement of financial position. -------------------------------------------- 3.3 IFRS 11 - Joint Arrangements
IFRS 11 - Joint Arrangements defines an arrangement of which two or more parties have joint control. A joint arrangement has the following characteristics:
-- The parties are bound by a contractual arrangement.
-- The contractual arrangement gives two or more of those parties joint control of the arrangement.
A joint arrangement is either a joint operation or a joint venture. The classification of a joint arrangement as a joint operation or a joint venture depends upon the rights and obligations of the parties to the arrangement. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint venturers.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued) 3.3 IFRS 11 - Joint Arrangements (continued)
In assessing the relationship between the Group and its commercial collaborator in the USA and Canada management has considered the nature of the commercial arrangements, the legal agreement between the parties and other contractual arrangements.
Historical Treatment Revised treatment and impact The joint arrangements with The Group has rights and obligations Pharmgate in the USA and Canada over the individual assets and have historically been correctly liabilities in the Statement classified as joint operations. of financial position. Management Accordingly, the Group has considers that the nature of correctly included in into the commercial arrangements and its income statement the revenue the control that the Group has and cost of sale, together over the trade receivables and with any sales incentives provided trade payables indicates that to customers, for sales of the joint arrangement should Aivlosin in those territories. be also treated as a joint operation The Group has correctly brought in the statement of financial 50% of all administrative costs position. The historical Income into its income statement. statement treatment correctly However, the Group has incorrectly reflects that of a joint operation included 50% of each amount but on the Statement of financial held in the Statement of financial position the Group should incorporate position of the joint operation's those assets and liabilities legal entities into the Group's over which it has rights and own Statement of Financial obligations. Accordingly, the Position totals, being 50% Group has restated past Statements of tangible fixed assets, 50% of Financial Position to include of trade and other receivables, the Group's own trade debtors 50% of cash and 50% of trade (for Aivlosin sales) and related and other payables. payable balance, together with 50% of any assets and liabilities pertaining to shared overheads (for example prepayments and accruals of administrative expenses). ------------------------------------------ There is no change to the net assets position of the group and the remaining balance of the specific assets and liabilities to be brought into the Group statement of financial position is either cash or a payable to the joint operation. Accordingly, together with trade receivables and payables, the cash/payable to the joint operation balance in the Group's Consolidated Statement of Financial Position has changed. ------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued) 3.4 Bonuses
An entity may have no legal obligation to pay a bonus. Nevertheless, in some cases, an entity has a practice of paying bonuses. In such cases, the entity has a constructive obligation because the entity has no realistic alternative but to pay the bonus.
Historical Treatment Revised treatment and impact Bonuses paid to Directors Bonuses have been paid in each financial and Employees in the Group period. Notwithstanding that the bonuses are discretionary, however are subject to management and Remuneration no assessment was previously Committee discretion, they are customarily performed as to whether a paid and the amount paid is considered constructive obligation to by reference to individual performance pay bonuses was present at and Group performance in the preceding each year end. As a result financial period. Accordingly, it is the historical treatment of considered that in accordance with Bonuses has been to account IAS 19 a constructive obligation to for them as an expense in pay bonuses has been created at 31 the period in which they are March 2018 and 2019 and the correct paid - normally in October accounting treatment is to accrue for of each year. these bonuses in the year in which
the employment services were received . All periods presented were adjusted. ----------------------------------------------- 3.5 IFRS 16 - Leases
Management reviewed the Group's existing list of identified leases under IFRS 16 and reassessed the reasonableness of key inputs used in calculating the lease liabilities and right-of-use assets. Comparing the results, material differences have been identified in the following four areas:
-- Leases for two properties and three vehicles have been identified where the Group has only capitalised 50% of the actual lease payments in its original IFRS 16 calculation when 100% is required to be capitalised.
-- Leases for one property, one vehicle and two pieces of equipment have not been captured by the original assessment.
-- Two contracts have been incorrectly identified as leases as they do not meet the definition of lease under IFRS 16.
-- The IBR for all identified leases was originally estimated at 4%. The Group re-estimated its incremental borrowing rate for each class of leases based on consideration over the economic, financing and asset factors. Please see Note 2.30 Critical accounting estimates and judgements for more details. The weighted average IBR based on the Directors' reassessment is 7.03% on transition at 1 April 2018, and 7.84% as at 31 March 2019.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued) 3.5 IFRS 16 - Leases (continued) Transition date 2019 1 April 2018 Property 5.8% 5.9% Vehicle 29.0% 29.0% Other 4.0% 4.0% ------ ---------------- Weighted average 7.84% 7.03% ------ ----------------
Because of the findings above, the Directors consider it necessary to provide a corrected reconciliation between the lease commitment under IAS 17 and the Group's opening lease liabilities on transition date.
GBP000's Operating lease commitments at 31 Mar 2018 under IAS 17 - restated 2,910 Recognition exemption for short-term leases (36) Extension and termination options reasonably certain to be exercised 549 --------- Adjusted lease commitments at 31 Mar 2018 before discount 3,423 Discount on lease commitment (945) --------- Lease liabilities recognised at 1 Apr 2018 2,478 of which are: Current lease liabilities 782 Non-current lease liabilities 1,696
The following table gives details of the amounts introduced into the Group Statement of financial position at 1 April 2018, the IFRS16 transition date, split by category of asset.
Property Vehicles Other Total GBP000's GBP000's GBP000's GBP000's Restated Restated Restated Restated Right-of-use assets introduced Cost 2,224 144 22 2,390 Accumulated Depreciation (395) (44) (6) (445) Net book value 1,829 100 16 1,945 --------- --------- --------- --------- Lease liabilities introduced (1,885) (110) (17) (2,012) --------- --------- --------- --------- Adjustment to opening reserves (56) (10) (1) (67) ========= ========= ========= =========
The effect of IFRS 16 "Leases" on net profit for the year ended 31 March 2019 was a reduction in reported profit of GBP90,000 and the effect on net assets as at 31 March 2019 was a reduction of GBP157,000.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued) 3.6 Foreign exchange
IAS 21 - The Effects of Changes in Foreign Exchange Rates requires the accumulated foreign exchange gains or losses from the translation of foreign operations on consolidation to be presented as a separate component of equity. Previously this foreign exchange reserve was included in and presented as part of the Group's retained earnings. It was separately disclosed in the notes.
Additionally, the Group has corrected how the foreign exchange gains and losses on its consolidated income statement are presented. Previously they were spread across multiple captions, such as revenue, cost of sales and finance expenses. With this change the overall foreign exchange impact on translation in the income statement are only presented as part of administrative expenses.
3.7A Free Goods Incentive
Zhejiang ECO Biok Animal Health Products Limited (hereafter "ECO BIOK") offers to its customers goods with nominal price (hereafter "free goods") in December each year, based on a percentage of the year-to-date sales to the customer. To qualify for the free goods incentive, the customer will need to meet their annual sales target, which is set upfront in an annual contract at the beginning of each calendar year.
Historically, ECO BIOK assess whether each of the in-scope customers meet their annual target in December each year and ship out the free goods before the end of that month. The cost to ECO BIOK, as a result of this incentive, was recorded in the entity's cost of sales, at the value of the inventory that are shipped out as free goods.
Under IFRS 15, this free goods incentive is viewed as a material right given to customers for future purchases at a discounted price. Therefore, an element of the consideration received on normal sales throughout the year should be allocated to this future performance obligation to provide free goods, which should be in turn recognised as revenue only when the free goods are delivered.
Based on historical data and contractual terms management was able to establish which customers were expected to meet their annual sales targets, the actual percentage against reported sales to be used in the calculation of free goods and confirm the correct amount of contract liabilities to be recognised at the previous year ends. The year-on-year movements of the contract liabilities are reflected in the relevant year's revenue line.
3.7B Bonus accrual
Historically, ECO BIOK has accrued for its staff bonus in December, in respect of the calendar year then ended, with payment in January or February, prior to the Chinese New Year. At the Group's March year-end no bonus accrual was calculated on a pro rata basis, for the anticipated next December bonus. This was incorrect as, in accordance with IAS 19 the correct accounting treatment is to accrue for these bonuses in the corresponding year-end. The restatement has recalculated the year-end accrual to the correct level, which is calculated based on a proportion of the actual paid amount for the year.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued) 3.7C Other prior year adjustments
ECO BIOK incorrectly recognised, at 31 March 2018 and 31 March 2019, accruals for its national promotion conference planned for December each year. The restatement has released the overstated accrual.
3.7D Related party transactions disclosure
Certain related party transactions disclosures were not made in 31 March 2019 financial statements. The required disclosures, including 31 March 2019 comparative amounts, have been made in note 31.
3.8 Share-based payments
The Company and Group has adopted a change in policy to combine the previously reported reserve for share-based payment into retained earnings. The updated accounting policy is included in note 2.24.
Historically the Group has not recognised a deferred tax asset on the expected future tax deduction in respect of share options held at the statement of financial position sheet date. The prior year results have been restated to recognise a tax asset on share options, capped at a level for which there is a right of offset against the deferred tax liability arising on other temporary differences.
3.9 Share-based payments expense - Company only
Historically no separate accounting has been recorded for share based payment charges that related to options issued to employees of subsidiaries of ECO Animal Health Group PLC - the company. The share based payment charge has historically been incorrectly recognised in full in the company income statement.
Intercompany agreements exist which give the company the ability to recharge share-based payment charges to its subsidiary companies. Accordingly when the Directors have reassessed the company accounting for share based payments, they have determined that the expense should be recharged and a related intercompany receivable asset recognised.
Whilst not impacting the consolidated results, the company share based payment charge in the company income statement has decreased and the amounts due from subsidiary companies in the company statement of financial position have increased.
3.10 Impact of restatements of the financial statements
The following tables summarise the impact of adopting the changes, as described above in notes 3.1 to 3.9 on the Group's consolidated financial statements. Prior year adjustments impacting the Company only profit/loss for the year ended 31 March 2019 are presented in the Company Statement of Changes in Equity. References to the specific changes to which those adjustments relate are presented in the table headings as required.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Group statement of comprehensive income for the year to 31 March 2019
As reported Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Restated Note Note Note Note Note Note Note Note Note Note 3.1A 3.1B 3.2 3.4 3.5 3.6 3.7A 3.7B 3.7C 3.8 GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's Revenue 74,578 (4,223) (2,900) - - - (290) 88 - - - 67,253 Cost of sales (40,725) 2,379 2,900 - - - (2) - - - - (35,448) ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------- ---------- Gross Profit 33,853 (1,844) - - - - (292) 88 - - - 31,805 Other income 35 - - - - - - - - - - 35 Administrative expenses (14,466) - - - 311 68 - - (451) 354 - (14,184) R&D expense - - - (5,868) - - - - - - - (5,868) Currency profits/(losses) (138) - - - - (1) 796 - - - - 657 Amortisation of intangible assets (3,982) - - 2,236 - - - - - - - (1,746) Share based payments (631) - - - - - - - - - - (631) ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------- ---------- Profit from operating activities: 14,671 (1,844) - (3,632) 311 67 504 88 (451) 354 - 10,068 Net finance income/(costs) 562 - - - - (55) (504) - - - - 3 Share of profit of associate 14 - - - - - - - - - - 14 ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------- ---------- Profit before income tax 15,247 (1,844) - (3,632) 311 12 - 88 (451) 354 - 10,085 Income tax charge (1,680) 348 - 59 (59) - - (23) 117 (92) 91 (1,239) ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------- ---------- Profit for the period 13,567 (1,496) - (3,573) 252 12 - 65 (334) 262 91 8,846 ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------- ---------- Attributable to: Owner of parent company 11,755 (1,273) - (3,573) 252 4 - 33 (170) 134 91 7,253 Non-controlling interest 1,812 (223) - - - 8 - 32 (164) 128 - 1,593 ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------- ---------- 13,567 (1,496) - (3,573) 252 12 - 65 (334) 262 91 8,846 ================= ================= ================= ================= ================= ================= ================= ================= ================= ================= =========== ==========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Group statement of comprehensive income for the year to 31 March 2019 (continued)
As reported Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Restated Note Note Note Note Note Note Note Note Note 3.1A 3.1B 3.2 3.4 3.5 3.6 3.7A 3.7B 3.7C Note 3.8 GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's Earnings per share (pence) 17.60 (1.91) - (5.35) 0.38 0.01 - 0.05 (0.25) 0.20 0.13 10.86 Diluted earnings per share (pence) 17.35 (1.88) - (5.27) 0.37 0.01 - 0.05 (0.25) 0.20 0.13 10.71 Earnings before interest, taxation, depreciation, amortisation and share based payments (EBITDA) 19,949 (1,844) - (5,868) 311 66 504 88 (451) 354 - 13,109 Exclude foreign exchange differences 138 - - - - 1 (796) - - - - (657) Adjusted EBITDA excluding foreign exchange differences 20,087 (1,844) - (5,868) 311 67 (292) 88 (451) 354 - 12,452 ============== =========== =========== =========== =========== =========== =========== =========== =========== =========== =========== ============
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Group statement of financial position as at 31 March 2019
As reported Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Restated Note Note Note Note Note Note Note Note Note 3.1A Note 3.1B Note 3.2 3.3 3.4 3.5 3.6 3.7A 3.7B 3.7C 3.8 GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's Non-current assets Intangible assets 62,734 - - (21,839) - 114 - - - - - - 41,009 Property, plant and equipment 2,144 - - - - - - - - - - - 2,144 Investment property 200 - - - - - - - - - - - 200 Right of use assets 1,930 - - - - - (255) - - - - - 1,675 Investments 116 - - - - - - - - - - - 116 --------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- --------- 67,124 - - (21,839) - 114 (255) - - - - - 45,144 Current assets Inventories 16,107 3,370 - - - - - - - - - - 19,477 Trade and other receivables 29,537 (5,901) (570) - 11 - - - - - 256 - 23,333 Income tax recoverable 466 252 - - - 62 - - 52 117 (122) - 827 Other taxes and social security 462 - - - - - - - - - - - 462 Cash and cash equivalents 18,068 - - - (1,205) - - - - - - - 16,863 --------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- --------- 64,640 (2,279) (570) - (1,194) 62 - - 52 117 134 - 60,962 Total assets 131,764 (2,279) (570) (21,839) (1,194) 176 (255) - 52 117 134 - 106,106 --------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Group statement of financial position as at 31 March 2019 (continued)
As reported Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Restated Note Note Note Note Note Note Note Note Note Note Note 3.1A 3.1A 3.2 3.3 3.4 3.5 3.6 3.7A 3.7B 3.7C 3.8 GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's Current liabilities Trade and other payables (13,809) - 570 - 1,194 (878) - - (201) (451) 212 - (13,363) Borrowings - - - - - - - - - - - - - Income tax (1,000) 184 - - - - - - - - - - (816) Other taxes and social security (533) - - - - - - - - - - - (533) Amounts due under leases (415) - - - - - 85 - - - - - (330) Dividends (49) - - - - - - - - - - - (49) --------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- --------- (15,806) 184 570 - 1,194 (878) 85 - (201) (451) 212 - (15,091) Total assets less current liabilities 115,958 (2,095) - (21,839) - (702) (170) - (149) (334) 346 - 91,015 Non-current liabilities Deferred tax (1,616) - - 1,113 - - - - - - - 503 - Amounts due under leases (1,573) - - - - - 133 - - - - - (1,440) --------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- --------- Total assets less total liabilities 112,769 (2,095) - (20,726) - (702) (37) - (149) (334) 346 503 89,575 ========= =========== =========== =========== =========== =========== =========== =========== =========== =========== =========== =========== ========= Equity Capital and reserves Issued share capital 3,372 - - - - - - - - - - - 3,372 Share premium account 62,650 - - - - - - - - - - - 62,650 Revaluation reserve 664 - - - - - - - - - - - 664 Other reserves 3,342 - - - - - - - - - - (3,236) 106 Foreign exchange reserve - - - - - - - 467 - - - - 467 Retained earnings 37,377 (1,905) - (20,726) - (702) (33) (467) (76) (170) 177 3,739 17,214 --------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- --------- Shareholders' funds 107,405 (1,905) - (20,726) - (702) (33) - (76) (170) 177 503 84,473 Non-controlling interests 5,364 (190) - - - - (4) - (73) (164) 169 - 5,102 Total equity 112,769 (2,095) - (20,726) - (702) (37) - (149) (334) 346 503 89,575 ========= =========== =========== =========== =========== =========== =========== =========== =========== =========== =========== =========== =========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Group statement of financial position as at 31 March 2018
As reported Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Restated Note Note 3.1A Note 3.2 Note 3.3 Note 3.4 Note 3.6 Note 3.7A Note 3.7C 3.8 GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's Non-current assets Intangible assets 57,631 - (18,207) - 232 - - - - 39,656 Property, plant and equipment 1,866 - - - - - - - - 1,866 Investment property 200 - - - - - - - - 200 Right of use - - - - - - - - - - assets Investments 98 - - - - - - - - 98 --------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- --------- 59,795 - (18,207) - 232 - - - - 41,820 Current assets Inventories 17,663 991 - - - - - - - 18,654 Trade and other receivables 17,193 (1,678) - (296) - - - - - 15,219 Income tax recoverable 113 64 - - 121 - 75 (30) - 343 Other taxes and social security 1,160 - - - - - - - - 1,160 Cash and cash equivalents 21,261 - - (918) - - - - - 20,343 --------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- --------- 57,390 (623) - (1,214) 121 - 75 (30) - 55,719 Total assets 117,185 (623) (18,207) (1,214) 353 - 75 (30) - 97,539 --------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Group statement of financial position as at 31 March 2018 (continued)
As reported Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Restated Note Note Note Note Note Note 3.1A Note 3.2 Note 3.3 3.4 3.6 3.7A 3.7C 3.8 GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's Current liabilities Trade and other payables (10,715) - - 1,214 (1,307) - (289) 114 - (10,983) Borrowings - - - - - - - - - - Income tax payable (152) 24 - - - - - - - (128) Other taxes and social security (108) - - - - - - - - (108) Lease - - - - - - - - - - liabilities Dividends (42) - - - - - - - - (42) --------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- --------- (11,017) 24 - 1,214 (1,307) - (289) 114 - (11,261) Total assets less current liabilities 106,168 (599) (18,207) - (954) - (214) 84 - 86,278 Non-current liabilities Deferred tax (1,293) - 1,054 - - - - - 239 - Lease - - - - - - - - - - liabilities --------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- --------- Total assets less total liabilities 104,875 (599) (17,153) - (954) - (214) 84 239 86,278 ========= =========== =========== =========== =========== =========== =========== =========== =========== ========= Equity Capital and reserves Issued share capital 3,291 - - - - - - - - 3,291 Share premium account 58,847 - - - - - - - - 58,847 Revaluation reserve 664 - - - - - - - - 664 Other reserves 2,823 - - - - - - - (2,717) 106 Foreign exchange revaluation reserve - - - - - 484 - - - 484 Retained earnings 34,065 (632) (17,153) - (954) (484) (109) 43 2,956 17,732 --------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- --------- Shareholders' funds 99,690 (632) (17,153) - (954) - (109) 43 239 81,124 Non-controlling interests 5,185 33 - - - - (105) 41 - 5,154 Total equity 104,875 (599) (17,153) - (954) - (214) 84 239 86,278 ========= =========== =========== =========== =========== =========== =========== =========== =========== =========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Group statement of cash flows for the year ended 31 March 2019
As reported Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Restated Note Note Note Note Note Note Note Note Note 3.1A 3.1B Note 3.2 3.3 3.4 3.5 3.7A 3.7B 3.7C 3.8 GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's Cashflows from operating activities Profit before income tax 15,247 (1,844) - (3,632) - 311 12 88 (451) 354 - 10,085 Adjustment for: Finance income (127) - - - - - - - - - - (127) Finance cost 69 - - - - - 55 - - - - 124 Foreign exchange gain/(loss) (504) - - - - - - - - - - (504) Depreciation 340 - - - - - - - - - - 340 Amortisation of right-of-use assets 380 - - - - - - - - - - 380 Revaluation of freehold
property (55) - - - - - - - - - - (55) Amortisation of intangible assets 3,982 - - (2,237) - - - - - - - 1,745 Pension payments (59) - - - - - - - - - - (59) Share of post-tax profits of equity accounted joint operations (14) - - - - - - - - - - (14) Impairment of - - - - - - - - - - - - investments Share based charge 631 - - - - - - - - - - 631 --------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- --------- Operating cash flow before movement in working capital 19,890 (1,844) - (5,869) - 311 67 88 (451) 354 - 12,546 (Increase)/decrease in inventories 1,556 (2,379) - - - - - - - - - (823) (Increase)/decrease in trade and other receivables (11,646) 4,223 570 - (307) - - - - (256) - (7,416) Increase/(decrease) in trade and other payables 3,540 92 (542) 42 (1,654) 801 88 828 27 (682) (742) 2,828 --------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- --------- Cash generated from operations 13,340 92 1,112 (5,827) (1,961) 1,112 155 916 (478) (584) (742) 7,135 Finance costs (69) - - - - - 69 - - - - - Income tax (862) - - - - - - - - - - (862) --------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- --------- Net cash from operating activities 12,409 92 1,112 (5,827) (1,961) 1,112 224 916 (478) (584) (742) 6,273
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Group statement of cash flows for the year ended 31 March 2019 (continued)
As reported Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Adjustment Restated Note Note Note Note Note Note 3.1A 3.1B Note 3.2 Note 3.3 Note 3.4 Note 3.5 3.7A 3.7B 3.7C 3.8 GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's Cash flows from investing activities Acquisition of property plant and equipment (566) - - - - - - - - - - (566) Disposal of property plant and equipment 5 - - - - - - - - - - 5 Purchase of intangibles (9,085) - - 5,873 - 114 - - - - - (3,098) Finance income 127 - - - - - - - - - - 127 Net cash from investing activities (9,519) - - 5,873 - 114 - - - - - (3,532) --------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- --------- Cash flows from financing activities Proceeds from issue of share capital 3,884 - - - - - - - - - - 3,884 Interest paid on lease liabilities 67 - - - - - (206) - - - - (139) Principal paid on lease liabilities (406) - - - - - 68 - - - - (338) Dividends paid (10,121) - - - - - - - - - - (10,121) --------- ----------- ----------- ----------- ----------- ----------- ----------- Net cash from financing activities (6,576) - - - - - (138) - - - - (6,714) --------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- --------- Net decrease in cash and cash equivalents (3,686) 92 1,112 46 (1,961) 1,226 86 916 (478) (584) (742) (3,973) Foreign exchange movements 493 - - - - - - - - - - 493 Balance at the beginning of the period 21,261 - - - (918) - - - - - - 20,343 Cash and cash equivalents at the end of the period 18,068 92 1,112 46 (2,879) 1,226 86 916 (478) (584) (742) 16,863 --------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Company statement of financial position as at 31 March 2019
As reported Adjustment Adjustment Adjustment Adjustment Restated Note Note Note 3.4 Note 3.5 3.8 3.9 GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's Non-current assets Intangible assets - - - - - - Property, plant and equipment 769 - - - - 769 Investment property 200 - - - - 200 Right of use assets 30 - 27 - - 57 Investments 20,077 - - - - 20,077 Amounts due from subsidiary Company 58,510 - - - 1,478 59,988 ------------ ----------- ----------- ----------- ----------- --------- 79,586 - 27 - 1,478 81,091 Current assets Inventories - - - - - - Trade and other receivables 46 - - - - 46 Income tax recoverable - 14 - - - 14 Other taxes and social security 145 - - - - 145 Cash and cash equivalents 4,236 - - - - 4,236 ------------ ----------- ----------- ----------- ----------- --------- 4,427 14 - - - 4,441 Total assets 84,013 14 27 - 1,478 85,532
------------ ----------- ----------- ----------- ----------- ---------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Company statement of financial position as at 31 March 2019 (continued)
As reported Adjustment Adjustment Adjustment Adjustment Restated Note 3.4 Note 3.5 Note 3.8 Note 3.9 GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's Current liabilities Trade and other payables (181) (115) - - - (296) Borrowings - - - - - - Income tax - - - - - - Other taxes and social security (90) - - - - (90) Amounts due under leases (16) - (20) - - (36) Dividends (49) - - - - (49) ------------ ----------- ----------- ----------- ----------- --------- (336) (115) (20) - - (471) Total assets less current liabilities 83,677 (101) 7 - 1,478 85,061 Non-current liabilities Deferred tax (85) - - 85 - - Amounts due under leases (12) - (17) - - (29) ------------ ----------- ----------- ----------- ----------- --------- Total assets less total liabilities 83,580 (101) (10) 85 1,478 85,032 ============ =========== =========== =========== =========== ========= Equity Capital and reserves Issued share capital 3,372 - - - - 3,372 Share premium account 62,650 - - - - 62,650 Revaluation reserve 395 - - - - 395 Other reserves 3,342 - - (3,236) - 106 Foreign exchange - - - - - - revaluation reserve Retained earnings 13,821 (101) (10) 3,321 1,478 18,509 ------------ ----------- ----------- ----------- ----------- --------- Shareholders' funds 83,580 (101) (10) 85 1,478 85,032 Non-controlling - - - - - - interests Total equity 83,580 (101) (10) 85 1,478 85,032 ============ =========== =========== =========== =========== =========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Company statement of financial position as at 31 March 2018 (continued)
As reported Adjustment Adjustment Adjustment Restated Note Note Note 3.4 3.8 3.9 GBP000's GBP000's GBP000's GBP000's GBP000's Non-current assets Intangible assets - - - - - Property, plant and equipment 716 - - - 716 Investment property 200 - - - 200 Right of use assets - - - - - Investments 20,077 - - - 20,077 Amounts due from subsidiary Company 46,326 - - 1,324 47,650 ------------ ----------- ----------- ----------- --------- 67,319 - - 1,324 68,643 Current assets Inventories - - - - - Trade and other receivables 213 - - - 213 Income tax recoverable - 22 - - 22 Other taxes and social security 518 - - - 518 Cash and cash equivalents 4,959 - - - 4,959 ------------ ----------- ----------- ----------- --------- 5,690 22 - - 5,712 Total assets 73,009 22 - 1,324 74,355 ------------ ----------- ----------- ----------- ---------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Company statement of financial position as at 31 March 2018 (continued)
As reported Adjustment Adjustment Adjustment Restated Note Note 3.4 3.8 Note 3.9 GBP000's GBP000's GBP000's GBP000's GBP000's Current liabilities Trade and other payables (234) (194) - - (428) Borrowings - - - - - Income tax - - - - - Other taxes and social security (98) - - - (98) Amounts due under - - - - - leases Dividends (42) - - - (42) ------------ ----------- ----------- ----------- --------- (374) (194) - - (568) Total assets less current liabilities 72,635 (172) - 1,324 73,787 Non-current liabilities Deferred tax (90) - 90 - - Amounts due under - - - - - leases ------------ ----------- ----------- ----------- --------- Total assets less total liabilities 72,545 (172) 90 1,324 73,787 ============ =========== =========== =========== ========= Equity Capital and reserves Issued share capital 3,291 - - - 3,291 Share premium account 58,847 - - - 58,847 Revaluation reserve 395 - - - 395 Other reserves 2,823 - (2,717) - 106 Foreign exchange - - - - - revaluation reserve Retained earnings 7,189 (172) 2,807 1,324 11,148 ------------ ----------- ----------- ----------- --------- Shareholders' funds 72,545 (172) 90 1,324 73,787 Non-controlling - - - - interests - Total equity 72,545 (172) 90 1,324 73,787 ============ =========== =========== =========== =========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Company statement of cash flows for the year ended 31 March 2019
As reported Adjustment Adjustment Adjustment Restated Note Note Note 3.4 3.5 3.9 GBP000's GBP000's GBP000's GBP000's GBP000's Profit before income tax 15,050 71 (3) 154 15,272 Adjustment for: Finance income (937) - 20 - (917) Finance cost - - - - - Depreciation 19 - (2) - 17 Amortisation of right-of-use assets - - 15 - 15 Revaluation of freehold property (55) - - - (55)
Pension payments (59) - - - (59) Share based charge 631 - - (326) 305 ------------ ----------- ----------- ----------- --------- Operating cash flow before movement in working capital 14,649 71 30 (172) 14,578 Change in inventories - - - - - Change in receivables (11,644) - - 172 (11,472) Change in payables (39) (79) 15 - (103) ------------ ----------- ----------- ----------- --------- Cash generated from operations 2,966 (8) 45 - 3,003 Finance costs (2) - - - (2) Income tax (13) - - - (13) ------------ ----------- ----------- ----------- --------- Net cash from operating activities 2,951 (8) 45 - 2,988 ------------ ----------- ----------- ----------- --------- Cash flows from investing activities Acquisition of property plant and equipment (2) - - - (2) Disposal of property - - - - - plant and equipment Purchase of intangibles - - - - - Finance income 938 - - - 938 ------------ ----------- ----------- ----------- --------- Net cash from investing activities 936 - - - 936 ------------ ----------- ----------- ----------- --------- Cash flows from financing activities Proceeds from issue of share capital 3,884 - - - 3,884 Interest paid on lease liabilities 1 - (23) - (22) Principal paid on lease liabilities (17) - (14) - (31) Dividends paid (8,478) - - - (8,478) ------------ ----------- ----------- ----------- --------- Net cash (used in)/from financing activities (4,610) - (37) - (4,647) ------------ ----------- ----------- ----------- --------- Net decrease in cash and cash equivalents (723) (8) 8 - (723) Foreign exchange movements - - - - - Balance at the beginning of the period 4,959 - - - 4,959 - ------------ ----------- ----------- ----------- --------- Cash and cash equivalents at the end of the period 4,236 (8) 8 - 4,236 ============ =========== =========== =========== =========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
4. Segment information
Management has determined the operating segments based on the reports reviewed by the Board to make strategic decisions. The Board considers the business from a geographical perspective. Geographically, management considers the performance in the Corporate/UK, China and Japan, North America, South and South East Asia, Latin America, Europe and the Rest of the World.
Revenues are geographically allocated by the destination of customer.
The performance of these geographical segments is measured using Earnings before Interest, Tax, Depreciation and Amortisation ("EBITDA"), adjusted to exclude share based payments expenses.
China North S & SE Latin Rest Corporate/U.K. & Japan America Asia America Europe of World Total GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's Year ended 31 March 2020 Total segment revenue 3,507 27,085 22,297 25,303 19,540 14,549 2,378 114,659 Inter-segment revenue (1,739) (3,937) (10,662) (11,128) (6,939) (6,959) (1,189) (42,553) --------------- --------- --------- --------- --------- --------- ---------- --------- Revenue from external customers 1,768 23,148 11,635 14,175 12,601 7,590 1,189 72,106 --------------- --------- --------- --------- --------- --------- ---------- --------- Sale of goods 1,768 23,148 11,635 14,175 12,601 7,590 1,032 71,949 Royalties - - - - - - 157 157 --------------- --------- --------- --------- --------- --------- ---------- --------- 1,768 23,148 11,635 14,175 12,601 7,590 1,189 72,106 --------------- --------- --------- --------- --------- --------- ---------- --------- Adjusted EBITDA (15,011) 6,499 4,196 6,266 2,286 2,951 636 7,823 Total Assets 30,923 31,417 17,212 7,968 12,355 4,585 945 105,405 =============== ========= ========= ========= ========= ========= ========== ========= Year ended 31 March 2019 All 2019 figures have been restated Total segment revenue 2,835 34,400 18,678 19,034 13,972 15,519 3,466 107,904 Inter-segment revenue (1,418) (7,613) (8,135) (10,943) (3,193) (7,616) (1,733) (40,651) --------------- --------- --------- --------- --------- --------- ---------- --------- Revenue from external customers 1,417 26,787 10,543 8,091 10,779 7,903 1,733 67,253 --------------- --------- --------- --------- --------- --------- ---------- --------- Sale of goods restated 1,417 26,787 10,543 8,091 10,779 7,903 1,576 67,096 Royalties - - - - - - 157 157 --------------- --------- --------- --------- --------- --------- ---------- --------- 1,417 26,787 10,543 8,091 10,779 7,903 1,733 67,253 --------------- --------- --------- --------- --------- --------- ---------- --------- Adjusted EBITDA (1,771) 6,443 2,242 2,293 1,133 2,234 535 13,109 Total Assets 21,630 24,982 12,492 14,757 15,978 12,523 3,744 106,106 =============== ========= ========= ========= ========= ========= ========== =========
Goodwill and other intangible assets are initially allocated to the geographical segments on the basis of the proportion of sales achieved by each segment.
Adjusted EBITDA includes (Gain)/Loss on foreign exchange transactions.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
4. Segment information (continued)
A reconciliation of adjusted EBITDA for reportable segments to profit before tax is provided as follows:
2020 2019 GBP000's GBP000's Restated Adjusted EBITDA for reportable segments 7,823 13,109 Depreciation (334) (340) Amortisation of right of use assets (389) (380) Revaluation of investment property 64 55 Amortisation (1,685) (1,745) Share-based payment charges (284) (631) Profit before tax on continuing activities 5,195 10,068 --------- ---------
Product Revenues
2020 2019 GBP000's GBP000's Restated* Aivlosin 60,686 52,212 Ecomectin 3,951 3,686 Others 7,469 11,355 --------- ---------- Total 72,106 67,253
Contract Balances
2020 2019 Within one year or on demand GBP000's GBP000's Restated* --------- ---------- At 1 April 847 289 --------- ---------- Amounts included in contract liabilities that was recognised as revenue during the period (847) (289) Cash received in advance of performance and not recognised as revenue during the period 594 847 --------- ---------- At 31 March 594 847 --------- ----------
*Please refer to Note 3 for further details on prior year adjustments
The Group recognised contract liabilities of GBP594,000 at 31 March 2020 (2019 restated: GBP847,000). The Group does not hold any long term sales contracts and any rebates, discounts or free goods incentives are settled and recognised as revenue within the next accounting period. Contract balances are reported within trade and other payables on the Statement of Financial Position.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
5. Other income 2020 2019 GBP000's GBP000's Management charges 7 30 Sundry income 98 5 105 35 --------- --------- 6. Result from operating activities 2020 2019 GBP000's GBP000's Restated Result from operating activities is stated after charging/(crediting) Cost of inventories recognised as an expense 38,381 35,337 Employee benefits expenses 9,968 8,969 Amortisation of intangible assets (note 12 ) 1,685 1,745 Depreciation (note 13) 334 340 Amortisation of right of use assets (note 15) 389 380 Revaluation of investment property (note 14) (64) (55) Loss/(Gain) on foreign exchange transactions 539 (657) Research and development 8,775 5,868 Impairment losses on trade receivables 139 64 Fees payable to the Company's auditor for the audit of the parent Company and Group annual accounts 54 18 Fees payable to the Company's auditor and its associates for the audit of the Company's subsidiaries 47 66 Fees payable to the Company's auditor for the audit of the parent Company and Group annual accounts, for the year ended 31March 2020, were GBP414,000 (2019: GBP18,000), and fees payable to the Company's auditor and its associates for the audit of the Company's subsidiaries were GBP460,000 (2019: GBP66,000). 2020 2019 GBP000's GBP000's Restated Earnings before interest, tax, depreciation, amortisation and impairment, share-based payments and foreign exchange differences (adjusted EBITDA) Profit from operating activities 5,195 10,068 Depreciation 334 340 Amortisation of right of use assets 389 380 Revaluation of investment property (64) (55) Amortisation 1,685 1,745 Share-based payments 284 631 --------- --------- 7,823 13,109 Foreign exchange differences 539 (657) --------- --------- 8,362 12,452 --------- ---------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
6. Result from operating activities (continued)
Management believe that adjusted EBITDA is the most appropriate measure of the Group's performance as it is the initial source for all re-investment and for all returns to shareholders. Investors, bankers and analysts all focus on this important measure of underlying performance because it enables them to make judgements about the Group's ability to generate sufficient cash to meet all the re-investment needs of the business while still providing adequate returns to shareholders. Therefore, adjusted EBITDA has a direct relationship with the value of the Group and is seen by our investors as a Key Performance Indicator for management.
The following items are adjusted for in the calculation of adjusted EBITDA as defined by the Group.
Item Rationale for Adjustment Depreciation and Amortisation These items are a result of past investments and therefore, although they are correctly recorded as a cost of the business, they do not reflect current or future cash outflows. Additionally, Depreciation and Amortisation calculations are subject to judgement regarding useful lives and residual values of particular assets and the adjustment removes the element of judgement. Revaluation of Investment Property These are subject to judgement and do not reflect cash flows. Gains and Losses on Disposal These items are a result of of Fixed Assets and Impairment past investments and therefore, of Intangibles although they are correctly recorded as income or cost of the business, they do not reflect current or future cash outflows. Share Based Payments This item is subject to judgement and will never be reflected in the Group's cash flows. Foreign Exchange differences Since the key driver of this figure is the revaluation of monetary assets denominated in foreign currency at the period end, which may reverse prior to settlement, taking this figure out of the EBITDA figure removes volatility from the performance measure. Foreign exchange movements are largely outside of the Group's control, so this gives a better measure of the Group's progress than statutory profit measures which include them.
*Please refer to Note 3 for further details on prior year restatements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
7. Finance income/ (costs) 2020 2019 GBP000's GBP000's Finance income Restated Interest received on short term bank deposits 112 127 Finance costs Interest paid (18) (1) Interest paid on lease liabilities (124) (123) (142) (124) --------- --------- (30) 3 ========= ========= 8. 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.
2020 2019 Earnings Weighted Per share Earnings Weighted Per share average amount average amount number number of shares of shares 2020 2020 2020 2019 2019 2019 GBP000's 000's (pence) GBP000's 000's (pence) Restated Restated Earnings attributable to ordinary shareholders on continuing operations after tax 2,582 67,530 3.82 7,253 66,794 10.86 Dilutive effect of share options - 2,783 (0.15) - 943 (0.15) Fully diluted earnings per share 2,582 70,313 3.67 7,253 67,737 10.71 --------- ----------- ---------- --------- ----------- ----------
Diluted earnings per share takes into account the dilutive effect of share options.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
9. Taxation 2020 2019 Current tax year GBP000's GBP000's Restated Foreign corporation tax on profits for the year 1,520 1,493 Withholding tax on intercompany dividend 54 92 Research and development tax credits claimed in the year (1,000) (414) Research and development tax credits - adjustment for prior year 196 (104) Deferred tax Origination and reversal of temporary differences 187 261 Due to change in effective rate 75 (89) --------- --------- Income tax charge 1,032 1,239 ========= ========= Deferred tax recognised through reserves Origination and reversal of temporary differences 373 (173) Due to change in effective rate 1 - --------- --------- 374 (173) ========= ========= 2020 2019 GBP000's GBP000's Factors affecting the tax charge for the year Restated Profit on ordinary activities before taxation 5,207 10,085 ========= ========= Profit on ordinary activities before taxation multiplied by the applicable rate of UK corporation tax of 19% (2019: 19%) 989 1,916 Effects of: Non-deductible expenses 324 1,451 Non-chargeable credits (103) (984) Withholding tax on inter-company dividends 54 92 Enhanced allowance on research and development expenditure (756) (1,116) Different tax rate for foreign subsidiaries 165 186 Reduced effective deferred tax rate 76 (89) Origination and reversal of temporary differences 47 (91) Unused tax losses carried forward 236 141 Patent box claim - (267) Income tax charge 1,032 1,239 ========= ========= 2019 2020 Restated* % % Applicable tax rate per UK legislation 19.00 19.00 Effects of: Non-deductible expenses 6.22 14.39 Non-chargeable credits (1.98) (9.76) Withholding tax on inter-company dividends 1.04 0.91 Enhanced allowance on research and development expenditure (14.52) (11.07) Different tax rate for foreign subsidiaries 3.17 1.85 Reduced effective deferred tax rate 1.46 (0.88) Origination and reversal of temporary differences 0.90 (0.90) Unused tax losses carried forward 4.53 1.40 Patent box claim - (2.65) Effective tax rate 19.82 12.29 ======== ===========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
9. Taxation (continued)
Future tax changes
Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2016 (on 6 September 2016). These include reductions to the main rate to reduce the rate to 17% from 1 April 2020. On 11 March 2020 the government announced that the reduction to 17% would not take effect and the prevailing rate of corporation tax would remain at 19%. Deferred taxes at the Statement of financial position date have been measured at 19% (2019: hybrid tax rate of 18%). At the year ended 31 March 2020 the Group had unused overseas tax losses amounting to GBP3.8 million (2019: GBP2.0 million) for which no deferred tax asset has been recognised. These tax losses are not expected to expire.
10. Profit for the financial year 2020 2019 GBP000's GBP000's Restated Parent Company's profit/(loss) for the financial year (151) 15,263 ========= =========
The Company has elected to take the exemption under Section 408 of the Companies Act 2006 not to present the Parent Company income statement.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
11. Dividends 2020 2019 GBP000's GBP000's Interim dividend for the year ended 31 March 2,698 - 2019 at 4.0p per ordinary share (settled 12 April 2019) Final dividend for the year ended 31 March 4,755 - 2019 at 7.04p per ordinary share (settled 16 October 2019) Special dividend for the year ended 31 March 2019 of 3.5p per ordinary share (settled 9 January 2019) - 2,350 Interim dividend for the year ended 31 March 2018 at 3.2p per ordinary share (settled 12 April 2018) - 2,106 Final dividend for the year ended 31 March 2018 at 6.0p per ordinary share (settled 17 October 2018) - 4,029 7,453 8,485 ========= =========
In light of the economic situation caused by the coronavirus pandemic, the Board of Directors proposes that no dividend will be paid for the year ended 31 March 2020.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
12. Intangible fixed assets Group Goodwill Distribution Drug registrations, Total rights patents and license costs GBP000's GBP000's GBP000's GBP000's Cost At 1 April 2018 - as reported 17,930 1,442 74,819 94,191 Prior year adjustment - - (38,447) (38,447) --------- ------------- -------------------- --------- At 1 April 2018 - restated 17,930 1,442 36,372 55,744 Additions - as reported - - 9,085 9,085 Prior year adjustment - - (5,987) (5,987) At 31 March 2019 - restated 17,930 1,442 39,470 58,842 Additions - - 2,115 2,115 At 31 March 2020 17,930 1,442 41,585 60,957 ========= ============= ==================== ========= Amortisation At 1 April 2018 - as reported - (831) (35,729) (36,560)
Prior year adjustment - 167 20,305 20,472 --------- ------------- -------------------- --------- At 1 April 2018 - restated - (664) (15,424) (16,088) Charge for the year - as reported - (72) (3,910) (3,982) Prior year adjustment - 1 2,236 2,237 --------- ------------- -------------------- --------- At 31 March 2019 - restated - (735) (17,098) (17,833) ========= ============= ==================== ========= Charge for the year - (70) (1,615) (1,685) At 31 March 2020 - (805) (18,713) (19,518) ========= ============= ==================== ========= Net Book Value At 31 March 2020 17,930 637 22,872 41,439 ========= ============= ==================== ========= At 31 March 2019 - restated 17,930 707 22,372 41,009 ========= ============= ==================== ========= At 31 March 2018 - restated 17,930 778 20,948 39,656 ========= ============= ==================== =========
The amortisation and impairment charges are included within administrative expenses in 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 5 to 15 years.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
12. Intangible fixed assets (continued)
The carrying value of goodwill is attributable to the following cash generating units:
Entity Date of acquisition 2019 and 2020 GBP000's ECO Animal Health Limited 1 October 2004 17,359 Zhejiang Eco Biok Animal Health Products Limited 1 April 2007 94 ECO Animal Health Japan Inc 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.
The Group prepares cashflow forecasts that cover the two year period after the Statement of financial position date and then extrapolates them assuming a 3% annual growth rate which is well below the past performance of the 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 8% (2019: 11%). Management considers that there is adequate headroom when comparing the net present value of the cashflows to the carrying value of goodwill to conclude that no impairment is necessary this year. On assumptions as at each period end the excess of recoverable amount over carrying value is over GBP130 million (2019 restated: GBP114 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 GBP119 million (2019 restated: GBP76 million) more than the carrying value and no impairment would be necessary.
The net book value of Drug registrations, patents and license costs can be broken down as follows:
2020 2019 GBP000's GBP000's Restated Aivlosin 18,009 17,659 Ecomectin 4,310 3,993 Others 553 720 22,872 22,372 ========= =========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
12. Intangible fixed assets (continued)
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 useful life is from 4 to 20 years.
Ecomectin is an endectocide that controls worms, ticks, lice and mange in grazing stock and pigs. The remaining useful life is 0 to 10 years.
At 31 March 2020 Intangible assets included GBP7,063,000 (2019 restated: GBP4,834,000) of assets capitalised that had not commenced their useful life, of which approximately GBP4,663,000 (2019: GBP3,234,000) were Aivlosin related products. The directors have conducted impairment reviews and no impairment is required. Following restatement, no impairment indicators have been identified in relation to intangible assets in commercial use.
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. All such costs are recorded in the UK/Corporate reporting segment.
The Directors have assessed the restated carrying value of intangible assets (as set out in note 3.2) for indicators of value impairment for the years ended 31 March 2019 and 31 March 2020 and have concluded that no impairment is necessary.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
13. Property, plant and equipment Group Land and Leasehold Plant and Fixtures, fittings Motor Vehicles Total Buildings improvements machinery and equipment (freehold) GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's Cost or valuation At 1 April 2018 730 - 1,602 1,083 61 3,476 Additions - - 341 198 27 566 Disposals - - (68) - - (68) Revaluation in the year 30 - - - - 30 Foreign exchange movements - - 11 1 (6) 6 ------------ -------------- ----------- ------------------- --------------- --------- At 31 March 2019 760 - 1,886 1,282 82 4,010 Additions - 555 40 157 15 767 Disposals - - - (432) (6) (438) Revaluation in the year (145) - - - - (145) Reclassification 53 - (937) 648 236 - Foreign exchange movements - - (3) (5) (16) (24) ------------ -------------- ----------- ------------------- --------------- --------- At 31 March 2020 668 555 986 1,650 311 4,170 Depreciation At 1 April 2018 (26) - (864) (706) (14) (1,610) Charge for the year - - (171) (154) (15) (340) Disposals - - 63 - - 63 Revaluation in the year 26 - - - - 26 Foreign exchange movements - - (6) - 1 (5) ------------ -------------- ----------- ------------------- --------------- --------- At 31 March 2019 - - (978) (860) (28) (1,866) Charge for the year (15) - (44) (241) (34) (334)
Disposals - - - 426 4 430 Revaluation in the year 13 - - - - 13 Reclassification (7) - 310 (137) (166) - Foreign exchange movements - - 2 - 11 13 At 31 March 2020 (9) - (710) (812) (213) (1,744) ------------ -------------- ----------- ------------------- --------------- --------- Net Book Value At 31 March 2020 659 555 276 838 98 2,426 ============ ============== =========== =================== =============== ========= At 31 March 2019 760 - 908 422 54 2,144 ============ ============== =========== =================== =============== ========= At 31 March 2018 704 - 738 377 47 1,866 ============ ============== =========== =================== =============== =========
The freehold land and buildings at 78 Coombe Road, New Malden was valued at GBP615,000 as at 31 March 2020 by Colliers International Valuation UK LLP (external independent qualified valuers). The fair value of the freehold property was determined by applying a 7.5% 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
13. Property, plant and equipment (continued)
Plant and machinery held by Zhejiang ECO Biok Animal Health Products Limited has been reclassified from Plant and machinery to Land and buildings, and Furniture, fittings and equipment. FE. These adjustments have been made retrospectively to 1 April 2018.
Valuation Technique Significant unobservable Inter-relationship used inputs between key unobservable inputs and fair value RICS Valuation - Global Estimated market rent Reduced marketability Standards ('Red Book Capital Value and hence rent achievable Global Standards') Price per square foot by the property. in local market. Yield in local market General condition Statutory searches Environmental matters ------------------------- ---------------------------
In determining the fair value of freehold land and buildings level-3 fair value inputs are used. The significant unobservable inputs used in establishing the fair value of freehold land and buildings are the estimated market rent and capital value. The Directors believe that the fair value of freehold land and buildings reflects the carrying value and a significant change in unobservable inputs would not significantly increase or reduce the fair value of the freehold land and buildings.
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.
Depreciation has been included in the administrative expenses line in the income statement, except for GBP129,000 (2019: GBP110,000) of depreciation of production equipment in the Chinese subsidiary ECO Biok, which is included within cost of sales.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
13. Property, plant and equipment (continued)
The value of the freehold property would have been recorded at GBP249,000 (2019: GBP259,000) on a historical cost basis.
Company Land and Fixtures, Total Buildings fittings (freehold) and equipment Cost or valuation GBP000's GBP000's GBP000's At 1 April 2018 730 165 895 Additions - 2 2 Revaluation in the year 30 - 30 ------------ --------------- --------- At 31 March 2019 760 167 927 Additions - 1 1 Disposals - (154) (154) Revaluation in the year (145) - (145) At 31 March 2020 615 14 629 ------------ --------------- --------- Depreciation At 1 April 2018 (25) (154) (179) Charge for the year restated (13) (4) (17) Revaluation in the year restated 38 - 38 ------------ --------------- --------- At 31 March 2019 - (158) (158) Charge for the year (13) (4) (17) Disposals - 155 155 Revaluation in the year 13 - 13 At 31 March 2020 - (7) (7) ------------ --------------- --------- Net Book Value At 31 March 2020 615 7 622 ============ =============== ========= At 31 March 2019 760 9 769 ============ =============== ========= At 31 March 2018 705 11 716 ============ =============== =========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
14. Investment property Group and Company Land and Total Buildings (freehold) GBP000's GBP000's At 1 April 2018 and 31 March 2019 200 200 Revaluation in 2020 105 105 ------------ --------- At 31 March 2020 305 305 ------------ ---------
The property in Western Road, Mitcham was valued at GBP305,000 as at 31 March 2020 by Colliers International Valuation UK LLP (external independent qualified valuer). The fair value of the investment property was determined by applying a 7.75% discount rate to the annual rental value of the property as determined by local market conditions. This property was previously the Head Office of Lawrence plc (now ECO Animal Health Group plc) and is occupied by a charity at zero cost. The Directors believe that the open market value of this property is not significantly different to the carrying value.
The value of the investment property would have been recorded at GBP130,000 on a historical cost basis.
Valuation Technique Significant unobservable Inter-relationship used inputs between key unobservable inputs and fair value RICS Valuation - Global Estimated market rent Reduced marketability Standards ('Red Book Capital value and hence rent achievable Global Standards') Price per square foot by the property. in local market. Yield in local market General condition Statutory searches Environmental matters ------------------------- ---------------------------
In determining the fair value of investment property level-3 fair value inputs are used. The significant unobservable inputs used in establishing the fair value of investment property are the estimated market rent and capital value. The Directors believe that the fair value of investment property reflects the carrying value and a significant change in unobservable inputs would not significantly increase or reduce the fair value of the investment property.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
15. Right of use assets Group Property Vehicles Other Total GBP000's GBP000's GBP000's GBP000's Cost Introduction on inception of IFRS 16 2,297 203 7 2,507 Additions 118 85 - 203 Prior year adjustments* (192) (37) 15 (214) Disposals - (19) - (19) Foreign exchange movements 16 (3) - 13 --------- --------- --------- At 31 March 2019 - restated 2,239 229 22 2,490 Additions 370 - - 370 Disposals (494) (33) - (527) Foreign exchange movements (2) 2 1 1 --------- --------- --------- --------- At 31 March 2020 2,113 198 23 2,334 --------- --------- --------- --------- Depreciation Introduction on inception of IFRS 16 (328) (70) (2) (400) Charge for the year (318) (60) (2) (380) Prior year adjustments* (62) 18 (6) (50) Disposals - 19 - 19 Foreign exchange movements (6) 2 - (4) --------- --------- --------- At 31 March 2019 - restated (714) (91) (10) (815) Charge for the year (323) (61) (5) (389) Disposals 494 33 - 527 Foreign exchange movements 1 - - 1 --------- --------- --------- --------- At 31 March 2020 (542) (119) (15) (676) --------- --------- --------- --------- Net Book Value At 31 March 2020 1,571 79 8 1,658 ========= ========= ========= ========= At 31 March 2019 - restated* 1,525 138 12 1,675 ========= ========= ========= =========
*Please refer to Note 3 for further details on prior year adjustments.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
15. Right of use assets (continued) Company Vehicles Other Total GBP000's GBP000's GBP000's Cost Introduction on inception of IFRS 16 21 7 28 Additions 26 - 26 Prior year adjustments 70 - 70 Disposals - - - Foreign exchange movements (2) - (2) At 31 March 2019 115 7 122 Additions - - - Disposals (19) - (19) Foreign exchange movements (1) - (1) At 31 March 2020 95 7 102 --------- --------- --------- Depreciation Introduction on inception of IFRS 16 (7) (2) (9) Charge for the year (13) (2) (15) Prior year adjustments (42) - (42) Foreign exchange movements 1 - 1 --------- --------- --------- At 31 March 2019 (61) (4) (65) Charge for the year (31) (1) (32) Disposals 19 - 19 Foreign exchange movements 1 - 1 --------- --------- --------- At 31 March 2020 (72) (5) (77) --------- --------- --------- Net Book Value At 31 March 2020 23 2 25 ========= ========= ========= At 31 March 2019 54 3 57 ========= ========= =========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
16. Fixed asset investments Group Investment Unlisted Total in Associate investments (Equity) (Cost) GBP000's GBP000's GBP000's At 31 March 2018 89 9 98 Share of associate's result for the year 14 - 14 Foreign exchange differences 4 - 4 At 31 March 2019 107 9 116 Share of associate's result for the year 42 - 42 Foreign exchange differences 8 - 8 At 31 March 2020 157 9 166 ========= Company Unlisted Total investments (subsidiaries) Cost GBP000's GBP000's At 31 March 2018, 2019 and 2020 20,077 20,077 Impairment At 31 March 2018, 2019 - - Impairment charge (45) (45) At 31 March 2020 (45) (45) Net Book Value At 31 March 2020 20,032 20,032 At 31 March 2018, 2019 20,077 20,077
The Company's subsidiary Petlove Limited became dormant during the financial year ended 31 March 2020 therefore was fully impaired at the year end.
The Company holds more than 20 % of the share capital of the following companies:
Subsidiary undertakings held by the Company
Company Registered office address Country of Class Shares registration held or incorporation % Zhejiang ECO Biok Animal Health Products Zhongguan Industrial Area, Limited Deqing, Zhejiang Province P. R. China Ordinary 3* 78 Coombe Road, New Malden, Petlove Limited Surrey, KT3 4QS Great Britain Ordinary 91 ECO Animal Health 78 Coombe Road, New Malden, Limited Surrey, KT3 4QS Great Britain Ordinary 100
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
16. Fixed asset investments (continued)
Subsidiary undertakings held by the Group
Company Registered office address Country of Class Shares registration held or incorporation % ECO Animal Health Southern Africa 228 Athol Road, Highlands (Pty) Limited. North, Johannesburg 2192 South Africa Ordinary 100 Zhejiang ECO Biok Animal Health Products Zhongguan Industrial Area, Limited. Deqing, Zhejiang Province P. R. China Ordinary 48* Shanghai ECO Biok Veterinary Drug Sale Company Ltd. (via Zhejiang ECO Room 1502-3, Imago Plaza, Biok Animal Products No. 99 Wuning Road, Ptro Ltd.) District, Shanghai 200063 P. R. China Ordinary 100 ECO Animal Health do Brasil Comercio Av. Dr. Cardoso de Melo, de Produtos Veterinarios 1470, Cl311, Villa Olimpia, Ltda. CEP 04548-005, Sao Paulo Brazil Ordinary 100 ECO Animal Health 1-2-1, Hamamatsu-cho, Japan Inc. Minato-Ku, Tokyo Japan Ordinary 100 ECO Animal Health 344 Nassau Street, Princeton, USA Corp. New Jersey, 08540 U.S.A. Ordinary 100 3775 Columbia Pike, Ellicott Interpet LLC. City, Maryland, 21043 U.S.A. Ordinary 100 ECO Animal Health Av Techologico Sur 134-4, de Mexico, S de Unidad Habitacional Moderna, R.L. de C.V. Queretaro, 76030 Mexico Ordinary 100 Calle 4 E 43/44 N: 581 ECO Animal Health P.6 D:B La Plata, Buenos de Argentina S.A. Aires Argentina Ordinary 100 10(th) Floor, Menara Hap Seng, No 1 & 3, Jalan ECO Animal Health P Ramlee, 50250 Kuala Malaysia Sdn. Bhd. Lumpur Malaysia Ordinary 100 No 33/5, Second Floor, Mount Kailash Building,
ECO Animal Health Meanee Avenue Road, Ulsoor India (Private) Bangalore, Karnataka, Ltd. 560042 India Ordinary 100 ECO Animal Health 6 Northbrook Road, Dublin Republic Europe Ltd. 6, Eire of Ireland Ordinary 100
*The Group's control over its China based subsidiary Zhejiang ECO Biok Animal Health Products Limited is achieved via a joint holding of 51% of the entity's Ordinary share capital between the Company (3%) and its UK based trading subsidiary ECO Animal Health Limited (48%).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
16. Fixed asset investments (continued)
Subsidiary undertakings held by the Group (continued)
The principal activity of these undertakings for the last relevant financial year was as follows:
Company Name Principal activity ECO Animal Health Limited Distribution of animal drugs ECO Animal Health Southern Africa (Pty) Non-trading Limited Petlove Limited Non-trading Zhejiang ECO Biok Animal Health Products Manufacture of animal Limited drugs Shanghai ECO Biok Veterinary Drug Sale Company Distribution of animal Ltd. drugs ECO Animal Health do Brasil Comercio de Distribution of animal Produtos Veterinarios Ltda drugs ECO Animal Health Japan Inc. Distribution of animal drugs ECO Animal Health USA Corp. Distribution of animal drugs nterpret LLC Non-trading ECO Animal Health de Mexico , S. de R. L. Distribution of animal de C. V. drugs ECO Animal Health de Argentina S.A. Non-trading ECO Animal Health Malaysia Sdn. Bhd Non-trading ECO Animal Health India (Private) Ltd Non-trading ECO Animal Health Europe Ltd 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 for the year year 2020 2020 2019 2019 GBP000's GBP000's GBP000's GBP000's Restated Restated ECO Animal Health Limited 1,021 1,834 (1,146) 5,737 ECO Animal Health Southern Africa (Pty) Limited 276 19 276 19 Zhejiang ECO Biok Animal Health Products Ltd 11,965 3,473 10,794 3,363 ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda. (227) (571) 307 (163) ECO Animal Health Japan Inc. 1,505 152 1,253 175 ECO Animal Health de Mexico, S. de R. L. de C. V. 141 99 118 53 ECO Animal Health USA Corp. (1,648) (997) (604) (725) ECO Animal Health India (Private) Ltd - - - - ECO Animal Health Europe Ltd - - - - ECO Animal Health Malaysia Sdn Bhd (21) (7) (21) (7)
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
16. Fixed asset investments (continued)
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.
Interpret LLC has 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.
ECO Animal Health Group PLC has given statutory guarantees against all the outstanding liabilities of ECO Animal Health Ltd, thereby allowing its subsidiary to be exempt from the annual audit requirement under Section 479A of the Companies Act, for the year ended 31 March 2020.
Non-controlling interests
Zhejiang ECO Biok Animal Health Products Limited (Zhejiang ECO Biok) and Shanghai ECO Biok Veterinary Drug Sale Company Limited (Shanghai ECO Biok), both 51% owned subsidiaries of the Group, have material non-controlling interests (NCI). Summarised financial information in relation to these two subsidiaries is presented below together with amounts attributable to NCI.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
16. Fixed asset investments (continued)
Please note as Shanghai ECO Biok is a 100% owned subsidiary of Zhejiang ECO Biok, the summarised results below are consolidated on Zhejiang ECO Biok level, before wider group eliminations.
2020 2019 For the year ended 31 March GBP000's GBP000's Restated* Revenue 20,169 24,300 Cost of sales (10,374) (14,311) Gross Profit 9,795 9,989 Administrative expenses (5,275) (5,232) Operating profit 4,520 4,757 Finance expense (67) (71) Profit before tax 4,453 4,686 Tax expense (1,201) (1,435) Profit after tax 3,252 3,251 Profit / (loss) allocated to NCI 1,593 1,593 Other comprehensive income allocated to NCI 39 (2) Dividend paid to NCI (968) (1,643) 2020 2019 As at 31 March GBP000's GBP000's Assets: Property, plant and equipment 704 799 Right-of-use assets 891 816 Deferred tax assets 30 30 Inventories 3,150 4,055 Trade and other receivables 6,457 7,530 Cash and cash equivalents 5,339 4,045 16,571 17,275 Liabilities: Trade and other payables 3,306 5,261 Contract liabilities 605 848 Lease liabilities - short term 96 87 Lease liabilities - long term 857 775 4,864 6,971 Accumulated NCI 5,766 5,102
*Please refer to Note 3 for further details on prior year restatements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
16. Fixed asset investments (continued)
Joint Operations
The Group also holds (by means of its ownership of ECO Animal Health USA Corp.), a 50% interest in Pharmgate Animal Health LLC, which is resident in the U.S.A. Pharmgate Animal Health LLC distributes the Group's products in the U.S.A.
The Group also holds (by means of its ownership of ECO Animal Health Ltd) a 50% interest in Pharmgate Animal Health Canada Inc, which distributes its products into Canada.
The Group also holds (by means of its ownership of ECO Animal Health Europe Ltd) a 50% interest in ECO-Pharm Limited, based in the Republic of Ireland. ECO-Pharm Limited has not yet commenced trading.
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 operations' share capital is given in the table below:
Pharmgate Animal Health Canada Inc Holding Shares Holding (shares) in issue % Common Shares 100 200 50 Class A Shares 100 100 100 Class B Shares - 100 - Pharmgate Animal Health USA LLC Holding Shares Holding (shares) in issue % Common Shares 100 200 50 Class A Shares 100 100 100 Class B Shares - 100 - ECO-Pharm Limited Holding Shares Holding (shares) in issue % Common Shares 25,000 50,000 50 Class A Shares 1 1 100 Class B Shares - 1 -
In the case of Pharmgate Animal Health Canada Inc and Pharmgate Animal Health USA LLC, 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 operation.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
16. Fixed asset investments (continued)
In the case of ECO-Pharm Limited, profits attributable to the Group are made up of profits made by products supplied by the ECO Group plus 33% of any profit relating to new products developed jointly by the partners to the joint operation.
The following amounts included in the Group's financial statements are related to its interest in these joint operations.
Pharmgate Animal Pharmgate Animal Health Canada Health LLC Inc 2020 2019 2020 2019 GBP000's GBP000's GBP000's GBP000's Restated Restated Current assets 2,325 968 511 461 Current liabilities (2,310) (1,363) (510) (569) Sales 7,612 9,161 3,358 3,764 Profit - - - -
Associated Company
The Group also holds (by means of its ownership of ECO Animal Health Japan Inc.) a 47.62% interest in EcoPharma.com which is resident in Japan. This Company distributes Animal Health products and other general merchandise within Japan.
ECO Animal Health Japan Inc's holding in EcoPharma.com is 10,000,000 shares out of a total of 21,000,000 shares.
The following amounts included in the Group's financial statements are related to its interests in this associated Company.
2020 2019 Investments (share of net assets) GBP000's GBP000's At 1 April 107 89 Share of results for the year 42 14 Foreign exchange movement 8 4 At 31 March 157 107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
16. Fixed asset investments (continued) 2020 2019 Restated Summarised financial information GBP000's GBP000's At 31 March Current assets 541 386 Non-current assets 19 19 Current liabilities 221 181 Non-current liabilities 12 5 Net assets (100%) 327 219 Group share of net assets (47.62%) 156 104 Year ended 31 March Revenue 1,634 1,514 Net profit 79 30 17. Inventories Group Company 2020 2019 2020 2019 GBP000's GBP000's GBP000's GBP000's Restated Raw materials and consumables 6,734 13,960 - - Finished goods and goods for resale 4,397 5,393 - - Work in progress 6,133 124 - - 17,264 19,477 - -
The cost of inventories recognised as an expense and included in cost of sales in the period amounted to GBP38,381,000 (2019 restated: GBP35,337,000).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020 18. Trade and other receivables Group Company 2020 2019 2020 2019 Non-current Restated GBP000's GBP000's GBP000's GBP000's Amounts owed by group undertakings - - 59,295 59,988
The intercompany debt is due on demand, however the company has classified the receivable as a non-current asset as it does not expect to realise the asset within 12 months after the reporting period.
Group Company Current 2020 2019 2020 2019 GBP000's GBP000's GBP000's GBP000's Restated Restated Trade receivables 25,974 22,525 - - Other receivables 1,884 339 30 35 Prepayments and accrued income 495 469 25 11 28,353 23,333 55 46
As at 31 March 2020, trade receivables of GBP11,402,000 (2019: GBP2,592,000) due to the Group and GBPnil (2019: GBPnil) 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 2020 2019 2020 2019 GBP000's GBP000's GBP000's GBP000's Up to 3 months past due 6,974 1,547 - - 3 to 6 months past due 2,899 515 - - Over 6 months past due 1,529 530 - - 11,402 2,592 - -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020 18. Trade and other receivables (continued)
As at 31 March 2020, impairment provisions of GBP419,000 on gross receivables of GBP705,000 (2019: GBP280,000 on gross receivables of GBP280,000) were recognised. The impaired receivables mainly relate to 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 Group has experienced minimal bad debt history and concluded that a wholly immaterial expected credit loss provision would be required. This consideration includes the potential risks arising from COVID on its customers. Its experience with customers since 31 March 2020, is consistent with those considerations that credit risk has not increased. No collateral is held against customer receivable balances.
The ageing analysis of the impaired balances is as follows:
Group Company 2020 2019 2020 2019 GBP000's GBP000's GBP000's GBP000's Current debt 152 1 - - Up to 3 months past due 4 - - - 3 to 6 months past due 2 68 - - Over 6 months past due 261 211 - - 419 280 - -
Movement on the Group provision for impairment of trade receivables is as follows:
Group 2020 2019 GBP GBP Balance at 1 April 280 470 Additional provision made 140 - (Recovered) in the year - (33) Written off in the year (1) (157) ----- Balance at 31 March 419 280 -----
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020 18. Trade and other receivables (continued)
The carrying amounts of trade and other receivables are denominated in the following currencies:
Group Company 2020 2019 2020 2019 GBP000's GBP000's GBP000's GBP000's Restated Restated Pounds Sterling 759 1,130 55 46 Euros 2,875 3,288 - - U S Dollars 12,875 7,053 - - Chinese RMB 6,757 7,805 - - Brazilian Real 2,233 946 - - Japanese Yen 841 695 - - Canadian dollars 511 816 - - Mexican Pesos 1,499 1,477 - - Other currencies 3 123 - - 28, 353 23,333 55 46
The carrying amounts of trade and other receivables are not significantly different to their fair values.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
19. Deferred tax
Group
Deferred tax assets and liabilities are attributable to the following:
Assets / (Liabilities) Net 2020 2019 2020 2019 GBP000's GBP000's GBP000's GBP000's Restated Restated Trade related temporary differences (2,487) (2,152) (2,487) (2,152) Overseas trade related temporary differences 30 - 30 - Freehold property (76) (75) (76) (75) Investment property (19) (10) (19) (10) Plant and equipment (77) (49) (77) (49) Deferred tax on share options - 503 - 503 Tax losses carried forward 1,993 1,783 1,993 1,783 Amount (payable) after more than one year (636) - (636) -
The movement on the deferred tax account can be summarised as follows:
Trade related temporary Freehold Investment Plant Share differences property property and machinery options Total GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's At 31 March 2019 - Restated (369) (75) (10) (49) 503 - (Charge) for the year through income statement (398) - (9) (28) (130) (565) Credit for the year through income statement 303 - - - - 303 (Charge) for the year through reserves - (1) - (373) (374) At 31 March 2020 (464) (76) (19) (77) - (636)
Trade related temporary differences are predominantly related to research and development tax deductions claimed in advance of expense recognition in the income statement.
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 5% withholding tax. The deferred tax liability in respect of this has not been recognised.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
19. Deferred tax (continued) Freehold Investment Share Freehold Investment Share Company property property options Total property property options Total 2020 2020 2020 2020 2019 2019 2019 2019 GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's At 1 April (75) (10) 85 - (79) (11) 90 - (Charge) for the year through income statement - (9) (22) (31) - - - - Credit for the year through income statement - - - - 4 1 34 39 (Charge) for the year through reserves (1) - (63) (64) - - (39) (39) At 31 March (76) (19) - (95) (75) (10) 85 -
At the year ended 31 March 2020 the Group had a deferred tax asset of GBPnil on share options. (2019 restated: A deferred tax asset on share options of GBP139k was unrecognised).
At the year ended 31 March 2020 the Group has an unrecognised deferred tax asset in relation to unused overseas tax losses amounting to GBP700,000 (2019: GBP350,000). These tax losses are not expected to expire.
20. 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.
Group Company 2020 2019 2020 2019 GBP000's GBP000's GBP000's GBP000's Restated Cash and cash equivalents 11,877 16,863 177 4,236 Net funds per cash flow 11,877 16,863 177 4,236 ========= ========= =========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
21. Trade and other payables Group Company 2020 2019 2020 2019 GBP000's GBP000's GBP000's GBP000's Restated Restated Trade payables 7.608 9,520 189 17 Contract liabilities 594 847 - - Other payables 2,093 1,641 197 132 Accruals and deferred income 4,191 1,355 181 147 14,486 13,363 567 296 ========= ========= 22. Borrowings
Reconciliation of movement in borrowings
Group Group Company Company 2020 2019 2020 2019 GBP000's GBP000's GBP000's GBP000's Restated Opening Borrowings - - - - Overdraft drawn 2,032 - 2,001 - Overdraft paid - - - - Closing borrowings 2,032 - 2,001 -
Overdraft facility
The Group has the facility (up to GBP5,000,000) to overdraw in specific currencies but no net facility. The interest rate for all currency overdrafts is 1.8% over the relevant currency base rate and the borrowings are secured by two debentures held over all assets of the Company. This facility is repayable on demand. The Company and ECO Animal Health Limited have each given a guarantee to the Group's bankers for the foreign currency overdraft facility.
The undrawn facility is GBP2,968,000 (2019: no facility).
Group Group Company Company 2020 2019 2020 2019 GBP000's GBP000's GBP000's GBP000's Restated Cash and cash equivalents 11,877 16,863 177 4,236 Overdraft (2,032) - (2,001) - Lease Liabilities (1,766) (1,770) (27) (67) Net Cash 8,079 15,093 (1,851) (4,169)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
22. Borrowings (continued)
Reconciliation of Lease Liabilities
Group Group Company Company 2020 2019 2020 2019 GBP000's GBP000's GBP000's GBP000's Restated Restated Opening lease liabilities (1,770) - (65) - Recognition of Lease liabilities on adoption of IFRS 16 - (2,012) - (67) New lease liabilities (359) (88) - (30) Repayment of lease liabilities principal 364 338 38 31 Lease liabilities interest (125) (139) (13) (22) Lease liabilities interest repayment 125 139 13 22 Foreign exchange (1) (8) (2) 1 Closing lease Liabilities (1,766) (1,770) (29) (65) Current lease liabilities (342) (330) (24) (36) Non-current lease liabilities (1,424) (1,440) (5) (29)
The Group leases a number of properties and motor vehicles in the jurisdictions it operates in. At 31 March 2020 there were no termination or extension options on leases.
The Group expensed GBP47,000 for the year ended 31 March 2020 (2019 restated: GBP91,000) for short term and low value leases.
Group Leases Maturity
At 31 March 2020 the Group held the following number of leases in each of the maturity categories below.
Property Vehicle Other Total Up to 1 year - 3 - 3 Between 2 - 5 years 5 8 3 16 Over 5 years 3 - - 3 Total number of leases 8 11 3 22 Average lease term (in years) 10 4 5
The weighted average incremental borrowing rate applied to lease liabilities recognised in the statement of financial position was 7.10% at 31 March 2020 (2019 restated: 7.84%, initial application date: 7.03%).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
22. Borrowings (continued)
Weighted average incremental borrowing rate:
Group Group Group Transition 2020 2019 2018 Restated Property 5.9% 5.8% 5.9% Vehicle 29.0% 29.0% 29.0% Other 4.0% 4.0% 4.0% ---------- Weighted average 7.10% 7.84% 7.03% ----------
Amounts payable under lease arrangements for the Group
The undiscounted contractual cash flows payable under the existing lease arrangements at 31 March 2020 are analysed into the following maturity categories.
Between Total Up to 2 - 5 Over 5 1 year years years GBP000's GBP000's GBP000's GBP000's Amounts payable under lease arrangements 502 1,025 1,621 3,148 23. Pension and other post-retirement benefit commitments
Defined Contribution Pension Scheme
The Group operates defined contribution pension schemes. 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 GBP262,000 (2019: GBP321,000).
Defined Benefit Pension Scheme
The Group operates a defined benefit scheme in the UK for ex-employees only. A full actuarial valuation was carried out at 6 April 2018 and updated to 31 March 2020 for IAS 19 purposes by a qualified independent actuary. The major assumptions used by the actuary were:
31 March 31 March 2020 2019 Discount rate 2.40% 2.15% Pension revaluation 2.70% 2.25% Inflation assumption with a maximum of 5% p.a. 2.70% 2.25%
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
23. Pension and other post-retirement benefit commitments (continued)
Mortality rates
No pre-retirement mortality is assumed (2019: none)
Post retirement mortality is based on 100 % of the SAPS "S2" normal tables, based on the members' year of birth, improving in line with CMI 2019 projections with a 1.25 % long term trend rate (2019: CMI 2018 ).
U nder these mortality assumptions, the expected future lifetime for a member retiring at age 65 at the year-end would be 22.4 years for males (2019: 21.7 years) and 24.4 years for females
(2019: 23.7 years). For members retiring in 20 years' time, the expectation of life would be 23.7 years for males (2019: 23.0 years) and 25.9 years for females (2019: 25.2 years).
The weighted average term of the liabilities is 10 years (2019: 10 years).
The scheme is exposed to a number of risks including:
-- Interest rate risk: Movements in the discount rate used could affect the present value of the defined benefit pension obligations.
-- Longevity risk: Changes in the estimated mortality rates of former employees could affect the present value of the defined benefit pension obligations.
-- 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 2020 2019 GBP000's GBP000's GBP000's GBP000's Assets at start of year 1,802 2,503 Defined benefit obligation at start of year (1,899) (2,603) Net (liability) at 1 April (97) (100) Return on assets 38 61 Interest cost (39) (62) Past service cost - (19) (1) (20) (Loss) on asset return (2) (38) Gain/(loss) on changes in assumptions 14 2 Statement of other comprehensive income 12 (36) Employer contributions (gross) 59 59 Net (liability) at 31 March (27) (97) Actual assets at end of year 1,787 1,802 Actual defined benefit obligation at end of year (1,814) (1,899)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
23. Pension and other post-retirement benefit commitments (continued)
The pension fund assets (principally made up of annuities for the benefit of active pensioners) are all held within a policy managed by an insurance company regulated by the Financial Conduct Authority of the United Kingdom and the United Kingdom Pensions Regulator. By law, the trustees are required to act in the best interests of participants to the schemes. Responsibility for governance of the plans - including investment decisions and contributions schedules lies with trustees.
Reconciliation of changes in the asset value during the year
2020 2019 GBP000's GBP000's GBP000's GBP000's Fair value of assets at 1 April 1,802 2,503 Return on assets 38 61 (Loss) on asset return (2) (38) Employer contributions (gross) 59 59 (Decrease)/increase in secured pensioners' value due to scheme experience (110) (783) Benefits paid - - Fair value of assets at 31 March 1,787 1,802 Reconciliation of changes in the liability value during the year Defined benefit obligation at 1 April 1,899 2,603 Interest cost 39 62 Past service cost - 19 (Gain)/loss on changes in assumptions (14) (2) (Decrease)/increase in secured pensioners' value due to scheme experience (110) (783) Benefits paid - - Defined benefit obligation at 31 March 1,814 1,899
The expected contribution to be paid by the employer during the next accounting year is GBP59,000 (2019: GBP59,000).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
23. Pension and other post-retirement benefit commitments (continued) 2019 Year ended 31 March 2020 Restated 2018 2017 2016 GBP000's GBP000's GBP000's GBP000's GBP000's Fair value of plan assets 1,787 1,802 2,503 2,314 2,715 Present value of defined benefit obligation 1,814 1,899 2,603 2,435 2,431 (Deficit)/Surplus in plan (27) (97) (100) (121) 284 Experience (losses)/gains on plan liabilities (2) (38) (7) (300) 13
Plan Assets
2020 2019 GBP000s GBP000s Assets under management 145 102 Annuities 1,642 1,700 Total 1,787 1,802
Assets under management composition
2020 2019 GBP000s GBP000s Gilts 9.80% 9.40% Corporate Bonds 37.00% 35.50% UK Equities 15.60% 17.30% Overseas Equities 26.10% 26.60% Property 10.10% 9.90% Cash 1.40% 1.30% 100.00% 100.00%
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
23. Pension and other post-retirement benefit commitments (continued)
Defined benefit obligation - sensitivity analysis
The following amounts are the effect (on the defined benefit obligation) of reasonably possible changes to the key actuarial assumptions, as required by IAS 19.
Reasonably (Decrease)/Increase in Defined Actuarial assumption Possible Change Benefit Obligation 2020 2019 GBP000's GBP000's GBP000's GBP000's Restated* Discount rate (+/- 0.25%) (42) 44 (50) 50 Members' life expectancy (+/- 1year) (97) 101 (100) 110
* 2019 figures have been recalculated in order to be comparable.
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognised in the Statement of financial position.
The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.
The Company has given a floating charge dated 1 December 2006 over all of its assets to the trustees of the pension fund to secure all present and future obligations and liabilities to the pension fund.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
24. Share-based payments
The expense recognised for share-based payments made during the year is shown in the following table:
2020 2019 GBP000's GBP000's Total expense arising from equity settled share-based payments transactions 284 631
The share-based payment plans are described below:
Movements in issued share options during the year
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the period:
Options Options 2020 2020 2019 2019 000's WAEP 000's WAEP GBP GBP Outstanding at 1 April 4,292 3.62 5,556 3.26 Granted during the period - - 387 3.82 Cancelled during the period (668) 3.55 (33) 3.54 Exercised during the period (105) 2.27 (1,618) 2.40 Outstanding at 31 March 3,519 3.68 4,292 3.62 Exercisable at 31 March 2,812 3.36 2,279 2.78
The average share price during the year was 319.10p (2019: 481.41p).
The maximum aggregate number of shares over which options may currently be granted cannot exceed 10% of the nominal share capital of the Company on the grant date. The options outstanding at 31 March 2020 had a weighted average share price of GBP3.68 (2019: GBP3.62) and a weighted average remaining contractual life of 3.1 years (2019: 4.4 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 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).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
24. Share-based payments (continued)
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 respectively.
An analysis of the expiry dates of the outstanding options at 31 March 2020 is given below:
Exercise Date of grant Unapproved Approved price (pence) Expiry date 11 October 2011 11,000 186.50 11 October 2021 09 October 2013 23,340 196.00 09 October 2023 09 October 2013 3,050 196.00 09 October 2020 21 August 2014 14,400 161.50 07 August 2024 21 August 2014 14,000 161.50 07 August 2021 13 February 2015 34,500 200.50 13 February 2025 13 February 2015 138,500 200.50 13 February 2022 26 August 2015 35,400 265.00 26 August 2025 26 August 2015 572,100 265.00 26 August 2022 18 December 2015 600,000 312.50 18 December 2022 18 January 2016 10,200 315.00 18 January 2026 18 January 2016 286,800 315.00 18 January 2023 17 February 2016 19,600 312.50 17 February 2026 17 February 2016 400 312.50 17 February 2023 01 March 2016 9,600 312.50 01 March 2026 01 March 2016 40,400 312.50 01 March 2023 12 September 12 September 2016 25,100 432.50 2026 12 September 12 September 2016 423,900 432.50 2023 15 September 15 September 2016 5,900 435.00 2026 15 September 15 September 2016 544,100 435.00 2023 21 September 21 September 2017 53,475 620.00 2027 21 September 21 September 2017 287,525 620.00 2024 12 April 2018 3,900 545.00 12 April 2028 23 October 2018 75,200 380.00 23 October 2028 23 October 2018 276,800 380.00 23 October 2025 19 December 2018 7,800 380.00 19 December 2028 19 December 2018 2,200 380.00 19 December 2025 3,189,775 329,415
The market price of the shares at 31 March 2020 was 220.0p (2019: 440.0p) with a range in the year of 135.0p to 445.0p (2019: 367.0p to 581.0p).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
24. Share-based payments (continued)
The Company uses a Black-Scholes model to value share-based payments and the following table lists the inputs to this model for the last five years. No new options were issued in the year ended 31 March 2020.
2020 2019 2018 2017 2016 Vesting period (years) n/a 3 3 3 3 7-10 7-10 7-10 7-10 Option expiry (years) yrs yrs yrs yrs Dividends expected on the shares 1.90% 1.10% 1.50% 1.50% Risk free rate (average) 1.00% 1.00% 1.00% 1.00% Volatility of share price 20% 20% 20% 20% Weighted average fair value (pence) 51.0 98.6 61.4 43.0
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.
The Company recognised GBP284,000 share-based payment expense in the income statement in the year ended 31 March 2020.
25. Share capital 2020 2019 GBP000's GBP000'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 GBP1 each 32 32 3,438 3,438 ========= ========= Allotted, called up and fully paid 67,547,626 (2019: 67,443,126) ordinary shares of 5p each 3,377 3,372 --------- ---------
During the year 104,500 shares were issued at a premium of GBP232,000 as a result of the exercise of options by employees. (2019: 1,618,310 shares at a premium of GBP3,803,000).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
26. Non-controlling (minority) interests 2020 2020 2019 2019 GBP000's GBP000's GBP000's GBP000's Restated Restated Balance at 1 April 2019 5,102 5,154 Share of adjustment to reserves on implementation of IFRS 16 - 1 Prior year adjustment on IFRS 16 opening - (12) --------- Balance at 1 April 2019 - restated 5,102 5,143 Share of subsidiary's profit for the year 1,593 1,593 Share of foreign exchange gain/(loss) on net investment 39 9 1,632 1,602 Share of dividend paid by subsidiary (968) (1,643) Balance at 31 March 5,766 5,102 27. Other reserves
The Group and Company held a Capital redemption reserve of GBP106,000 as at 31 March 2020 (2019 restated: GBP106,000, 2018 restated: GBP106,000).
Included in the Group's foreign currency revaluation reserve are the following exchange movements on consolidation of the subsidiaries and joint operations listed below:
At 1 April Movement At 31 March 2019 in the year 2020 GBP000's GBP000's GBP000's In respect of: Restated Zhejiang ECO Biok Animal Health Products Limited 854 40 894 ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda (381) 35 (346) ECO Animal Health Japan Inc. (5) 99 94 ECO Animal Health USA Corp. (21) (46) (67) ECO Animal Health de Mexico, S. de R. L. de C. V. 15 (75) (60) Pharmgate LLC 5 6 11 Foreign currency differences attributable to owner credited directly to reserves. 467 59 526 28. Capital commitments
The Group had no authorised capital commitments as at 31 March 2020 (2019: Nil).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
29. Directors' emoluments 2020 2019 GBP000's GBP000's Restated* Emoluments for qualifying services 847 943 Company pension contributions to money purchase schemes 26 16 Share-based payments 70 404 Benefits in kind 11 16 954 1,379 =========
During the year the Directors exercised nil (2019: 15,000) share options realising a gain of GBPnil (2019: GBP1,861,800).
The highest paid Director received GBP385,000 (2019 restated: GBP638,000) including GBP38,000 (2019: GBP191,000) of share-based payments and GBP10,000 (2019: GBP10,000) of pension contributions.
The bonus values have been restated to include the amount accrued for the financial year and not the amount related to performance of the previous financial year, as previously reported.
*Please refer to Note 3 for further details on prior year adjustments.
30. Employees
Number of employees
The average number of employees (including Directors) during the year was:
2020 2019 Number Number Directors 5 7 Production and development 66 70 Administration 45 47 Sales 88 93 204 217 Employment costs (including amounts capitalised) 2020 2019 GBP000's GBP000's Restated* Wages and salaries 9,584 9,878 Share-based payments 284 631 Social security costs 764 914 Other pension costs 269 353 10,901 11,776
*The bonuses have been restated in accordance with note 3.4.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
31. Related party transactions
During the year ended 31 March 2020 Julia Trouse, a longstanding former Director and Company Secretary of the Group, withdrew cash from the Company totalling GBP25,748 (2019 - GBP46,920) which was recorded in the Company and Group's financial statements as administrative costs in each period.
Mrs Trouse withdrew further cash over an extended period starting in 2014, the cumulative amount of which was GBP322,109 as at 31 March 2020 (GBP296,361 as at 31 March 2019; and GBP249,441 as at 31 March 2018). These withdrawals were not approved, were outside the normal course of the Group's business and were in excess of Mrs Trouse's contractual remuneration levels. The highest total value of withdrawals in any year was GBP87,187. No reimbursement of these withdrawals was assured at any of the reporting dates to 31 March 2020, therefore all amounts remain expensed in the periods in which each payment was made and no asset for reimbursement has been included in the financial statements as at 31 March 2020. Mrs Trouse resigned as a director of the Company on 19 August 2019 and ceased employment with the Company on 31 January 2020.
The Group's Internal Audit department identified the payments and reported their findings to the Board in April 2020. Further work was performed to help assess the full extent of the withdrawals. Mrs Trouse agreed to repay these amounts to the Company and Group and repayment of GBP307,113 was made in August 2020. No interest was received. The reimbursement will be recorded as Other Income in the financial statements for the year ending 31 March 2021. Discussions are on-going with regard to repayment of the remaining GBP14,996.
During the year Clemo Consultancy Ltd, a company in which B Clemo is a director, shareholder and person with significant control received consultancy fees of GBP14,500 (2019: GBPnil).
During the year P Lawrence and his family received dividends to the value of GBP489,000 (2019: GBP882,000).
The other Directors and their families received dividends to the value of GBP1,000 (2019: GBP2,000).
During the year ended 31 March 2019, the Group provided management services to Anpario plc, a Company in which P A Lawrence is a Director and holds share options. Fees of GBP7,000 were charged (2020: GBPNil).
During the year ended 31 March 2019, the Group provided management services to Amati Aim VCT plc, a Company in which P A Lawrence is a Director. Fees of GBP14,579 were charged (2020: GBPNil)
During the year ended 31 March 2019, the Group employed two adult children of P A Lawrence and provided their services to Emmelle Construction Limited, a Company in which P A Lawrence is both a Director and shareholder. All employment costs of the two adult children, for five months of the year until August 2018 when the arrangement was terminated, of GBP18,000 (2020: nil) were fully recharged to Emmelle Construction Limited.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
31. Related party transactions (continued)
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 GBP475,000 (2019: GBP473,000) and charged interest of GBP890,000 (2019: GBP910,000) to the Company. Both of these charges were made through the inter-company account and were eliminated on consolidation.
During the year Zhejiang ECO Biok Animal Health Products Limited paid dividends of GBP77,000 to ECO Animal Health Group plc (2019: GBP131,000) and GBP930,000 to ECO Animal Health Limited (2019: GBP1,578,000).
During the year ECO Animal Health Group plc received no dividend from ECO Animal Health Limited (2019: GBP15,000,000).
Key management compensation
The Group regards the Board of Directors as its key management.
2020 2019 GBP000's GBP000's Restated* Salaries and short-term benefits 858 959 Retirement benefits 26 16 Share-based payments 70 404 954 1,379
* The bonus values have been restated to include the amount accrued for the financial year and not the amount related to performance of the previous financial year, as previously reported.
The number of Directors for which retirement benefits were accruing was 4 (2019: 3).
32. Financial instruments
The Group uses financial instruments comprising borrowings, cash and cash equivalents 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 capital and liquidity risk, credit risk and foreign currency risks and they are summarised below. The policies have remained unchanged throughout the year.
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 cash and cash equivalents in note 20, borrowings in note 22 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.
The Group's objectives when maintaining capital are:
- to safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and
- to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.
The Group sets the amount of capital it requires in proportion to risk. The group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.
As an AIM quoted company, our governance framework is underpinned by the AIM Rules and the Quoted Companies Alliance (QCA) Corporate Governance Code 2018 (the 'QCA Code'). In addition to the QCA Code, we monitor developments and guidance in the UK Corporate Governance Code, applicable to main market listed companies, to keep abreast of matters which we feel could also be embedded as best practice as part of a progressive approach. We also review the Investment Association guidelines and seek to comply with these where applicable.
At 31 March 2020, the Group was contractually obliged to make repayments as detailed below:
2020 2019 Within one year or on demand GBP000's GBP000's Restated Trade payables 7,608 9,520 Other payables 2,093 1,641 Accruals 4,191 1,355 Borrowings 2,032 - 15,924 12,516
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 is limited because the counterparties are banks with good credit ratings.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020 32. Financial instruments (continued)
The Group operates in certain geographical areas 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.
None of those receivables has been subject to a significant increase in credit risk since initial recognition and, consequently, 12-month expected credit losses have been recognised, and there are no non-current receivable balances lifetime expected credit losses.
Currency risk
The Group operates in overseas markets particularly through its subsidiaries in China, Brazil, Mexico, the USA and Japan as well as its joint operation in Canada and is therefore subject to currency exposure on transactions undertaken during the year. The Group does some simple economic hedging of receivables when the Board feels it is appropriate to do so and foreign exchange differences on retranslation of foreign monetary items are recorded in administrative expenses in 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:
Chinese Japanese Brazilian Canadian Mexican 2020 US Dollar Euros RMB Yen Real Dollar Peso Other GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000') Trade and other receivables 12,850 2,875 6,650 837 2,230 511 1,472 3 Trade and other payables (1,183) (12) (3,375) (233) (131) (129) (329) (1) Cash and cash equivalents 4,527 525 5,609 80 360 452 200 123 Total 16,194 3,388 8,884 684 2,459 834 1,343 125 2019 Chinese Japanese Brazilian Canadian Mexican Restated US Dollar Euros RMB Yen Real Dollar Peso Other GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's Trade and other receivables 7,016 3,288 7,757 689 944 817 1,397 123 Trade and other payables (644) (7) (2,680) (107) (51) - (13) (114) Cash and cash equivalents 5,239 906 4,340 256 433 1,104 175 34 Total 11,611 4,187 9,417 838 1,326 1,921 1,559 43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020 32. Financial instruments (continued)
At 31 March 2020 the Group was mainly exposed to the US Dollar, Euro, Chinese RMB, Japanese Yen, Brazilian Real, Canadian Dollar and Mexican Peso. The following table details the effect of a 10% movement in the exchange rate of these currencies against sterling when applied to outstanding monetary items denominated in foreign currency as at 31 March 2020.
2020 2019 Restated* GBP000's GBP000's U S Dollar 1,799 1,290 Euro 376 465 Chinese RMB 987 1,046 Japanese Yen 76 93 Brazilian Real 273 147 Canadian Dollar 93 213 Mexican Peso 149 173
Analysis of financial instruments by category
Group
Financial Financial assets liabilities Total 2020 GBP000's GBP000's GBP000's Trade and other receivables (excluding prepayments) 27,858 - 27,858 Cash and cash equivalents 11,877 - 11,877 Trade and other payables - (13,892) (13,892) Amounts due under leases - (1,766) (1,766) Borrowings - (2,032) (2,032) 2019 GBP000's GBP000's GBP000's Restated* Restated* Restated* Trade and other receivables (excluding prepayments) 22,864 - 22,864 Cash and cash equivalents 16,863 - 16,863 Trade and other payables - (12,516) (12,516) Amounts due under leases - (1,770) (1,770)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEARED 31 MARCH 2020
32. Financial instruments (Continued)
Analysis of financial instruments by category (continued)
Company
Financial Financial assets liabilities Total 2020 GBP000's GBP000's GBP000's Trade and other receivables (excluding prepayments) 30 - 30 Cash and cash equivalents 177 - 177 Trade and other payables - (567) (567) Amounts due under leases - (29) (29) Borrowings - (2,001) (2,001) 2019 GBP000's GBP000's GBP000's Restated* Restated* Restated* Trade and other receivables (excluding prepayments) 35 - 35 Cash and cash equivalents 4,236 - 4,236 Trade and other payables - (296) (296) Amounts due under leases - (65) (65)
All financial assets and 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.
*Please refer to Note 3 for further details on prior year adjustments.
33. Post balance sheet events
Covid-19 Impact
The Group transitioned smoothly to home working during the final weeks of the year building on the new ways of communicating with customers developed during the African swine flu outbreak and without losses of efficiency. Outsourced manufacturing and the Group's supply chain operated smoothly through the year end.
Brexit
The Group's EU marketing authorisations have been transferred to the European subsidiary, ECO Animal Health Europe Ltd registered in Dublin, Republic of Ireland and all our Brexit contingency plans are in place. The financial and operational impact of Brexit is expected to be minimal, particularly given the recently announced trade deal between the UK and the EU. The Group's sales to the EU (excluding the UK) represented 8% of total revenue for the year.
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February 04, 2021 02:00 ET (07:00 GMT)
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