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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% | 58.50 | 56.00 | 61.00 | 58.50 | 58.50 | 58.50 | 0.00 | 08:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Chem,fertlizer Minrl Mng,nec | 89.42M | 1.05M | 0.0155 | 37.74 | 39.63M |
From Mar 2023 to Mar 2025
TIDMEAH
RNS Number : 4155F
Eco Animal Health Group PLC
10 July 2023
10 July 2023
ECO Animal Health Group pc ("ECO", the "Company" or the "Group")
(AIM: EAH)
Results for the year ended 31 March 2023
HIGHLIGHTS
Financial
-- Revenue and adjusted EBITDA ahead of market expectations
-- Group sales increased by 4% to GBP85.3m, driven primarily by growth in revenues from South & Southeast Asia (excl. China and Japan) and Latin America
o China and Japan sales representing 31% of group sales (2022: 35%), declined by 7%
o Rest of world sales increased by 9%
-- Gross margin increased to 45% (2022: 43%) -- Adjusted EBITDA increased to GBP7.2m (2022: GBP5.4m) -- Adjusted EBITDA margin improved to 8.5% (2022: 6.6%) -- New product development expenditure GBP8.3m (2022: GBP9.0m) as planned -- Earnings per share 1.49p (2022: loss per share 1.01p)
-- Net cash at the end of the period GBP21.7m (2022: GBP14.3m), reinforcing the Group's strong balance sheet
-- RCF facility (GBP10m) available and undrawn
Operational
-- Aivlosin(R) demand remained strong in key markets, with increasing market share -- Unwinding of stock, as new China factory becomes operational -- Continuing positive progress towards regulatory filing for poultry mycoplasma vaccines
-- New partnership with Imperial College London for self-amplifying RNA technology to deliver swine vaccines and biologics
-- New partnership with Moredun Research Institute to deliver a poultry red mite vaccine
David Hallas, Chief Executive Officer of ECO Animal Health Group plc, commented: "I am pleased to present these results, which also represent the first full financial year since I became CEO. I am delighted that the Group has performed robustly, with encouraging growth in revenues; and profitability whilst also significantly improving our cash position. The strong performance in the second half of the year has continued and we are delighted that this momentum is evident in buoyant trade currently and, notwithstanding challenges in certain markets, we look forward to the rest of the current financial year with cautious optimism.
We have previously spoken of the strength and depth of our R&D portfolio and I remain convinced that this is a primary driver of future ECO success. I look forward to presenting our results and meeting investors in person during our results meetings or at our AGM in September".
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") as it forms part of United Kingdom domestic law by virtue of the European Union (Withdrawal) Act 2018. Upon the publication of this announcement via a Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.
Forward-Looking Statements
This announcement contains certain forward-looking statements. The forward-looking statements reflect the knowledge and information available to the Company and Group during preparation and up to the publication of this announcement. By their very nature, these statements depend upon circumstances and relate to events that may occur in the future and thereby involving a degree of uncertainty. Therefore, nothing in this announcement should be construed as a profit forecast by the Company or Group.
Contacts
ECO Animal Health Group plc David Hallas (Chief Executive Officer) Christopher Wilks (Chief Financial Officer) 020 8447 8899 IFC Advisory Graham Herring Zach Cohen 020 3934 6630 Singer Capital Markets (Nominated Adviser & Joint Broker) Philip Davies George Tzimas Sam Butcher 020 7496 3000 Investec (Joint Broker) Gary Clarence Carlo Spingardi Lydia Zychowska 020 7597 5970 Equity Development Hannah Crowe Matt Evans 020 7065 2692
CHAIRMAN AND CHIEF EXECUTIVE'S COMBINED STATEMENT
FOR THE YEARED 31 MARCH 2023
Having successfully navigated amidst difficult market conditions, we are pleased to report a robust performance of the Group. Despite facing numerous obstacles and uncertainties, ECO has emerged stronger and more determined than ever. Our people have been the true driving force behind our resilience. Their unwavering dedication, adaptability, and persistence have been instrumental in overcoming the challenges.
Operational Review
Revenues for the period increased to GBP85.3m along with increasing profitability driven by both customer and market mix: gross margin was up at 45% (2022: 43%) and EBITDA increased to GBP7.2m (2022: GBP5.4m). This healthy performance was delivered primarily in the second half of the year and we are delighted to report that this momentum has continued into the new financial year.
ECO saw strong performance in all regions: the Group generated particularly strong growth (+42%) in South & Southeast Asia driven by an impressive performance in Thailand and greater poultry sales in India. ECO is also pleased to report further development in Latin America, which delivered double digit growth. The presence of ECO in all major swine and poultry producing countries globally helps to mitigate the impact from individual market downturns.
Sales of Aivlosin(R), our patented antimicrobial which is used under veterinary prescription for the treatment of economically important respiratory and gastrointestinal diseases in pigs and poultry, reached GBP75.9m in FY2023 (2022: GBP72.9m). Demand was stronger than expected in China and Asia.
Sales of the smaller Ecomectin(R) anti-parasitic range were GBP3.6m (2022: GBP5.5m) with sales of all other products reaching GBP5.8m (2022: GBP3.7m).
In China, the Group has completed on schedule a plant for packaging and finishing final product which has provided greater automation and adherence to the high regulatory compliance requirements. During the construction process inventories were built up to GBP30m of product. Since completion, we are pleased to report that inventory levels have been reduced considerably to approximately GBP22m and continue to reduce to more normalised levels.
Product Approvals
Additional product approvals were obtained in the year for Aivlosin including new label extensions for additional diseases and one new country in Latin America. Furthermore, since the year end, the Group has been informed by the FDA that a previous safety warning can now be removed from the Aivlosin label in the USA following trials which show that it is safe to use in pregnant and lactating sows.
Innovation through Research and Development
The Group is pleased to see further progress within our portfolio of projects and continues to invest into vaccine R&D and in building our capability and expertise. The Board has dedicated significant efforts on its R&D programme and the amount of innovation in the pipeline is at its highest level.
We continue to invest in promising projects with substantial value associated with major diseases in swine and poultry.
Two late-stage development projects are expected to be submitted and approved by the end of next financial year (the year ending 31 March 2024).
We have engaged an experienced Contract Manufacturing Organisation ("CMO") and secured production for USA, EU, LATAM and Asia for our new biological products.
In June 2022, the Group announced a collaboration with Imperial College London to assess the veterinary application of self-amplifying RNA technology, representing the next generation of RNA delivered medicines. In July 2022, the Group signed a partnership agreement with the Moredun Research Institute to research and develop an effective first in class vaccine solution for the sustainable control of poultry red mite ("PRM"). Both of these initiatives are progressing well and we look forward to updating the market on these in due course.
The Board believes that investment in the exciting initiatives outlined above should, over time, deliver significant shareholder value and therefore these are being prioritised ahead of the payment of dividends, balancing also the need for prudent management of cash resources. Accordingly no dividend will be recommended in respect of the year ended 31 March 2023 but the Board does intend to keep this under review in the future as it recognises the value of dividends to shareholders.
People
We extend our sincere gratitude to our people, customers, partners, and shareholders who have stood by us during this journey. Their unwavering support and trust have been instrumental in our resilience. The Group remains committed to delivering exceptional value, driving innovation, and forging a bright future. ECO has now concluded its first Group-wide engagement survey, providing guidance to improving activities and overall satisfaction of all our people. We are pleased that this first survey reported good engagement and actions are underway to build on these good foundations.
The Group has continued to strengthen the Research & Development and Commercial teams through strategic new hires. I would like to extend a warm welcome to our new appointments in our leadership team, which include new heads of our Quality and Regulatory Team and HR Director.
Outlook
Trading momentum from the second half of FY2023 has continued into the first half of the current financial year. In China, the Group has seen improved trading and the Asian and Latin American markets continue the trend of delivering strong growth. Production and operational efficiencies are being driven by the leadership team and this is expected to support margins going forward. The R&D programme continues to provide considerable excitement and game-changing future product flow is confidently expected. Despite the challenges from continuing, sporadic African swine fever outbreaks and commodity price pressures, the Board is cautiously optimistic for the remainder of this financial year and views the future with confidence.
Dr Andrew Jones David Hallas Non-executive Chairman Chief Executive Officer
FINANCE DIRECTOR'S REPORT
FOR THE YEARED 31 MARCH 2023
Introduction
I am delighted to report a year of strong financial progress. Building on the foundations established in the past three years and working with new leadership we have delivered a year of robust growth in revenue and profit terms whilst improving working capital ratios and balance sheet strength. We have seen growth in all major performance metrics.
Supporting the commercial performance of our existing portfolio of businesses whilst ensuring a robust controls environment is in place to safeguard and maximise the return on assets is central to the role of the finance team, as well as supporting the strategic growth ambitions of the Group.
Trading
Previous years have seen a pattern of stronger trading in the second half of the year. This is associated with disease prevalence in pigs during the Northern Hemisphere winter. This pattern of trading has continued in the year ended 31 March 2023 with the second half accounting for 59% of the annual revenue. The primary contributing segment to this weighting was China and Japan, where the second half represented 68% of the annual revenue. In our interim report for the six months ended 30 September 2022 we stated that China revenue had declined as a result of poor producer margins and Covid impacts; in our second half of year the zero-Covid policy in China was relaxed and pork consumption improved, coinciding with the customary winter disease outbreaks providing a strong end to our trading year in China.
A geographical analysis of revenue is as follows:
Hot Features
Premium
Revenue Summary Year ended 31 March
2023 2022 % change
(GBP'm) (GBP'm)
China and Japan 26.4 28.4 (7%)
North America (USA and Canada) 15.2 16.4 (7%)
South and Southeast Asia 16.8 11.8 42%
Latin America 18.1 15.8 15%
Europe 6.1 6.4 (5%)
Rest of World and UK 2.7 3.4 ( 21%)
85.3 82.2 4%
------------------------------- ------------------- ------- --------
Revenue from China and Japan in the last four successive six-month trading periods was GBP15.7m, GBP12.7m, GBP8.5m and GBP17.9m, respectively. This underscores the pork industry cycle in China since the restocking of the herd in the year ended 31 March 2021. The recovery in the six months to 31 March 2023 represented a significant improvement in trading conditions and producer margins. Japan represents less than 5% of the segment's combined revenues.
North America which comprises Canada and the USA showed a small decline overall compared with the year ended 31 March 2022. Canada is a mature market and Aivlosin(R) enjoys a high market share in this market. The USA had a slower second half compared with prior years where typically disease outbreaks have driven strong demand for the Group's products in the final quarter of the year. This disease driven demand was less pronounced in this financial year.
South and Southeast Asia reported another strong period of annual growth in revenue. Specific strong demand arose from the poultry industry in India and Thailand, with other neighbouring countries also performing well.
Latin America also experienced strong growth in this financial year; principally from Brazil but also showing good revenue performance in Mexico in both swine and poultry.
After some supply interruption in Spain which arose from a regulatory change requiring macrolides to be delivered in water soluble form and not as in-feed formulation, Europe recorded a small 5% reduction in revenues.
Gross margins were 45% in the year ended 31 March 2023 (2022: 43%). This improvement in gross margins arose in the main from the weakness of Sterling compared with the US Dollar and the Chinese Yuan. At net margin, both of these effects were somewhat offset by the currency effect on foreign denominated administrative costs.
Administrative expenses, at GBP27.9m, were 16% higher than the prior year (GBP24.1m). Sterling weakness, as mentioned above, together with increased salary costs, travel costs and depreciation drove the increase.
All R&D programmes progressed well during the year and previously capitalised R&D remained in good standing at the year end with no indications of impairment.
Total expenditure on R&D in the year was GBP8.3m (2022: GBP9.0m). The total expenditure on R&D can be analysed as follows:
Year ended 31 March
2023 2022
GBP000's GBP000's
Research and development expenses - expensed
in period 5,920 7,621
Development expenditure - capitalised in intangible
assets 2,419 1 ,421
Total expenditure 8,339 9,042
Overall R&D expenditure in the year was 8% lower than the prior year due largely to timing and phasing of trial work. The portion of this expenditure capitalised in the year nearly doubled as a consequence of the greater proportion of the expenditure in the year ended 31 March 2023 being applied to the late-stage poultry vaccine programmes for mycoplasma prevention in chickens. These projects are in the final development stage and have met the capitalisation requirements set out in IAS38 for the entire financial year.
EBITDA has historically represented a key performance measure for the Group; the removal of amortisation (which is a significant annual non-cash charge to profits), depreciation and other non-cash charges to profit provides a good indication of the underlying cash trading performance of the business. The charge for amortisation of intangible assets in the year was GBP1.1m (2022: GBP1.1m). The adjusted EBITDA at GBP7.2m in the year ended 31 March 2023 was a significant increase on the year ended 31 March 2022 (GBP5.4m). Furthermore, the adjusted EBITDA margin (excluding foreign exchange movements and expressed as a percentage of revenue in the period) was 8.5% in the year ended 31 March 2023 compared with 6.6% in the year ended 31 March 2022. This increase in the adjusted EBITDA margin arose principally from improved gross margins and the effect of operational gearing in the business.
Profit before income tax was significantly stronger in the year ended 31 March 2023 at GBP4.4m (2022: GBP1.4m).
The Group's effective tax rate has reduced to 30% in the year ended 31 March 2023 (2022: 151%) due to lower net non-deductible expenses, lower profitability in high tax rate subsidiaries, increased utilisation of past tax losses, offset by lower R&D expenditure allowances. The UK corporation tax rate moves to 25% with effect from 1 April 2023; this should not impact tax payable in the near term due to the continuing availability of tax losses in the UK.
Earnings per share ("EPS") has improved from a loss per share of 1.01 pence in the year ended 31 March 2022 to 1.49 pence profit per share in the year ended 31 March 2023 and diluted EPS has improved from a loss per share of 1.01 pence in the year ended 31 March 2022 to 1.47 pence profit per share in the year ended 31 March 2023.
The consolidated cash position in the Group has increased to GBP21.7m at 31 March 2023 from GBP14.3m at 31 March 2022. The consolidated cash position held outside of China decreased to GBP4.1m at 31 March 2023 from GBP6.2m at 31 March 2022. A portion of the China cash is repatriated once per annum by dividend declaration; the Group's share of the cash distribution from ECO Biok in China received in the UK is 51%. During the year the dividend received from ECO Biok was GBP1.8m - related to the China profitability in the year ended 31 December 2021 (2022: GBP2.2m - related to year ended 31 December 2020). In addition, the Group received a first dividend of GBP4.0m during the year from its wholly owned entity in China.
The cash generated from operations was significantly greater in the year ended 31 March 2023 at GBP18.4m (2022: GBP2.5m) reflecting the increased profitability of the Group and, most significantly, a release of working capital from reduction in inventories. Group inventory levels fell from GBP30m at 31 March 2022 to GBP22.4m at 31 March 2023. The new factory in China was successfully commissioned during the year and the required inventory build ahead of the shutdown period unwound by the end of March 2023. Inventory days, expressed as inventory level as a ratio of annual cost of sales was 174 days at 31 March 2023 (2022: 234 days).
Trade receivables increased by 3% proportional to the increase in revenues in the year; the debtor days ratio remaining consistent at around 114 days. The Group's GBP5m overdraft facility (undrawn at the year end) remains in place and the Group's committed GBP10m Revolving Credit Facility ("RCF") has not been utilised to date.
Prior Year Adjustment
The prior year adjustment disclosed in note 3 is a technical item relating to the accounting for share options issued to employees of subsidiary companies. The adjustment affects ECO Animal Health Group plc's balance sheet only (not the consolidated position) and moves the cost of the share-based payment out of the intercompany account and into the investment in subsidiary account.
Audit
We are pleased to have completed the first audit with Haysmacintyre LLP. The audit has been a smooth process with good and appropriate challenge and astute enquiry. I would like to personally thank Haysmacintyre for their work and, subject to their reappointment at this year's AGM, we look forward to working with them again next year.
Christopher Wilks
Finance Director
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 31 MARCH 2023
2023 2022
Notes GBP000's GBP000's
Revenue 4 85,311 82,195
Cost of sales (46,935) (47,059)
--------- ---------
Gross profit 38,376 35,136
45.0% 42.7%
Other income 5 357 65
Research and development expenses (5,920) (7,621)
Administrative expenses (27,866) (24,055)
Impairment of intangible assets - (2,085)
Profit from operating activities 6 4,947 1,440
Finance income 7 104 190
Finance costs 7 (656) (284)
--------- ---------
Net finance cost (552) (94)
--------- ---------
Share of profit of associate 16 45 43
--------- ---------
45 43
--------- ---------
Profit before income tax 4,440 1,389
Income tax charge 9 (1,349) (2,094)
--------- ---------
Profit/(loss) for the year 3,091 (705)
--------- ---------
Profit/(loss) attributable to:
Owners of the parent Company 1,008 (686)
Non-controlling interest 27 2,083 (19)
--------- ---------
Profit/(loss) for the year 3,091 (705)
--------- ---------
Earnings per share (pence) 8 1.49 (1.01)
========= =========
Diluted earnings per share (pence) 8 1.47 (1.01)
========= =========
Adjusted EBITDA (Non-GAAP measure) 6 7,235 5,406
========= =========
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 MARCH 2023
2023 2022
Notes GBP000's GBP000's
Profit for the year 3,091 (705)
Other comprehensive income/(losses):
Items that may be reclassified to profit
or loss:
Foreign currency translation differences (586) 2,195
Items that will not be reclassified to
profit or loss:
Deferred tax on property revaluations - 1
Remeasurement of defined benefit pension
schemes 24 100 24
--------- ---------
Other comprehensive income/(losses) for
the year (486) 2,220
--------- ---------
Total comprehensive income for the year 2,605 1,515
Attributable to:
Owners of the parent Company 798 435
Non-controlling interest 27 1,807 1,080
--------- ---------
2,605 1,515
========= =========
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 MARCH 2023
Share Share Revaluation Other Foreign Retained Total Non-controlling Total
Capital Premium Reserve Reserves Exchange Earnings Interest Equity
Reserve
GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's
Balance as at
31 March 2021 3,379 63,258 656 106 1,092 13,410 81,901 13,414 95,315
Loss for the
year - - - - - (686) (686) (19) (705)
Other
comprehensive
income:
Foreign
currency
differences - - - - 1,096 - 1,096 1,099 2,195
Deferred tax
on
revaluation
of
freehold
property - - 1 - - - 1 - 1
Actuarial
gains
on pension
scheme assets - - - - - 24 24 - 24
--------- --------- ------------ --------- --------- --------- --------- ---------------- ---------
Total
comprehensive
income for
the
year - - 1 - 1,096 (662) 435 1,080 1,515
--------- --------- ------------ --------- --------- --------- --------- ---------------- ---------
Transactions
with
owners:
Issue of
shares
in the year 2 61 - - - - 63 - 63
Share-based
payments - - - - - 342 342 - 342
Dividends - - - - - (677) (677) (2,210) (2,887)
--------- --------- ------------ --------- --------- --------- --------- ---------------- ---------
Transactions
with owners 2 61 - - - (335) (272) (2,210) (2,482)
--------- --------- ------------ --------- --------- --------- --------- ---------------- ---------
Balance at 31
March 2022 3,381 63,319 657 106 2,188 12,413 82,064 12,284 94,348
--------- --------- ------------ --------- --------- --------- --------- ---------------- ---------
Profit for the
year - - - - - 1,008 1,008 2,083 3,091
Other
comprehensive
income:
Foreign
currency
differences - - - - (310) - (310) (276) (586)
Actuarial
gains
on pension
scheme assets - - - - - 100 100 - 100
--------- --------- ------------ --------- --------- --------- --------- ---------------- ---------
Total
comprehensive
income for
the (310
year - - - - ) 1,108 798 1,807 2,605
--------- --------- ------------ --------- --------- --------- --------- ---------------- ---------
Transactions
with
owners:
Share-based
payments - - - - - 408 408 - 408
(1,810 (1,810
Dividends - - - - - - - ) )
--------- --------- ------------ --------- --------- --------- --------- ---------------- ---------
Transactions
with (1,810 (1,402
owners - - - - - 408 408 ) )
--------- --------- ------------ --------- --------- --------- --------- ---------------- ---------
Balance at 31
March 2023 3,381 63,319 657 106 1,878 13,929 83,270 12,281 95,551
========= ========= ============ ========= ========= ========= ========= ================ =========
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 MARCH 2023
Company
Share Capital Share Premium Revaluation Other Reserves Retained Earnings Total
Reserve
GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's
Balance as at 31
March 2021 3,379 63,258 385 106 10,326 77,454
Loss for the year - - - - (1,586) (1,586)
Other
comprehensive
income:
Deferred tax on
revaluation of
freehold
property - - 1 - - 1
Actuarial gains
on pension
scheme assets - - - - 24 24
-------------- -------------- ------------------ --------------- ------------------ ---------
Total
comprehensive
income for
the year - - 1 - (1,562) (1,561)
-------------- -------------- ------------------ --------------- ------------------ ---------
Transactions with
owners:
Issue of shares
in the year 2 61 - - - 63
Share-based
payments - - - - 342 342
Dividends - - - - (677) (677)
-------------- -------------- ------------------ --------------- ------------------ ---------
Transactions with
owners 2 61 - - (335) (272)
-------------- -------------- ------------------ --------------- ------------------ ---------
Balance at 31
March 2022 3,381 63,319 386 106 8,429 75,621
-------------- -------------- ------------------ --------------- ------------------ ---------
Loss for the year - - - - (1,701) (1,701)
Other
comprehensive
income:
Actuarial gains
on pension
scheme assets - - - - 100 100
-------------- -------------- ------------------ --------------- ------------------ ---------
Total
comprehensive
income for
the year - - - - (1,601) (1,601)
-------------- -------------- ------------------ --------------- ------------------ ---------
Transactions with
owners:
Share-based
payments - - - - 408 408
-------------- -------------- ------------------ --------------- ------------------ ---------
Transactions with
owners - - - - 408 408
-------------- -------------- ------------------ --------------- ------------------ ---------
Balance at 31
March 2023 3,381 63,319 386 106 7,236 74,428
============== ============== ================== =============== ================== =========
STATEMENTS OF FINANCIAL POSITION (CO. NUMBER: 01818170)
AS AT 31 MARCH 2023
Group Company
2023 2022 2023 2022 2021
Notes GBP000's GBP000's GBP000's GBP000's GBP000's
Restated Restated
Non-current assets
Intangible assets 12 35,636 34,304 - - -
Property, plant and equipment 13 6,097 3,465 565 748 651
Investment property 14 - 227 - 227 305
Right-of-use assets 15 4,282 1,773 71 59 37
Investments 16 252 212 21,165 21,230 21,047
Amounts due from subsidiary
Company 18 - - 51,526 52,742 54,894
Deferred tax assets 19 559 523 12 50 -
--------- --------- --------- --------- ---------
Total non-current assets 46,826 40,504 73,339 75,056 76,934
Current assets
Inventories 17 22,409 30,142 - - -
Trade and other receivables 18 26,850 25,969 1,073 338 281
Income tax recoverable 2,947 1,596 - - -
Other taxes and social security 395 1,075 43 386 27
Cash and cash equivalents 20 21,658 14,314 388 279 819
Assets held for sale 14 230 - 230 - -
--------- --------- --------- --------- ---------
Total current assets 74,489 73,096 1,734 1,003 1,127
--------- --------- --------- --------- ---------
TOTAL ASSETS 121,315 113,600 75,073 76,059 78,061
Current Liabilities
Trade and other payables 21 (14,523) (12,954) (520) (326) (524)
Provisions 23 (5,178) (3,875) - - -
Income tax payable (1,017) (224) - - -
Other taxes and social security
payable (516) (239) - - -
Lease liabilities 22 (884) (397) (41) (13) (7)
Dividends (50) (50) (50) (50) (50)
--------- --------- --------- --------- ---------
Current liabilities (22,168) (17,739) (611) (389) (581)
--------- --------- --------- --------- ---------
Net current assets 52,321 55,357 1,123 614 546
--------- --------- --------- --------- ---------
Total assets less current
liabilities 99,147 95,861 74,462 75,670 77,480
Non-current liabilities
Deferred tax liabilities 19 - - - - 6
Lease liabilities 22 (3,596) (1,513) (34) (49) (32)
--------- --------- --------- --------- ---------
TOTAL ASSETS LESS TOTAL
LIABILITIES 95,551 94,348 74,428 75,621 77,454
========= ========= ========= ========= =========
EQUITY
Issued share capital 25 3,381 3,381 3,381 3,381 3,379
Share premium account 63,319 63,319 63,319 63,319 63,258
Revaluation reserve 657 657 386 386 385
Other reserves 28 106 106 106 106 106
Foreign exchange reserve 28 1,878 2,188 - - -
Retained earnings 13,929 12,413 7,236 8,429 10,326
--------- --------- --------- --------- ---------
Shareholders' funds 83,270 82,064 74,428 75,621 77,454
Non-controlling interests 27 12,281 12,284 - - -
--------- --------- --------- --------- ---------
TOTAL EQUITY 95,551 94,348 74,428 75,621 77,454
========= ========= ========= ========= =========
STATEMENTS OF CASH FLOWS
FOR THE YEARED 31 MARCH 2023
Group Company
2023 2022 2023 2022
Notes GBP000's GBP000's GBP000's GBP000's
Cash flows from operating activities
Profit/(loss) before income tax 4,440 1,389 (1,793) (1,611)
Adjustment for:
Finance income 7 (104) (190) (1,225) (832)
Finance cost 7 656 284 151 71
Foreign exchange (gain)/loss 6 (468) (989) 5 (2)
Depreciation 13 812 455 183 28
Amortisation of right-of-use assets 15 452 398 22 16
Revaluation of investment property 14 (3) 78 (3) 78
Amortisation of intangible assets 12 1,087 1,140 - -
Impairment of intangible assets 12 - 2,085 - -
Share of associate's results 16 (45) (43) - -
Share-based payment charge 25 408 342 179 342
Dividends received - - - (177)
--------- --------- --------- ---------
Operating cash flows before movements in working capital 7,235 4,949 (2,481) (2,087)
Change in inventories 7,776 (8,585) - -
Change in receivables (1,843) 7,630 1,109 2,385
Change in payables 3,802 (2,868) 202 (174)
Change in provisions and pensions 1,439 1,392 100 -
--------- --------- --------- ---------
Cash generated from operations 18,409 2,518 (1,070) 124
Finance costs 7 (451) (106) (139) (60)
Income tax (2,052) (2,960) (14) (17)
--------- --------- --------- ---------
Net cash from/(out) operating activities 15,906 (548) (1,223) 47
--------- --------- --------- ---------
Cash flows from investing activities
Acquisition of property, plant and equipment 13 (3,562) (1,624) - (125)
Disposal of property, plant and equipment 13 - 3 - -
Purchase of intangibles 12 (2,419) (1,263) - -
Finance income 7 104 190 1,225 -
Dividends received - - 144 177
--------- --------- --------- ---------
Net cash (used in)/from investing activities (5,877) (2,694) 1,369 52
--------- --------- --------- ---------
Cash flows from financing activities
Proceeds from issue of share capital - 63 - 63
Interest paid on lease liabilities 22 (205) (111) (12) (11)
Principal paid on lease liabilities 22 (387) (371) (21) (14)
Dividends paid (1,810) (2,886) - (677)
--------- --------- --------- ---------
Net cash (used in)/from financing activities (2,402) (3,305) (33) (639)
--------- --------- --------- ---------
Net increase/(decrease) in cash and cash equivalents 7,627 (6,547) 113 (540)
Foreign exchange movements (283) 1,338 (4) -
Balance at the beginning of the period 14,314 19,523 279 819
--------- --------- --------- ---------
Balance at the end of the period 20 21,658 14,314 388 279
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 31 MARCH 2023
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 The Grange, 100 High Street, Southgate, Lond on, N14 6BN.
2. Summary of the Group and Company's significant accounting policies 2.1 Basis of preparation
These fi nancial statements have been prepared in accordance with UK-adopted International Financial Reporting Standards. There were no changes to accounting policies on adoption of UK IFRSs.
The preparation of financial statements, in accordance with UK-adopted international accounting standards, 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 are set out below and have been applied consistently in dealing with items which are considered material in relation to the financial statements. They are prepared under the historical cost convention with the exception of certain items which are measured at fair value as described in the accounting policies below.
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 financial statements, having due regard to the identified strategic risks. The Directors concluded that the likelihood of such a reduction was remote, and therefore that no material uncertainty exists with respect of going concern.
2.2 Adoption of new and revised standards
No new standards or amendments that became effective in the financial year had a material impact in preparing these financial statements.
There are a number of standards and amendments to standards which have been issued by the IASB that are effective in future accounting periods that have not been adopted early.
The following standard is effective for annual reporting periods beginning on or after 1 January 2023:
-- IFRS 17 - Insurance Contracts
The following amendments are effective for annual reporting periods beginning on or after 1 January 2023:
-- Amendments to IFRS 17 -- Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2); -- Definition of Accounting Estimates (Amendments to IAS 8);
-- Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12); and
-- International Tax Reform - Pillar Two Model Rules (Amendments to IAS 12).
The following amendments are effective for annual reporting periods beginning on or after 1 January 2024:
-- Classification of liabilities as current or non-current (Amendments to IAS 1); -- Lease Liability in a Sale and Leaseback (Amendments to IFRS 16); -- Non-current liabilities with covenants (Amendments to IAS 1); and -- Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7).
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 2023.
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 initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling 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.
The Group initially recognised any non-controlling interest in the acquiree at the non-controlling interest's proportionate share of the acquiree's net assets. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses. The Group has not elected to take the option to use fair value in acquisitions completed to date.
Profit or loss and each component of Other Comprehensive Income are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance.
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.
Assets and liabilities of the Group are not reviewed on a segment basis by the chief operating decision-maker, accordingly assets and liabilities on a segment basis are not presented in these consolidated financial statements.
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 and company financial statements are presented in Pounds Sterling, which is the Group and the Company's functional 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.
(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
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 with reference to historical data adjusted by forward-looking information. 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 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
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); and -- 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.
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.
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.
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, vaccines or other technologies, or an approval for marketing new technologies of applications 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 recently announced projects, on vaccine development, for example, 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.
Where it is possible to allocate an individual capitalised cost to a single identifiable project 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 Vaccines 5% 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 Leasehold Improvement 18%-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 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.
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 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. Investments in subsidiaries are stated at cost less impairment in the Parent Company's statement of financial position.
Other 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 are assessed for impairment at the end of each reporting period. An impairment is recognised in profit or loss when the recoverable amount of an asset is less than its carrying amount, with the value of any impairment being the difference between the recoverable amount and carrying amount.
Impairments can be reversed in subsequent periods where there is any indication that the impairment loss recognised in a prior period may no longer exist or have decreased.
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.
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 equal or exceed 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, 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.
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 for further details.
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.
The Group applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate.
Recognition exemptions
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 applies a single discount rate to a portfolio of leases with reasonably similar characteristics.
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 weighted 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.
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. For the purpose of the statement of cash flows, bank overdrafts are included in the presentation of cash and cash equivalents.
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 assets 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 there is a present obligation as a result of a past event and it is probable that the an outflow of resources 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. The Group's revenue is principally derived from selling goods with revenue recognised at a point in time when control of the goods has transferred to the customer. This point in time is determined with reference to INCO terms with that customer, with control of goods deemed to have transferred as per the relevant INCO terms. The most common terms used by the group are Carriage, Insurance and Freight ("CIF"), Free On Board ("FOB"), ExWorks ("EXW") and Carriage and Insurance Paid to ("CIP").
-- For transactions under CIF and FOB, the revenue is recognised at the point the goods are loaded onto the vessel or aircraft and a bill of lading or airway bill is issued.
-- For transactions under EXW, the revenue is recognised at the point the goods are collected from the Group's warehouses or factory.
-- For transactions under CIP, the revenue is recognised at the point the goods are loaded on to a truck at the designated point of departure and a loading note is issued.
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 INCO terms 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 and royalty income, which are recognised on an accrual basis.
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 for those options granted with non-market performance conditions. 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.
In addition, the binomial model has been used to model future market outcomes for those options granted with a market performance condition.
Further details of the inputs to the Black-Scholes and the binomial model can be found in note 25 to the accounts.
Share-based payment charges are credited to 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 substantively 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 substantively 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.
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 are recorded within retained earnings.
The cost of its own shares bought into treasury 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.
2.28 Non-controlling 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 income statement.
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 as follows:
Impairment review of intangible assets
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 (CGUs) 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 assumption of an indefinite future life for the assets giving rise to the cash flows. Where intangible assets relate to future product releases the key assumptions also relate to forecasts for market share and product pricing. These assumptions and other commercial outlook conditions may change, which in turn might result in material changes in the recoverable amount in the future. 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.
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 non-financial 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.
The Group measures a number of items at fair value, including:
-- land and buildings (note 13); -- investment property (note 14); -- Pension and other post-retirement benefit commitments (note 24); -- share-based payments (note 25); and -- 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.
2.30 Critical accounting estimates and judgements (continued)
Provisions
Certain aspects of a sales tax related to imported products in a Group subsidiary might have been applicable. The subsidiary has been importing an increasing volume of product in recent years. This matter is at an early stage and subject to further review of the tax legislation and case law. No tax payment has yet been determined. However, a substantial tax settlement may be required in due course and a provision has been recognised.
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 24 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 number of options expected to vest and various other inputs to the Black-Scholes and the binomial model, as disclosed in note 25. 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. Those options that contain market conditions have been valued using the binomial model, and those without have been calculated using the Black-Scholes model. Management assess whether the charge or vested portion should be amended based on an annual reassessment of the likelihood of non-market based vesting conditions being met.
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.
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 the lessee companies and has 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%.
The following are the critical judgements that have been made in the process of applying the Group's accounting policies and have the most significant effects on the amounts recognised in financial statements.
Accounting for ECO Biok as a subsidiary
The Group has determined that it has control over Zhejiang ECO Biok Animal Health Products Limited ("ECO Biok") and its results are therefore consolidated within the Group accounts. The Group owns a 51% interest in ECO Biok and is the entity through which the Group has chosen to enter the Chinese market. ECO Biok depends on the Group for the right to sell Aivlosin products.
Capitalisation 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.
Income taxes
The Group is subject to income taxes in the United Kingdom and also in other jurisdictions.
Significant judgements are required in determining the provision for income taxes including the use of tax losses and in estimating deferred tax assets arising from unused tax losses or credits. There are some transactions and calculations for which the ultimate tax determination is uncertain, including tax credits for research and development expenditures. 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 the Directors estimate that future profits will be generated to utilise the underlying costs or losses to which they relate.
3. Prior Year Restatement
The Group reviewed the accounting for share incentive awards made to employees of subsidiary companies and concluded that the previous approach to recording the transaction in the balance sheet of the parent company should be by increasing the value of the investment in subsidiary, rather than recording it as an intercompany receivable. Accordingly, the prior year balance sheets of the Parent company have been restated to show this presentation. There is no impact or effect on the consolidated financial statements.
2022 2022 2021 2021
as reported Adjustments as restated as reported Adjustments as restated
Notes GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's
Non-current assets
Property, plant and
equipment 13 748 - 748 651 - 651
Investment property 14 227 - 227 305 - 305
Right-of-use assets 15 59 - 59 37 - 37
Investments 16 20,032 1,198 21,230 20,032 1,015 21,047
Amounts due from
subsidiary Company 18 53,940 (1,198) 52,742 55,909 (1,015) 54,894
Deferred tax assets 19 50 - 50 - - -
------------ ------------ ------------ ------------ ------------ ------------
Total non-current assets 75,056 - 75,056 76,934 - 76,934
Current assets
Trade and other
receivables 18 338 - 338 281 - 281
Other taxes and social
security 386 - 386 27 - 27
Cash and cash equivalents 20 279 - 279 819 - 819
------------ ------------ ------------ ------------ ------------ ------------
Total current assets 1,003 - 1,003 1,127 - 1,127
------------ ------------ ------------ ------------ ------------ ------------
TOTAL ASSETS 76,059 - 76,059 78,061 - 78,061
Current Liabilities
Trade and other payables 21 (326) - (326) (524) - (524)
Lease liabilities 22 (13) - (13) (7) - (7)
Dividends (50) - (50) (50) - (50)
------------ ------------ ------------ ------------ ------------ ------------
Current liabilities (389) - (389) (581) - (581)
------------ ------------ ------------ ------------ ------------ ------------
Net current assets 614 - 614 546 - 546
------------ ------------ ------------ ------------ ------------ ------------
Total assets less current
liabilities 75,670 - 75,670 77,480 - 77,480
Non-current liabilities
Deferred tax liabilities 19 - - - 6 - 6
Lease liabilities 22 (49) - (49) (32) - (32)
------------ ------------ ------------ ------------ ------------ ------------
TOTAL ASSETS LESS TOTAL
LIABILITIES 75,621 - 75,621 77,454 - 77,454
============ ============ ============ ============ ============ ============
EQUITY
Issued share capital 25 3,381 - 3,381 3,379 - 3,379
Share premium account 63,319 - 63,319 63,258 - 63,258
Revaluation reserve 386 - 386 385 - 385
Other reserves 28 106 - 106 106 - 106
Retained earnings 8,429 - 8,429 10,326 - 10,326
------------ ------------ ------------ ------------ ------------ ------------
Shareholders' funds 75,621 - 75,621 77,454 - 77,454
Non-controlling interests 27 - - - - - -
------------ ------------ ------------ ------------ ------------ ------------
Total equity 75,621 - 75,621 77,454 - 77,454
============ ============ ============ ============ ============ ============
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 ("Adjusted EBITDA**"), adjusted to exclude share-based payments, revaluation, impairment and personnel related litigation matters. Adjusted EBITDA is a non-GAAP measure used by the management to assess the underlying business performance.
Corporate China North S & Latin Europe Rest Total
/U.K. & Japan America SE Asia America of World
GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's
Year ended 31 March
2023
Sale of goods 1,304 26,374 15,172 16,759 18,107 6,073 1,338 85,126
Royalties - - - - - - 185 185
---------- --------- --------- --------- --------- --------- ---------- ---------
Revenue from external
customers 1,304 26,374 15,172 16,759 18,107 6,073 1,523 85,311
---------- --------- --------- --------- --------- --------- ---------- ---------
Adjusted EBITDA** (19,101) 9,340 5,463 6,767 3,059 1,486 689 7,703
Year ended 31 March
2022
Sale of goods 1,525 28,385 16,402 11,816 15,775 6,430 1,623 81,956
Royalties - - - - - - 239 239
---------- --------- --------- --------- --------- --------- ---------- ---------
Revenue from external
customers 1,525 28,385 16,402 11,816 15,775 6,430 1,862 82,195
---------- --------- --------- --------- --------- --------- ---------- ---------
Adjusted EBITDA** (18,623) 10,260 5,546 4,632 3,035 841 704 6,395
A reconciliation of adjusted EBITDA for reportable segments to profit from operating activities is provided as follows:
2023 2022
GBP000's GBP000's
Adjusted EBITDA for reportable
segments 7,703 6,395
Depreciation (812) (455)
Amortisation of right-of-use assets (452) (398)
Revaluation of investment property 3 (78)
Provision for ongoing employee
litigation - (457)
Amortisation (1,087) (1,140)
Impairment - (2,085)
Share-based payment charges (408) (342)
--------- ---------
Profit from operating activities 4,947 1,440
========= =========
Foreign exchange differences (468) (989)
--------- ---------
Adjusted EBITDA for the Group 7,235 5,406
========= =========
**Adjusted EBITDA reported for the segments includes foreign exchange gains and losses. The Adjusted EBITDA for the Group is presented in note 6.
2023 2022
GBP000's GBP000's
Aivlosin 75,942 72,939
Ecomectin 3,595 5,543
Others 5,774 3,713
--------- ---------
Total 85,311 82,195
========= =========
Product Revenue s
All product revenues are recognised at a point in time.
Contract Balances
2023 2022
Within one year or on demand GBP000's GBP000's
At 1 April 203 2155
Amounts included in contract liabilities that was recognised as revenue during the
period (203) (2,155)
Cash received in advance of performance and not recognised as revenue during the
period 1,079 203
--------- ---------
At 31 March 1,079 203
========= =========
The Group recognised contract liabilities of GBP1,079,000 at 31 March 2023 (2022: GBP203,000). 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.
5. Other income
2023 2022
GBP000's GBP000's
Sundry income 357 65
--------- ---------
357 65
========= =========
6. Result from operating activities
2023 2022
Notes GBP000's GBP000's
Result from operating activities is stated after charging/(crediting):
Cost of inventories recognised as an expense 46,461 46,482
Employee benefits expenses 30 15,461 14,054
Amortisation of intangible assets 12 1,087 1,140
Depreciation 13 812 455
Amortisation of right-of-use assets 15 452 398
Revaluation of investment property 14 (3) 78
Gain on foreign exchange transactions 468 989
Research and development 5,920 7,621
Impairment losses on trade receivables 18 533 (167)
Audit fees recognised in the financial period to the Company's auditors for the audit
of the
parent Company and Group annual accounts 535 452
Audit fees recognised in the financial period to the Company's auditors and its
associates
for the audit of the Company's subsidiaries 70 41
Total fees payable to the Company's auditor for the audit of these parent Company and Group annual accounts, for the year ended 31 March 2023, are GBP290,000 (2022: GBP584,000), and fees payable to the Company's auditor and its associates for the audit of the Company's subsidiaries are GBP24,000 (2022: GBP83,000).
2023 2022
GBP000's GBP000's
Earnings before interest, Tax, Depreciation, Amortisation, Revaluation, Impairment, Personnel
related litigation matters, Share-based payments and Foreign exchange differences (adjusted
EBITDA ) - Non-GAAP measure
Profit from operating activities 4,947 1,440
Depreciation 812 455
Amortisation of right-of-use assets 452 398
Revaluation of investment property (3) 78
Amortisation 1,087 1,140
Impairment - 2,085
Personnel related litigation matters - 457
Share-based payments 408 342
--------- ---------
7,703 6,395
Foreign exchange differences (468) (989)
--------- ---------
Adjusted EBITDA 7,235 5,406
========= =========
Management believe that adjusted EBITDA is an 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 of Fixed Assets and These items are a result of past investments and
Impairment of Intangibles therefore,
although they are correctly recorded as income or cost of
the
business, they do not reflect current or future cash
outflows.
Employment litigation Amount in respect of a probable settlement of an
employment
related matter in a foreign subsidiary of ECO Animal
Health Group plc.
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.
7. Finance income/(expense)
2023 2022
GBP000's GBP000's
Finance income
Interest received on short term bank deposits 104 190
Finance costs
Interest paid (451) (173)
Interest paid on lease liabilities (205) (111)
--------- ---------
(656) (284)
--------- ---------
Net finance costs (552) (94)
========= =========
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.
2023 2022
Earnings Weighted average Per share amount Earnings Weighted average Per share amount
number of shares number of shares
GBP000's 000's pence GBP000's 000's pence
Earnings
attributable to
ordinary
shareholders on
continuing
operations after
tax 1,008 67,722 1.49 (686) 67,717 (1.01)
Dilutive effect - 918 - - - -
of share options
--------- ----------------- ----------------- --------- ----------------- -----------------
Diluted earnings
per share 1,008 68,640 1.47 (686) 67,717 (1.01)
========= ================= ================= ========= ================= =================
The diluted EPS figure reflects the impact of historic grants of share options and is calculated by reference to the number of options granted for which the average share price for the year was in excess of the option exercise price.
9. Taxation
2023 2022
GBP000's GBP000's
Current tax
Foreign corporation tax on profits for the year 2,405 3,284
Foreign withholding tax 325 406
Research and development tax credits claimed in the year (1,391) (1,594)
Research and development tax credits - adjustment for prior year 46 437
Deferred tax
Origination and reversal of temporary differences (36) (439)
--------- ---------
Income tax charge 1,349 2,094
========= =========
Origination and reversal of temporary differences - (1)
--------- ---------
Deferred tax recognised through reserves - (1)
========= =========
2023 2022
GBP000's GBP000's
Factors affecting the tax charge for the year
Profit before income tax 4,440 1,389
========= =========
Profit on ordinary activities before taxation multiplied by the applicable rate of UK
corporation
tax of 19% (2021: 19%) 844 264
Effects of:
Non-deductible expenses 1,207 1,345
Non-chargeable credits (571) (69)
Right-of-use assets depreciation (37) (37)
Withholding tax on inter-company dividends 325 406
Enhanced allowance on research and development expenditure (573) (1,208)
Adjustment in respect of prior years 98 456
Different tax rate for foreign subsidiaries 506 844
Origination and reversal of temporary differences - 114
Unused tax losses carried forward (363) (109)
Tax effect of share-based payments (14) 88
Patent Box claim (73) -
--------- ---------
Income tax charge 1,349 2,094
========= =========
Effective income tax rate 30% 151%
Future tax changes
On 5 March 2021 it was announced that the rate of UK corporation tax would be increased to 25% from 1 April 2023. This change was substantively enacted in April 2021 and the UK deferred tax assets and liabilities have been calculated based on the enacted rate of 25% (2022: 25%).
10. Loss for the financial year
2023 2022
GBP000's GBP000's
Parent Company's (loss) for the financial year (1,701) (1,586)
========= =========
The Company has elected to take the exemption under Section 408 of the Companies Act 2006 not to present the Parent Company income statement.
11. Dividends
2023 2022
GBP000's GBP000's
Cash dividends on ordinary shares declared and paid:
Final dividend for the year end 31 March 2022 at 1.0p per ordinary share - 677
========= =========
The Board of Directors does not propose that a dividend be paid for the year ended 31 March 2023 (2022: Nil).
Proposed dividends on ordinary shares are subject to approval at the annual general meeting and are not recognised as a liability as at the date of the Statement of Financial Position.
12. Intangible assets
Group Goodwill Distribution rights Drug registrations, patents and license Total
costs
GBP000's GBP000's GBP000's GBP000's
Cost
At 31 March 2021 17,930 407 23,963 42,300
Additions - - 1,421 1,421
Impairment - - (2,092) (2,092)
At 31 March 2022 17,930 407 23,292 41,629
Additions - - 2,419 2,419
Impairment - - - -
At 31 March 2023 17,930 407 25,711 44,048
--------- -------------------- -------------------------------------------- ---------
Amortisation
At 31 March 2021 - (139) (6,053) (6,192)
Charge for the year - (19) (1,121) (1,140)
Written back on impairment - - 7 7
At 31 March 2022 - (158) (7,167) (7,325)
Charge for the year - (20) (1,067) (1,087)
Written back on impairment - - - -
At 31 March 2023 - (178) (8,234) (8,412)
--------- -------------------- -------------------------------------------- ---------
Net Book Value
At 31 March 2023 17,930 229 17,477 35,636
========= ==================== ============================================ =========
At 31 March 2022 17,930 249 16,125 34,304
========= ==================== ============================================ =========
At 31 March 2021 17,930 268 17,910 36,108
========= ==================== ============================================ =========
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 3 to 20 years.
The acquisition of ECO Animal Health Limited in October 2004 gave the Group ownership of the intellectual property and established distribution networks in respect of Aivlosin and Ecomectin. The acquisitions of Zhejiang Eco Biok Animal Health Products Limited in 2007 and ECO Animal Health Japan Inc in 2009 opened further distribution and sale opportunities for Aivlosin and Ecomectin.
Goodwill acquired in a business combination is allocated at acquisition to the cash generating units (CGUs) that are expected to benefit from the business combination. During the year the Group modified the cash flows used in the impairment review of the goodwill balance such that the Group's global revenues in respect of Aivlosin and Ecomectin products are now used, and the expected future cash flows in respect of new vaccines - both the outflows on research and development of these new products and the forecast revenues from sales - are excluded. This approach is appropriate given that the acquisitions which gave rise to the goodwill balance were made to enhance the Group's global capacity to sell Aivlosin and Ecomectin products.
The Group has recalculated the headroom as it would have been at March 2022 when comparing the net present value of cash flows to the carrying value of goodwill on this modified basis.
The recoverable amount of the CGU is 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. In the current year management estimated the applicable rate to be 7% (2022: 7%). 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 GBP118 million (2022: reported as GBP44 million and recalculated as GBP162 million using the modified basis).
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 GBP102 million (2022: reported as GBP39 million and recalculated as GBP141 million) more than the carrying value and no impairment would be necessary.
The group estimates that the discount rate applied when calculating the value in use would have to increase to a rate in excess of 45% before there was an indication that the goodwill balance would need to be impaired (2022: recalculated as 57%).
The net book value of drug registrations, patents and license costs can be broken down as follows:
2023 2022
GBP000's GBP000's
Aivlosin 13,353 13,945
Ecomectin 637 754
Vaccines 3,386 1,296
Others 101 130
--------- ---------
17,477 16,125
========= =========
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 3 to 20 years.
Ecomectin is an endectocide that controls worms, ticks, lice and mange in grazing stock and pigs. The remaining useful life is 2 to 10 years.
At 31 March 2023 Intangible assets included GBP5,453,000 (2022: GBP3,502,000) of assets capitalised that had not commenced their useful life, of which approximately GBP2,307,000 (2022: GBP2,044,000) were Aivlosin related products.
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 group continuously reviews the status of its research and development activity, paying close attention to the likelihood of technical success and the commercial viability of development projects. In the year to March 2023 there were no indications that an impairment was necessary (2022: impairment of GBP2,085,000).
13. Property, plant and equipment
Group Freehold Land Leasehold Plant and Fixtures, Motor Vehicles Total
and Buildings improvements Machinery Fittings and
Equipment
GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's
Cost or
valuation
At 31 March 2021 667 555 787 1,748 269 4,026
Additions 36 50 1,305 233 - 1,624
Disposals - - (19) (26) - (45)
Foreign exchange
movements 6 - 114 57 18 195
---------------- ---------------- ----------------- ---------------- --------------- ---------
At 31 March 2022 709 605 2,187 2,012 287 5,800
Additions 31 146 2,813 465 107 3,562
Disposals (18) - (355) (46) (16) (435)
Foreign exchange
movements (2) - (41) (33) (6) (82)
---------------- ---------------- ----------------- ---------------- --------------- ---------
At 31 March 2023 720 751 4,604 2,398 372 8,845
---------------- ---------------- ----------------- ---------------- --------------- ---------
Depreciation
At 31 March 2021 (23) (103) (503) (1,011) (205) (1,845)
Charge for the
year (16) (112) (54) (250) (24) (456)
Disposals - - 17 24 - 41
Foreign exchange
movements (1) - (31) (26) (17) (75)
---------------- ---------------- ----------------- ---------------- --------------- ---------
At 31 March 2022 (40) (215) (571) (1,263) (246) (2,335)
Charge for the
year (32) (116) (194) (443) (27) (812)
Disposals 9 - 265 44 16 334
Foreign exchange
movements - - 49 11 5 65
---------------- ---------------- ----------------- ---------------- --------------- ---------
At 31 March 2023 (63) (331) (451) (1,651) (252) (2,748)
---------------- ---------------- ----------------- ---------------- --------------- ---------
Net Book Value
At 31 March 2023 657 420 4,153 747 120 6,097
================ ================ ================= ================ =============== =========
At 31 March 2022 669 390 1,616 749 41 3,465
================ ================ ================= ================ =============== =========
At 31 March 2021 644 452 284 737 64 2,181
================ ================ ================= ================ =============== =========
The freehold land and buildings at Coombe Road, New Malden was valued at GBP565,000 at 31 March 2023 by Colliers International Property Consultants Limited (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 Group considers the fair value of the property determined. This property will continue to be valued on a regular basis.
Valuation Technique Significant unobservable Inter-relationship between
used inputs key unobservable inputs
and fair value
RICS Valuation - Global Reduced marketability
Standards ('Red Book * Estimated market rent and hence rent achievable
Global Standards') by the property.
* Capital Value
* Price per square foot 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 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.
The value of the freehold property would have been recorded at GBP219,000 (2022: GBP229,000) on a historical cost basis.
Depreciation has been included in the administrative expenses line in the income statement, except for GBP275,000 (2022: GBP158,000) of depreciation of production equipment in the Chinese subsidiary ECO Biok and for GBP9,011 (2022: GBP7,000) of depreciation in Pharmgate Animal Health USA LLC, which are included within cost of sales.
Company Freehold Land and Buildings Fixtures, Fittings and Equipment Total
GBP000's GBP000's GBP000's
Cost or valuation
At 31 March 2021 615 58 673
Additions - 125 125
---------------------------- --------------------------------- ---------
At 31 March 2022 615 183 798
Additions - - -
---------------------------- --------------------------------- ---------
At 31 March 2023 615 183 798
---------------------------- --------------------------------- ---------
Depreciation
At 31 March 2021 (12) (10) (22)
Charge for the year (12) (16) (28)
---------------------------- --------------------------------- ---------
At 31 March 2022 (24) (26) (50)
Charge for the year (26) (157) (183)
---------------------------- --------------------------------- ---------
At 31 March 2023 (50) (183) (233)
---------------------------- --------------------------------- ---------
Net Book Value
At 31 March 2023 565 - 565
============================ ================================= =========
At 31 March 2022 591 157 748
============================ ================================= =========
At 31 March 2021 603 48 651
============================ ================================= =========
14. Investment property
Group and Company Freehold Land and Buildings
GBP000's
At 31 March 2021 305
Revaluation in 2022 (78)
----------------------------
At 31 March 2022 227
Revaluation in 2023 3
----------------------------
At 31 March 2023 230
============================
The property in Western Road, Mitcham was valued at GBP230,000 as at 31 March 2023 by Colliers International Property Consultants Limited (external independent qualified valuer). The fair value of the investment property was determined by applying an 8.36 % discount rate to the annual rental value of the property as determined by local market conditions.
The value of the investment property would have been recorded at GBP130,000 on a historical cost basis.
Valuation Technique Significant unobservable Inter-relationship between
used inputs key unobservable inputs
and fair value
RICS Valuation - Global Reduced marketability
Standards ('Red Book * Estimated market rent and hence rent achievable
Global Standards') by the property.
* Capital value
* Price per square foot 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.
During the financial period ended 31 Mar 2023, the Group agreed to sell the property for consideration of GBP230,000 and has classified this property as ass ets held for sale.
15. Right-of-use assets
Group Property Vehicles Other Total
GBP000's GBP000's GBP000's GBP000's
Cost or valuation
At 31 March 2021 2,201 147 22 2,370
Additions 615 66 7 688
Disposals (366) (18) (22) (406)
Foreign exchange movements 105 - - 105
--------- --------- --------- ---------
At 31 March 2022 2,555 195 7 2,757
Additions 3,022 100 2 3,124
Disposals (29) - - (29)
Foreign exchange movements (161) - - (161)
--------- --------- --------- ---------
At 31 March 2023 5,387 295 9 5,691
--------- --------- --------- ---------
Depreciation
At 31 March 2021 (878) (75) (18) (971)
Charge for the year (355) (38) (5) (398)
Disposals 366 18 22 406
Foreign exchange movements (21) - - (21)
--------- --------- --------- ---------
At 31 March 2022 (888) (95) (1) (984)
Charge for the year (402) (50) - (452)
Disposals - - - -
Foreign exchange movements 27 - - 27
--------- --------- --------- ---------
At 31 March 2023 (1,263) (145) (1) (1,409)
--------- --------- --------- ---------
Net Book Value
At 31 March 2023 4,124 150 8 4,282
========= ========= ========= =========
At 31 March 2022 1,667 100 6 1,773
========= ========= ========= =========
At 31 March 2021 1,323 72 4 1,399
========= ========= ========= =========
Company Vehicles Other Total
GBP000's GBP000's GBP000's
Cost or valuation
At 31 March 2021 68 7 75
Additions 38 - 38
Disposals - (7) (7)
Foreign exchange movements - - -
--------- --------- ---------
At 31 March 2022 106 - 106
Additions - 34 34
Disposals - - -
Foreign exchange movements - - -
--------- --------- ---------
At 31 March 2023 106 34 140
--------- --------- ---------
Depreciation
At 31 March 2021 (32) (6) (38)
Charge for the year (16) - (16)
Disposals - 7 7
Foreign exchange movements - - -
--------- --------- ---------
At 31 March 2022 (48) 1 (47)
Charge for the year - (22) (22)
Disposals - - -
Foreign exchange movements - - -
--------- --------- ---------
At 31 March 2023 (48) (21) (69)
--------- --------- ---------
Net Book Value
At 31 March 2023 58 13 71
========= ========= =========
At 31 March 2022 58 1 59
========= ========= =========
At 31 March 2021 36 1 37
========= ========= =========
16. I nvestments
Group Investment in Associate Unlisted investments Total
GBP000's GBP000's GBP000's
At 31 March 2021 171 9 180
Share of associate's result for the year 43 - 43
Foreign exchange differences (11) - (11)
------------------------ --------------------- ---------
At 31 March 2022 203 9 212
Share of associate's result for the year 45 - 45
Foreign exchange differences (5) - (5)
------------------------ --------------------- ---------
At 31 March 2023 243 9 252
======================== ===================== =========
Company Unlisted investments (subsidiaries) Total
GBP000's GBP000's
Cost
At 31 March 2021 Restated 21,047 21,047
Additional investment 183 183
------------------------------------ ---------
At 31 March 2022 Restated 21,230 21,230
Disposal (65) (65)
------------------------------------ ---------
At 31 March 2023 21,165 21,165
==================================== =========
Impairment
At 31 March 2021 (20) (20)
Impairment charge - -
Disposal - -
------------------------------------ ---------
At 31 March 2022 (20) (20)
Impairment charge - -
Disposal 20 20
------------------------------------ ---------
At 31 March 2023 - -
==================================== =========
Net Book Value
At 31 March 2023 21,165 21,165
==================================== =========
At 31 March 2022 Restated 21,210 21,210
==================================== =========
At 31 March 2021 Restated 21,027 21,027
==================================== =========
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 registration or Class Shares held %
incorporation
Zhejiang ECO Biok Animal Zhongguan Industrial Area,
Health Products Limited Deqing, Zhejiang Province P. R. China Ordinary 3*
78 Coombe Road, New Malden,
ECO Animal Health Limited Surrey, KT3 4QS Great Britain Ordinary 100
Subsidiary undertakings held by the Group
Country of registration or Class Shares held %
Company Registered office address incorporation
ECO Animal Health Southern 228 Athol Road, Highlands
Africa (Pty) Limited. North, Johannesburg 2192 South Africa Ordinary 100
Zhejiang ECO Biok Animal Zhongguan Industrial Area,
Health Products Limited. Deqing, Zhejiang Province P. R. China Ordinary 51*
Shanghai ECO Biok Veterinary
Drug Sale Company Ltd. (via
Zhejiang ECO Biok Animal Room 1502-3, Imago Plaza,
Products No. 99 Wuning Road, Ptro
Ltd.) District, Shanghai 200063 P. R. China Ordinary 51
Zhejiang ECO Animal Health Zhongguan Industrial Area,
Limited Deqing, Zhejiang Province P. R. China Ordinary 100
Av. Dr. Cardoso de Melo,
ECO Animal Health do Brasil 1470, Cl311, Villa
Comercio de Produtos Olimpia, CEP 04548-005,
Veterinarios Ltda. Sao Paulo Brazil Ordinary 100
1-2-1, Hamamatsu-cho,
ECO Animal Health Japan Inc. Minato-Ku, Tokyo Japan Ordinary 100
344 Nassau Street,
Princeton, New Jersey,
ECO Animal Health USA Corp. 08540 U.S.A. Ordinary 100
3775 Columbia Pike,
Ellicott City, Maryland,
Interpet LLC. 21043 U.S.A. Ordinary 100
Av Techologico Sur 134-4,
ECO Animal Health de Mexico, Unidad Habitacional
S de R.L. de C.V. Moderna, Queretaro, 76030 Mexico Ordinary 100
ECO Animal Health de Calle 4 E 43/44 N: 581 P.6
Argentina S.A. D:B La Plata, Buenos Aires Argentina Ordinary 100
10(th) Floor, Menara Hap
ECO Animal Health Malaysia Seng, No 1 & 3, Jalan P
Sdn. Bhd. Ramlee, 50250 Kuala Lumpur Malaysia Ordinary 100
No 33/5, Second Floor,
Mount Kailash Building,
Meanee Avenue Road, Ulsoor
ECO Animal Health India Bangalore, Karnataka,
(Private) Ltd 560042 India Ordinary 100
6 Northbrook Road, Dublin
ECO Animal Health Europe Ltd 6, Eire Republic 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%).
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
Zhejiang ECO Biok Animal Health Products Manufacture of animal
Limited drugs
Shanghai ECO Biok Veterinary Drug Sale Company Distribution of animal
Ltd. drugs
Zhejiang ECO Animal Health Limited Procurement of raw
materials
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
Interpret 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
Zhejiang ECO Biok Animal Health Products Limited, Zhejiang ECO Animal Health Limited and ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda all 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.
Interpet 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 2023.
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.
Please note that 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.
Summarised statement of comprehensive income 2023 2022
For the year ended 31 March GBP000's GBP000's
Revenue 24,122 26,803
Cost of sales (13,504) (17,192)
--------- ---------
Gross Profit 10,618 9,611
Administrative expenses (4,927) (8,875)
--------- ---------
Operating profit/(loss) 5,691 736
Other income 345 34
Finance income (94) 84
--------- ---------
Profit before tax 5,942 854
Tax expense (1,691) (891)
--------- ---------
Profit after tax 4,251 (37)
Profit allocated to NCI 2,083 (19)
Other comprehensive (loss)/income allocated to NCI (276) 1,099
Summarised balance sheet 2023 2022
As at 31 March GBP000's GBP000's
Assets:
Property, plant and equipment 860 1,960
Right-of-use assets 3,445 1,080
Deferred tax assets - 3
Inventories 5,047 14,081
Trade and other receivables 3,925 6,300
Cash and cash equivalents 14,877 6,148
--------- ---------
28,154 29,572
Liabilities:
Trade and other payables 1,742 4,489
Contract liabilities 1,080 11
Lease liabilities - short term 585 144
Lease liabilities - long term 3,061 1,040
--------- ---------
6,468 5,684
Summarised cash flows 2023 2022
For the year ended 31 March GBP000's GBP000's
Cash flows from operating activities 15,802 (2,818)
Cash flows from investing activities (2,772) (810)
Cash flows from financing activities (3,924) (4,565)
Foreign exchange movements (376) 690
Net increase/(decrease) in cash and cash equivalents 8,730 (7,503)
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.
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 Health LLC Pharmgate Animal Health Canada Inc
2023 2022 2023 2022
GBP000's GBP000's GBP000's GBP000's
Non-current assets 2 11 - -
Current assets 1,175 1,871 614 631
Current liabilities (1,149) (1,855) (613) (630)
Sales 11,672 12,640 3,499 3,756
Profit after tax - - - -
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.
2023 2022
GBP000's GBP000's
Investments (share of net assets)
At 1 April 203 171
Share of results for the year 45 43
Foreign exchange movement (5) (11)
At 31 March 243 203
2023 2022
Summarised financial information GBP000's GBP000's
At 31 March
Current assets 831 744
Non-current assets 37 27
Current liabilities (224) 222
Non-current liabilities (134) 120
Net assets (100%) 510 428
Group share of net assets (47.62%) 243 204
Year ended 31 March
Revenue 2,122 1,897
Net profit 95 90
17. Inventories
Group Company
2023 2022 2023 2022
GBP000's GBP000's GBP000's GBP000's
Raw materials and consumables 9,252 9,772 - -
Finished goods and goods for resale 7,660 13,277 - -
Work in progress 5,497 7,093 - -
22,409 30,142 - -
The above total includes the provision of inventory amounting to GBP384,000 (2022: GBP146,000).
18. Trade and other receivables
Group Company
2023 2022 2023 2022
GBP000's GBP000's GBP000's GBP000's
Restated
Non-current:
Amounts owed by group undertakings - - 51,526 52,742
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
2023 2022 2023 2022
GBP000's GBP000's GBP000's GBP000's
Current:
Trade receivables 24,813 23,388 - -
Other receivables 1,312 660 825 80
Amounts owed by group undertakings - - - 48
Prepayments and accrued income 725 1,921 248 210
--------- ---------
26,850 25,969 1,073 338
The ageing analysis of these trade receivables is as follows:
Trade receivables Net of impairment
2023 2022 2023 2022
GBP000's GBP000's GBP000's GBP000's
Current 20,241 20,849 19,922 20,849
Up to 3 months past due 4,097 1,772 3,932 1,751
3 to 6 months past due 711 346 677 346
Over 6 months past due 609 615 282 442
25,658 23,582 24,813 23,388
Movement on the Group provision for impairment of trade receivables is as follows:
Group 2023 2022
GBP000's GBP000's
Balance at 1 April 194 351
Additional provision made 646 13
(Recovered) in the year (80) (59)
Written off in the year (33) (121)
Other 118 10
Balance at 31 March 845 194
19. Deferred tax
Group
Deferred tax assets and liabilities are attributable to the following:
Assets/ (Liabilities)
2023 2022
GBP000's GBP000's
Trade related temporary differences (2,830) (2,586)
Overseas trade related temporary differences - 3
Freehold property 9 9
Investment property and assets held for sale 17 18
Plant and equipment (96) (109)
Deferred tax on pension scheme (45)
Deferred tax on share options 56 43
Tax losses carried forward 3,448 3,145
Amount receivable/(payable) after more than one year 559 523
The movement on the deferred tax account can be summarised as follows:
Investment
Trade-related property and
temporary Freehold assets held Plant and
differences property for sale machinery Pension scheme Share options Total
GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's
At 31 March 2022 562 9 18 (109) - 43 523
Credit/(Charge)
for the year
through income
statement 56 - (1) 13 (45) 13 36
At 31 March 2023 618 9 17 (96) (45) 56 559
Trade related temporary differences relate predominantly to research and development tax deductions claimed in advance of expense recognition in the income statement, carried forward trading losses and a provision for unrealised profit arising on consolidation. 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.
Company Investment property and
Freehold property assets held for sale Pension scheme Share options Total
GBP000's GBP000's GBP000's GBP000's GBP000's
At 31 March 2021 8 (2) - - 6
Credit for the year through
income statement - 20 - 23 43
Credit for the year through
reserves 1 - - - 1
----------------------------
At 31 March 2022 9 18 - 23 50
----------------------------
Credit for the year through
income statement - (1) (45) 8 (38)
----------------------------
At 31 March 2023 9 17 (45) 31 12
At 31 March 2023 the Group has recognised a deferred tax asset in respect of carried forward UK trading losses of GBP10,489,000 (2022: GBP10,489,000). At 31 March 2023 the Group has unrecognised carried forward excess UK trading losses of GBP4,613,000 (2022: GBP3,185,000) and unrecognised carried forward overseas trading losses of GBP1,319,000 (2022: GBP1,508,000). These tax losses are not expected to expire.
20. Cash and cash equivalents
Cash and cash equivalents comprise cash, short-term deposits held by the Group net of amounts outstanding on bank overdraft. The carrying amount of these assets are not significantly different to their fair value.
Group Company
2023 2022 2023 2022
GBP000's GBP000's GBP000's GBP000's
Cash and cash equivalents 21,658 14,314 388 279
Cash and cash equivalents presented in the statement of cash flows 21,658 14,314 388 279
Balances drawn on the bank overdraft facility are repayable on demand and form an integral part of the cash management of the Group and Company. In the statement of cash flows, the Group and the Company have presented cash and cash equivalents net of balances outstanding on bank overdrafts. Amounts drawn and repaid on the overdraft facility are therefore considered as part of changes in cash and cash equivalents and are not presented as financing cash flows.
Cash and short-term deposits held in China are subject to local exchange control regulations. These regulations provide for restrictions on exporting capital from those countries, other than through normal dividends. The carrying amount of the assets included within the consolidated financial statements to which these restrictions apply is GBP17.6m (2022: GBP8.1m).
Significant non-cash transactions from investing activities are as follows:
Group Company
2023 2022 2023 2022
GBP000's GBP000's GBP000's GBP000's
Acquisition of property, plant and equipment by means of leases or not yet
paid at year end 3,124 688 34 38
Acquisition of intangible assets not yet paid at year end 306 106 - -
21. Trade and other payables
Group Company
2023 2022 2023 2022
GBP000's GBP000's GBP000's GBP000's
Trade payables 6,124 9,415 194 50
Contract liabilities 1,079 203 - -
Other payables 667 926 45 70
Accruals and deferred income 6,653 2,410 281 206
14,523 12,954 520 326
22. Borrowings
Group Company
2023 2022 2023 2022
GBP000's GBP000's GBP000's GBP000's
Cash and cash equivalents 21,658 14,314 388 279
Lease liabilities (4,480) (1,910) (75) (62)
Net Cash 17,178 12,404 313 217
The Group has an overdraft facility in certain currencies in respect of a pool of bank accounts held with NatWest Bank plc.
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 the assets of the Group. Any drawdown of 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 overdraft facility. The facility has a gross and net limit of GBP5,000,000, which may be borrowed and repaid at will.
At 31 March 2023, the undrawn facility was GBP5,000,000 (2022: GBP5,000,000).
The Group put in place a GBP10m revolving credit facility with Natwest bank on 9 July 2022. This facility is interest bearing and can be drawn by the Group on demand, The facility expires on 30 June 2026.
Reconciliation of Lease Liabilities
Group Company
2023 2022 2023 2022
GBP000's GBP000's GBP000's GBP000's
Opening lease liabilities (1,910) (1,522) (62) (39)
New lease liabilities (3,327) (672) (22) (37)
Repayment 387 483 21 25
Lease liabilities interest (205) (111) (12) (11)
Disposal - - - -
Foreign exchange 575 (88) - -
Closing lease Liabilities (4,480) (1,910) (75) (62)
Current lease liabilities (884) (397) (41) (13)
Non-current lease liabilities (3,596) (1,513) (34) (49)
The Group leases a number of properties and motor vehicles in the jurisdictions it operates in. At 31 March 2023 there were no termination or extension options on leases.
The Group expensed GBP48,000 for the year ended 31 March 2023 (2022: GBP64,000) for short term leases.
Group Leases Maturity
At 31 March 2023 the Group held the following number of leases in each of the maturity categories below.
At 31 March 2023 Property Vehicle Other Total
Number Number Number Number
Up to 1 year 1 1 - 2
Between 1 - 5 years 5 8 3 16
Over 5 years 4 - - 4
Total number of leases 10 9 3 22
Average remaining lease term (in years) 8.3 2.7 3.3 5.3
At 31 March 2022 Property Vehicle Other Total
Number Number Number Number
Up to 1 year 1 4 - 5
Between 1 - 5 years 9 1 1 11
Over 5 years 2 - - 2
Total number of leases 12 5 1 18
Average remaining lease term (in years) 6.5 1.2 4.7 4.9
Amounts payable under lease arrangements for the Group
The undiscounted contractual cash flows payable under the existing lease arrangements at 31 March are analysed into the following maturity categories.
Group 2023 2022
GBP000's GBP000's
Up to 1 year 896 523
Between 1 - 5 years 2,503 1,104
Over 5 years 1,983 1,391
Total 5,382 3,018
23. Provisions
Litigation Overseas tax Other Total
GBP000's GBP000's GBP000's GBP000's
At March
2021 - 1,782 - 1,782
Charge for
year
through
income
statement 456 1,003 - 1,459
Foreign
Exchange 634 - 634
At 31 Mar
2022 456 3,419 - 3,875
Charge for
year
through
income
statement - 1,214 124 1,338
Foreign
Exchange - (35) - (35)
At 31 March
2023 456 4,598 124 5,178
Provisions include an amount of GBP456,000 in respect of personnel related litigation matters. Management has assessed the range of possible outcomes to these claims and the provision made represents a best estimate, and is mid-range of the possible outcomes, having taken legal advice. ECO management is vigorously defending the claims and the timing of any settlement is uncertain due to the varying nature of the claims and the availability of the relevant courts if required.
Provisions also include an amount of GBP4,598,000 in respect of overseas tax liabilities. Certain aspects of a sales tax related to imported products in a Group subsidiary might have been applicable. The subsidiary has been importing an increasing volume of product into this country in recent years. This matter is at an early stage and subject to further review of the tax legislation and case law. No tax payment has yet been determined. However, a substantial tax settlement may be required in due course and a provision has been recognised.
24. 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 GBP90,845 (2022: GBP96,850).
Defined Benefit Pension Scheme
The Group operates a defined benefit scheme in the UK for a number of ex-employees which is closed to new members. A full actuarial valuation was carried out at 6 April 2022 and updated to 31 March 2023 for IAS 19 purposes by a qualified independent actuary. The major assumptions used by the actuary were:
31 March 2023 31 March 2022
Discount rate 4.85% 2.75%
Pension revaluation 3.30% 3.95%
Inflation assumption with a maximum of 5% p.a. 3.30% 3.95%
Mortality rates
No pre-retirement mortality is assumed (2022: 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 2021 projections with a 1.25 % long term trend rate (2022: 1.25% ).
U nder these mortality assumptions, the expected future lifetime for a member retiring at age 65 at the year-end would be 22.2 years for males (2022: 22.2 years) and 24.4 years for females (2022: 24.3 years). For members retiring in 20 years' time, the expectation of life would be 23.6 years for males (2022: 23.5 years) and 25.8 years for females (2022: 25.8 years).
The weighted average term of the liabilities is 8 years (2022: 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
2023 2022
GBP000's GBP000's
Assets at start of year 1,648 1,795
Defined benefit obligation at start of year (1,569) (1,799)
Net asset/(liability) at 1 April 79 (4)
Return on assets 45 33
Interest cost (43) (33)
2 -
Gain/(loss) from asset return 17 (5)
Gain/(Loss) from changes in assumptions 43 29
Gain/(loss) from experience 40 -
Statement of other comprehensive income 100 24
Employer contributions (gross) - 59
Net asset at 31 March 181 79
Actual assets at end of year 1,135 1,648
Actual defined benefit obligation at end of year (954) (1,569)
Gain/(loss) on changes in assumptions was nil (2022: nil ) relating to changes in demographic assumptions and a gain of GBP43,000 (2022: GBP29,000 gain) relating to changes in financial assumptions.
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 2023 2022
GBP000's GBP000's
Fair value of assets at 1 April 1,648 1,795
Return on assets 45 33
Gain/(loss) on asset return 17 (5)
Employer contributions (gross) - 59
(Decrease)/increase in secured pensioners' value due to scheme experience (575) (234)
Benefits paid - -
Fair value of assets at 31 March 1,135 1,648
Reconciliation of changes in the liability value during the year
Defined benefit obligation at 1 April 1,569 1,799
Interest cost 43 33
Past service cost (40) -
(Gain)/loss on changes in assumptions (43) (29)
(Decrease)/increase in secured pensioners' value due to scheme experience (575) (234)
Benefits paid - -
Defined benefit obligation at 31 March 954 1,569
The amount of annual contribution to be paid by the employer of GBP58,000 (2022: GBP59,000) is expected to continue until December 2023.
Year ended 31 March 2023 2022 2021 2020 2019
GBP000's GBP000's GBP000's GBP000's GBP000's
Fair value of plan assets 1,135 1,648 1,795 1,795 1,802
Present value of defined benefit obligation 954 1,569 1,799 1,814 1,899
(Deficit)/Surplus in plan 181 79 (4) (27) (97)
Experience (losses)/gains on plan liabilities 17 (5) - (2) (38)
Plan Assets 2023 2022
GBP000's GBP000's
Assets under management 291 259
Annuities 844 1,389
Total 1,135 1,648
Assets under management composition
2023 2022
Corporate Bonds 43.0% 42.6%
Overseas Equities 29.2% 27.7%
UK Equities 17.6% 17.8%
Property 7.8% 10.5%
Cash 2.4% 1.4%
100.0% 100.0%
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.
Actuarial assumptions Reasonably Possible Change (Decrease)/Increase in Defined Benefit Obligation
2023 2022
GBP000's GBP000's GBP000's GBP000's
Discount rate +/- 0.1% (62) 73 (15) 15
Members' life expectancy +/- 1 year 62 (64) 81 (84)
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.
25. Share-based payments
The expense recognised for share-based payments made during the year is shown in the following table:
Group Company
2023 2022 2023 2022
GBP000's GBP000's GBP000's GBP000's
Total expense arising from equity settled share-based payments
transactions 408 342 179 120
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
2023 2023 2022 2022
000's WAEP (GBP) 000's WAEP (GBP)
Outstanding at 1 April 3,866 3.47 3,370 3.73
Granted during the year - Employee scheme - - 327 3.50
Granted during the year - LTIPs 551 0.05 279 0.05
Granted during the year - Deferred bonus 46 0.05 38 0.05
Cancelled during the period (1,686) 3.20 (122) 2.01
Exercised during the period - - (26) 2.42
Outstanding at 31 March 2,777 2.84 3,866 3.47
Granted < 3 years ago and not vested (1,239) (643)
Exercisable at 31 March 1,538 4.47 3,223 3.81
1,537,850 options were exercisable at 31 March 2023 (2022: 3,223,400). The WAEP of exercisable options at 31 March 2023 was 447.0p (2022: 381.0p).
The average share price during the year was 111.2p (2022: 272.4p).
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 2023 had a weighted average exercise price of GBP2.84 (2022: GBP3.47) and a weighted average remaining contractual life of 4.7 years (2022: 2.8 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 Group.
No share options have been granted in the year under this scheme (2022: 326,679). In addition 550,953 options have been issued under the group's Long Term Incentive Plan (2022: 278,500) and 45,606 under the group's deferred bonus arrangements (2022: 37,755).
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 2023 is given below:
Date of grant Unapproved Approved Exercise price Expiry date
09 October 2013 - 8,600 GBP 1.960 09 October 2023
21 August 2014 - 11,400 GBP 1.615 21 August 2024
13 February 2015 - 23,700 GBP 2.005 13 February 2025
26 August 2015 - 22,850 GBP 2.650 26 August 2025
19 January 2016 - 10,200 GBP 3.150 19 January 2026
17 February 2016 - 19,600 GBP 3.125 17 February 2023
01 March 2016 - 9,600 GBP 3.125 01 March 2026
12 September 2016 - 23,100 GBP 4.325 12 September 2026
12 September 2016 351,900 - GBP 4.325 12 September 2023
15 September 2016 - 2,000 GBP 4.350 15 September 2026
15 September 2016 398,000 - GBP 4.350 15 September 2023
21 September 2017 - 45,125 GBP 6.200 21 September 2027
21 September 2017 266,875 - GBP 6.200 21 September 2024
12 April 2018 - 3,900 GBP 5.450 12 April 2028
23 October 2018 - 65,200 GBP 3.800 23 October 2028
23 October 2018 265,800 - GBP 3.800 23 October 2025
19 December 2018 - 7,800 GBP 3.800 19 December 2028
19 December 2018 2,200 - GBP 3.800 19 December 2025
28 April 2021* 326,679 - GBP 0.050 28 April 2028
28 April 2021 - 154,149 GBP 3.495 29 April 2031
28 April 2021 124,351 - GBP 3.495 28 April 2028
24 September 2021 37,755 - GBP 0.050 24 September 2028
12 December 2022 45,606 - GBP 0.050 12 December 2029
27 February 2023* 550,953 - GBP 0.050 27 February 2030
2,370,119 407,224
*These are the options where a TSR criterion affects the price.
The market price of the shares at 31 March 2023 was 96.5p (2022: 165.0p) with a range in the year of 82.5p to 165.0p (2022: 127.5p to 395.0p).
The Company uses a Black-Scholes model to value share-based payments for options with service conditions and/or non-market performance conditions and the following table lists the inputs to this model for the last five years.
2023 2022 2021 2020 2019
Vesting period (years) 3 - 4 3 - 4 n/a n/a 3
Option expiry (years) 10 7 - 10 7 - 10
Dividends expected on the shares 0.00% 1.00% 1.90%
Risk free rate (average) 3.20% - 3.75% 0.18% 1.00%
Volatility of share price 40% 40% 20.00%
Weighted average fair value (pence) 84.0 -108.0 101.0 - 316.0 51.0
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.
Long term incentive plan
Under this plan share options may be granted to certain Executive Directors and members of the Company's Executive Leadership Team. The share options awarded under the LTIP are subject to an exercise price of GBP0.05 per share and performance conditions being achieved that have been set by the Remuneration Committee and relate to total shareholder return (TSR) and research and development targets.
Subject to the performance conditions being met, the share Options will vest after the end of a three year vesting period from 1 April 2022 to 31 March 2025. The proportion of share options relating to each performance condition is: (i) 75% in relation to the TSR conditions; and (ii) 25% in relation to the R&D targets.
The TSR conditions mean that the share options subject to these conditions will vest subject to the following: (i) 25% of the share options will vest if the annual compound TSR over the performance period equals 7.5%; (ii) 50% of the share options will vest if the annual compound TSR over the performance period equals 10%; and (iii) 100% of the share options will vest if the annual compound TSR over the performance period equals 20%. The TSR conditions are modelled using the Cox, Ross and Rubenstein binomial option pricing model for which the key inputs are the starting equity value, a time period of three years, an assumption that the equity value changes once every three months, the volatility of the share price, and the dividend yield.
The R&D targets mean that the share options subject to these targets will vest subject to the following: (i) 25% of the shares options will vest if specified R&D targets agreed between Executive Management and the Remuneration Committee during the performance period are achieved; and (ii) 100% of the shares options will vest if specified R&D targets agreed between Executive Management and the Remuneration Committee during the performance period are achieved. The R&D targets comprise a range of identifiable and quantifiable criteria relating to the introduction of new R&D projects, the progress of existing R&D projects to later stages of the development cycle, the submission of projects for approval to relevant regulators and for the approval of projects by the relevant regulators.
26. Share capital
2023 2022
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
67,721,916 (2022: 67,721,916) ordinary shares of 5p each 3,381 3,381
During the year no shares were issued. (2022: 25,500 shares at a premium of GBP61,000 as a result of the exercise of options by employees).
All share issued are non-redeemable and rank equally in terms of voting rights (one vote per share); rights to participate in all approved dividend distribution for that class of shares; and right to participate in any capital distribution on winding up.
The shares in the original or any increased capital of the Company may be issued with such preferred, deferred or other special rights or restrictions, whether in regard to dividend, voting, return of capital as the Company may from time to time determine.
27. Non-controlling (minority) interests
2023 2022
GBP000's GBP000's
Balance as at 1 April 12,284 13,414
Share of subsidiary's (loss)/profit for the year 2,083 (19)
Share of foreign exchange gain/(loss) on net investment (276) 1,099
--------- ---------
1,807 1,080
Share of dividend paid by subsidiary (1,810) (2,210)
Balance as at 31 March 12,281 12,284
========= =========
28. Other reserves
The Group and Company held a Capital redemption reserve of GBP106,000 as at 31 March 2023 (2022: GBP106,000).
Included in the Group's foreign exchange reserve are the following exchange movements on consolidation of the subsidiaries and joint operations listed below:
At 31 March 2022 Movement in the year At 31 March 2023
GBP000's GBP000's GBP000's
In respect of:
Zhejiang ECO Biok Animal Health Products Limited 1,385 (287) 1,098
Zhejiang ECO Animal Health Limited 186 133 319
ECO Animal Health do Brasil Comercio de Produtos
Veterinarios Ltda 311 (91) 220
ECO Animal Health Japan Inc. 14 (34) (20)
ECO Animal Health USA Corp. 51 (86) (35)
ECO Animal Health de Mexico, S. de R. L. de C. V. 237 103 340
ECO South Africa - (49) (49)
Pharmgate LLC 4 2 6
Foreign exchange reserve movements charged to Consolidated
Statement of Comprehensive Income 2,188 (309) 1,878
29. Directors' emoluments
2023 2022
GBP000's GBP000's
Emoluments for qualifying services 1,009 793
Company pension contributions to money purchase schemes 25 32
Share-based payments 70 112
Benefits in kind 3 4
1,107 941
During the year no directors exercised share options (2022: none) realising a gain of GBPnil (2022: GBPnil).
The highest paid director received GBP497,000 (2022: GBP430,000) including GBP6,000 (2022: GBP65,000) of share-based payments and nil (2022: GBP9,000) of pension contributions.
30. Employees
Number of employees
The average number of employees (including Directors) during the year was:
2023 2022
Number Number
Directors 6 5
Production and development 89 72
Administration 47 49
Sales 92 95
234 221
Employment costs (including amounts capitalised)
2023 2022
GBP000's GBP000's
Wages and salaries 13,045 12,251
Share-based payments 408 341
Social security costs 1,600 1,185
Other pension costs 408 277
15,461 14,054
31. Related party transactions
Dividends paid to related parties
During the year Mr P Lawrence (a significant shareholder) and his family received no dividends (2022: GBP66,960).
The other Directors and their families received dividends to the value of GBPnil (2022: GBPnil).
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 GBP750,000 (2022: GBP687,267) and charged interest of GBP1,224,705 (2022: GBP832,000) to the subsidiary company. Both of these transactions were made through the inter-company account and were eliminated on consolidation.
During the year Zhejiang ECO Animal Health Ltd paid dividends to ECO Animal Health Ltd of GBP4,167,710 (RMB 33,300,000)
During the year Zhejiang ECO Biok Animal Health Products Limited paid dividends of GBP144,828 (RMB 900,000) to ECO Animal Health Group plc (2022: GBP176,717) and GBP1,739,409 (RMB 15,300,000) to ECO Animal Health Limited (2022: GBP2,122,406).
Key management compensation
The Group regards the Board of Directors as its key management.
2023 2022
GBP000's GBP000's
Emoluments for qualifying services 881 793
Company pension contributions to money purchase schemes 25 32
Share-based payments 70 112
Benefits in kind 3 4
979 941
The number of Directors for which retirement benefits were accruing was 2 (2022: 2).
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 2023, the Group was contractually obliged to make repayments as detailed below:
2023 2022
Within one year or on demand GBP000's GBP000's
Trade payables 6,124 9,415
Other payables 565 926
Accruals 6,653 2,410
13,342 12,751
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.
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
US Dollar Euros Chinese RMB Japanese Yen Brazilian Canadian Mexican Peso Other
Real Dollar
2023 GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's
Trade and
other
receivables 34,969 2,013 3,880 303 3,251 752 335 153
Trade and
other
payables (25,436) (479) (5,258) (449) (49) (673) - (125)
Cash and cash
equivalents 2,162 515 17,736 240 265 180 125 53
Total 11,695 2,049 16,358 94 3,467 259 460 81
US Dollar Euros Chinese RMB Japanese Yen Brazilian Canadian Mexican Peso Other
Real Dollar
2022 GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's
Trade and
other
receivables 9,027 2,068 6,789 123 1,964 806 2,648 108
Trade and
other
payables (3,912) (425) (4,701) (158) (97) (426) (350) (67)
Cash and cash
equivalents 4,752 366 8,261 120 145 208 311 92
Total 9,867 2,009 10,349 85 2,012 588 2,609 133
At 31 March 2023 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 2023.
2023 2022
GBP000's GBP000's
U S Dollar 1,300 1,096
Euro 228 223
Chinese RMB 1,818 1,150
Japanese Yen 10 9
Brazilian Real 385 224
Canadian Dollar 29 65
Mexican Peso 51 290
Analysis of financial instruments by category
Group Financial assets Financial liabilities Total 2023 GBP000's GBP000's GBP000's Trade and other receivables 26,865 - 26,865 Cash and cash equivalents 21,658 - 21,658 Trade and other payables - (13,339) (13,339) Amounts due under leases - (4,480) (4,480) 2022 GBP 000's GBP 000's GBP 000's Trade and other receivables 24,048 - 24,048 Cash and cash equivalents 14,314 - 14,314 Trade and other payables - (12,801) (12,801) Amounts due under leases - (1,910) (1,910) Company Financial assets Financial liabilities Total 2023 GBP000's GBP000's GBP000's Trade and other receivables 723 - 723 Cash and cash equivalents 388 - 388 Trade and other payables - (418) (418) Amounts due under leases - (76) (76) Amounts due from group undertakings 51,526 - 51,526 2022 GBP000's GBP000's GBP000's Trade and other receivables 128 - 128 Cash and cash equivalents 279 - 279 Trade and other payables - (376) (376) Amounts due under leases - (62) (62) Amounts due from group undertakings 53,940 - 53,940
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.
33. Post balance sheet events
Disposal of property in New Malden
The Group accepted an offer of GBP795,000 for the property located at Coombe Road, New Malden, and expect to complete in the financial year ending 31 March 2024. The sale is subject to contract. As at 31 March 2023, the carrying value of the property was GBP565,000.
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