Animalcare Group plc
ANNUAL REPORT
for the year ended 31st December 2017
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www.animalcaregroup.co.uk
Stock Code: ANCR
26011 18/05/2018 Proof 4
WELCOME TO
ANIMALCARE GROUP PLC
Animalcare Group plc is focused
on growing its veterinary business.
Contents
STRATEGIC REPORT
Our Business
Our Highlights
Chairman’s Statement
Our Investment Case
Our Group at a Glance
Our Marketplace
Our Stronger Business Model
How will the acquisition
benefit the Group?
Our Strategy
Our Performance
Our Key Performance Indicators
Chief Executive Officer’s Review
Chief Financial Officer’s Review
Our Principal Risks
01
02
03
04
06
08
09
10
12
13
17
24
OUR GOVERNANCE
Board of Directors
26
Corporate Governance Statement 28
Audit Committee Report
32
Nomination and Remuneration
Committee Report
Directors’ Remuneration Report
Annual Remuneration
Report
Directors’ Report
Statement of Directors’
Responsibilities
34
35
36
38
40
Animalcare Group plc is a UK AIM listed
veterinary sales, marketing and product
development company resulting from the
integration of Animalcare and Ecuphar.
We invest in developing our own
pharmaceuticals products as well as
seeking distribution partnerships and
product acquisitions.
Our vision is to become a
leading pan-European veterinary
pharmaceutical business.
We develop and sell goods and services
to veterinary professionals for use in
companion and production animals with
direct sales in 7 countries Europe.
We have two divisions:
{ PHARMACEUTICALS
{ WHOLESALE
READ ABOUT OUR DIVISIONS
ON PAGE 05
47
48
OUR FINANCIALS
Independent Auditors’ Report
41
Consolidated Income Statements 46
Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Financial Position
Consolidated Statement
of Changes in Equity
49
Consolidated Cash Flow Statements 50
Notes to the Consolidated
Financial Statements
Company Balance Sheets
Company Statements of
Changes in Shareholders’ Equity
Company Cash Flow Statements
Notes to the Accounts
Advisers
92
93
94
IBC
52
91
Read about our performance at:
www.animalcaregroup.co.uk/year-in-review
LOOK OUT FOR THESE ICONS WHEN NAVIGATING THIS REPORT
See further content online
at www.animalcaregroup.co.uk
View more content
within this report
26011 18/05/2018 Proof 4
OUR HIGHLIGHTS
Revenue (£m)
+22.4%
83.7
68.4
Underlying*
EBITDA (£m)
+11.9%
10.0
8.9
Underlying*
Basic EPS (p)
−24.6%
16.7
12.6
2016
2017
2016
2017
2016
2017
*Underlying measures exclude non-underlying items as analysed in note 5.
READ ABOUT OUR PERFORMANCE
ON PAGES 13 TO 25
FINANCIAL PERFORMANCE
{ Revenue growth of 22.4% at AER (9.6% on a proforma basis) with
strong growth in Companian Animals and Production Animals.
{ Underlying EBITDA increased by 11.9% at AER however declined by
8.5% on a proforma basis due to in particular changing sales mix and
overhead investment.
{ Reported operating profit decreased to £1.2m (2016:£6.0m)
{ Net debt at £25.9m representing 2.2 times proforma
Underlying EBITDA.
{ Propose a total dividend of 6.7p, consistent with total dividends
for the previous year ended 30th June 2017.
OPERATING PROGRESS
{ Distribution contracts ended to bring cross selling opportunities in
house from Q4 2018.
{ Integration is wide-ranging and in progress, with priority focus on
supply chain, systems (HR & IT) and product development. NPD
projects have been prioritised to maximise return on investment.
{ Personnel reorganisation underway, with internal promotions made
to lead Technical and Commercial Development and Export late in the
year. Post year-end, new Country Managers have been recruited into
our UK and Spanish operations.
01
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCRSTRATEGIC REPORT OUR BUSINESS CHAIRMAN’S
STATEMENT
“ We believe
we have
created a
platform for
strong future
growth”
JAN BOONE
NON EXECUTIVE CHAIRMAN
READ ABOUT OUR
GROUP AT A GLANCE
ON PAGES 04 AND 05
READ ABOUT OUR
CORPORATE GOVERNANCE
ON PAGES 28 TO 31
02
2017 was a transformational year for Animalcare
Group plc. Whilst characterised by continued
organic growth, the most dominant factor during
the year was the reverse acquisition of Ecuphar
NV (“Ecuphar”). The transaction completed
on 13th July 2017 and our statutory results for
the year ended December 2017 reflect a full
12 months contribution from Ecuphar and five
and a half months of Animalcare Group plc
(“Animalcare”), as previously constituted. 2016
comparatives are only for the Ecuphar business.
Financial Trading
Group revenue increased by 22.4% to £83.7m
(2016: £68.4m) with 11.3% organic growth
within the Ecuphar business which contributed
£76.1m to overall Group revenues and
£7.6m from the original Animalcare business.
Underlying EBITDA (which excludes fair value
adjustments on acquired inventory, amortisation
of acquired intangibles and acquisition and
integration costs) increased by 11.9% to £10.0m
(2016: £8.9m) with £1.6m contributed by the
Animalcare business. This performance primarily
reflects the impact of lower gross margins,
investments to support future growth and the
disposal of Nutriscience which Ecuphar sold in
October 2016. Including non-underlying items,
the Group’s profit before tax decreased to £0.5m
(2016: £5.1m). The Group generated £2.6m
(2016: £9.3m) net cash from operations which
included a cash outflow from non-underlying
items totalling £3.8m.
Further details on business performance
can be found in the CEO Review and CFO
Review respectively.
Board
Following the acquisition, the executive Directors
comprised Chris Cardon, who took on the role of
Chief Executive Officer for the enlarged group,
supported by Iain Menneer as Chief Operating
Officer and Walter Beyers as Chief Financial
Officer. In September 2017 Chris Brewster, who
at the time of the acquisition stood down as a
Board Director but remained within the business,
was reappointed to the Board as Chief Financial
Officer, replacing Walter Beyers who resigned
to pursue other interests. More recently Iain
Menneer stood down as Chief Operating Officer.
I would like to take the opportunity to recognise
both Iain’s and Walter’s contributions and we
wish them well for the future.
Dividend
The Board is proposing a final dividend of 2.0
pence per share, which when added to the
second interim dividend of 4.7 pence per shares
gives a total dividend of 6.7 pence per share
since the reverse acquisition. This final dividend
is subject to shareholder approval at the
Annual General Meeting on 27th June 2018
and will be paid on 6th July 2018 to shareholders
on the register at the close of business on
8th June 2018.
Product Development
A key strategy for growth remains the continued
cultivation of a strong new product development
pipeline. In 2017 we launched Acecare, a
sedative, from Animalcare’s original UK pipeline
and sales have performed in line with internal
forecasts. We have deliberately focused the
development team on 17 active projects and we
have a steady flow of products that are going
through registration and are expected to launch
in 2018 and 2019.
Summary and Outlook
Having brought together two highly
complementary businesses, in particular with
regard to our respective geographic markets,
product portfolios and product development
pipelines, we are growing a successful pan-
European animal health business. We have the
opportunity to continue this growth through
further strategic acquisitions, but also through
organic growth focused on existing products
and our product development pipeline, as well
as the synergies and benefits of cross-selling
which we expect to see impacting our Q4 2018
performance and more meaningfully in 2019.
We believe we have created a platform for strong
future growth and I look forward to updating on
our progress.
JAN BOONE
NON-EXECUTIVE CHAIRMAN
26011 18/05/2018 Proof 4 OUR INVESTMENT CASE
We believe there are five compelling reasons
to invest in Animalcare Group plc:
Animalcare benefits
from its transformational
acquisition
Bringing together two highly complementary businesses, with regard to their
geographic markets, product portfolios and new product development pipelines, the
reverse acquisition provides enhanced scale and capabilities for long-term growth.
READ ABOUT OUR GROUP AT A
GLANCE ON PAGES 04 AND 05
Animalcare is a
sustainable growing business
in a growing market
Unaudited pro forma aggregated financials for the year ended 31 December 2017
show combined revenues of £91.1m and underlying EBITDA of £11.8m with double
digit profit growth expected against these results.
Animalcare is
cash generative
and in a strong financial position to invest in future growth.
Animalcare is
dividend paying
and given its strong balance sheet expects to maintain its current
dividend policy whilst continuing to invest in new product development.
Animalcare has a
clear strategy for growth
through an enhanced geographic footprint and sales, marketing and
distribution network, and a strong product development pipeline.
READ ABOUT OUR STRATEGY
ON PAGES 10 AND 11
03
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCRSTRATEGIC REPORT OUR BUSINESS OUR GROUP AT A GLANCE
Animalcare Group plc is a pan-European sales, marketing and
product development company serving the Animal Health market.
OUR GEOGRAPHICAL REACH
DIRECT SALES IN
7 COUNTRIES
{ York, UK
{ Barcelona, Spain
{ Bruges, Belgium
{ Lisbon, Portugal
{ Milan, Italy
{ Greifswald, Germany
{ Breda, Netherlands
OUR HEAD OFFICE
OWN OPERATIONS
DISTRIBUTION NETWORK
OUR TURNOVER* BY TERRITORY
SALES MIX BY REVENUE*
34%
23%
15%
BENELUX
SPAIN
UK
GERMANY
EXPORT
PORTUGAL
ITALY
9%
9%
5%
5%
PHARMACEUTICALS
74%
26%
WHOLESALE
* Based on 2017 pro-forma financial information.
READ ABOUT OUR MARKETPLACE
ON PAGES 06 AND 07
04
26011 18/05/2018 Proof 4 OUR NEW GROUP
Our business is divided into two divisions: pharmaceuticals and wholesale.
PHARMACEUTICALS
WHOLESALE
Overview
Products are supplied to animal health professionals both
directly or through national distribution networks and fall
into two categories: regulated pharmaceuticals and over
the counter products. Products are either owned by the
Group or on distribution from third parties. The Group
invests significantly in its in-house development pipeline.
The portfolio is very broad with over 300 products including
pharmaceuticals, vaccines, biocides and nutraceuticals.
The Group focuses on certain niche therapy areas including
odontology, dermatology, otology and surgery/anaesthesia.
Overview
Medini is the wholesaling division based close to Bruges,
supplying medical, veterinary and paramedical products to
veterinary professionals throughout Belgium. The business
has been trading for 25 years and is well established in this
stable market. The extensive range of over 5,000 products
includes own label and branded items ranging from small
disposable items to larger capital equipment and diagnostic
instruments. The company is a specialist in the supply of
surgical instruments.
71%
29%
Revenue
£59.7m
Revenue
£23.9m
Performance
Z Strong revenue growth of 28.4% to £59.7m reflecting 12.1%
internal growth and 16.3% from acquisition.
Z Represents 97% of Group underlying EBITDA with EBITDA
margin of 15.6%.
Performance
Z 9.7% organic sales growth versus 2017 to £23.9m.
Z Gross margin remained stable compared to 2016 at 10.1%.
Z Represents 3% of Group underlying EBITDA.
READ ABOUT OUR PERFORMANCE
ON PAGES 13 TO 25
05
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCRSTRATEGIC REPORT OUR BUSINESS OUR MARKETPLACE
Over the last five years sales
of medicines for companion
animals have overtaken sales
of farm animal products,
rising from 47% to 53% of the
European market, with sales in
2017 of approximately €3.17bn
(www.animalhealtheurope.eu).
One in three homes in Europe is estimated to keep a pet
prompting total care spending of €38bn. Pet numbers increased
by 10% between 2012 and 2015 to 623 million in contrast to a
decline in farm animal numbers by 9% to 296 million.
Of the European medicines sector, valued at approximately
€6bn in 2017, sales of vaccines and parasiticides represent 30%
each, €1.8bn, with antimicrobials falling to 13% market share.
The market as a whole grew by 9% in that period.
Animal health markets in both Europe and the US are now
dominated by their respective companion animal sectors. The
latter valued at approximately $5.9bn (www.ahi.org).
Our Primary Market
The enlarged Group now generates 57% of its revenues from
its sales in the Companion Animal and Equine sector and is
therefore well placed to benefit from the rise in European pet
ownership and spend. The Group still generates strong sales
from the Production Animal sector in niche, profitable
product areas.
The Group comprises direct sales and marketing operations in
7 European territories (see graphic on page 4). Distribution to
European and Rest of World geographic territories is managed
by our export team. The pharmaceutical licensing is managed
through our in-house regulatory team or local consultants where
necessary. Our revenue from export sales has increased steadily
in recent years and offers great potential for future growth.
The Group will continue to serve the Small and Large Animal
markets and bring new products to each segment where there
is a commercial and strategic fit.
OUR MARKETS BY GEOGRAPHY
The export business continued its strong growth in 2017 with
sales improving 24% versus prior year. Animalcare Group now
exports to 38 countries in Europe, Asia, Australasia, Africa and
South America through 86 different distribution partners. The
addition of the Animalcare Ltd small animal products has created
a well-balanced export portfolio of Farm Animal, Equine, Small
Animal and OTC brands. To facilitate the increased complexity of
the export business and to help drive further growth, a dedicated
export division has been formed with Martin Gore, Group Head of
Export. The export division has associates from all three exporting
centres in the business (Animalcare Ltd (UK), Ecuphar Veterinaria
(ES) and Ecuphar NV (BE)) with over 40 years’ combined
experience in the Animal Health market between them. We
believe with the formation of this team and the increased focus
and resources on exports, the export business will continue to
contribute strongly to the Group’s sales and profits.
During the year there was significant growth in the key
core export markets of the UK, France, the Nordics and
Ireland supported by growth in newer markets including
New Zealand and Taiwan. The growth of recently launched
products (Aqupharm and Isocare) were ahead of management
expectations, while sales of core established brands Danilon,
Otoclean and Caniquantel all showed double digit growth.
Dinalgen sales were behind prior year but this was largely down
to phasing of purchasing patterns in major markets.
Looking forward, there will be some natural slippage in the
short term for the export business as sales through distribution
partners in countries where we have a direct sales force are
moved in-house. While this decreases export sales it will be
profit enhancing for the Group. This has not affected the export
division in 2017 and will have minimal effect in 2018, but notice
has now been served on distribution partners in Germany, Spain,
Portugal, Italy and Belgium with the full benefits being gained
from 2019 onwards.
The focus for 2018 is on ‘quick wins’, especially expanding the
OTC business and rationalising distributors. Contracts have been
signed for OTC products in new markets in the Middle East and
China with sales expected to come on line mid 2018 (assuming
no regulatory issues). Longer term we see good opportunities
for growth in our pharmaceutical exports, especially in the fast
growing Asian market.
There are continued concerns surrounding the use of antibiotics
in Western and Northern Europe countries that may affect future
sales of our antibiotics range.
In summary, the export business is now a significant contributor
to the Group and by creating a dedicated export division we see
potential for long-term growth.
06
26011 18/05/2018 Proof 4 Revenue own
Country Organisation:
91%
Revenue Export:
9%
OUR HEAD OFFICE
Market trends and what this means for Animalcare
{ Increase in demand for new treatments and medicines –
extension of current vaccine development programme
{ Decrease in use of anti-infectives across Western Europe – is
both a risk in some areas but an opportunity in others, such as
increased use of vaccines
{ Unmet needs of small animals – incontinence and anxiety
market is growing
{ Minor species – rabbits become important
PHARMACEUTICALS
WHOLESALE
Market trends and what this means for Animalcare
{ More consolidation -our personal veterinary clinic approach
becomes more appreciated
{ Product lines increase -resulting in a slight increase of
working capital
07
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCRSTRATEGIC REPORT OUR BUSINESS OUR STRONGER BUSINESS MODEL
Our key resources
OUR PEOPLE
Our People are key to our
continued growth
READ ABOUT OUR PEOPLE
ON PAGE 15
RELATIONSHIPS
We have strong relationships
with distribution partners,
strategic alliances,
wholesalers, CMOs and
distributors
LICENCES
Animalcare owns around
50 licensed drugs. We have
greatly increased the depth
and diversity of our licensed
product range
KNOWLEDGE
We have knowledge of
regulations and business
development
CAPITAL
Capital supports the product
development pipeline and enables
us to make investments that
support our growth
Enable us to undertake
our key activities
IN-HOUSE PRODUCT
DEVELOPMENT
ACQUIRED
PRODUCTS
LICENSED-IN
PRODUCTS
OWNED & LICENSED
PRODUCTS – CONTRACT
MANUFACTURED
OWNED & LICENSED
PRODUCTS DISTRIBUTED
BY 3RD PARTIES ROW
WAREHOUSE
PRODUCTS FOR
DISTRIBUTION
WHOLESALER
VET CLINIC
Underpinned by our
competitive advantage
SCALE
We will be able to leverage
cross-selling opportunities
that have been enabled
through our acquisition.
We also have a larger
geographical presence that
creates a pan-European
animal health platform
STRONGER GROUP
Our transformational
acquisition enhances our
capabilities and our offering.
We have a broader product
pipeline
OUR PEOPLE
Our experienced
management team,
as well as our well-trained
employees, provide us
with the capabilities to
deliver future growth
READ ABOUT OUR
GROUP AT A GLANCE
ON PAGES 04 AND 05
We create value for
our stakeholders
EMPLOYEES
We provide training
and development and
talent management
SHAREHOLDERS
We are a cash
generative, dividend
paying, growing
company with a
solid pipeline of new
products
END USERS
We provide our end
users with increased
depth and diversity
of the licensed
veterinary medicines
product range
DISTRIBUTION
PARTNERS
We create value
through a strong
relationship,
providing fair
negotiation and
visibility on revenues
08
26011 18/05/2018 Proof 4 HOW WILL THE ACQUISITION
BENEFIT THE GROUP?
The integration of Animalcare and Ecuphar has the
potential to create significant long-term value.
BUSINESS MODEL
{ Combination of own products and licences
{ Focus on both NPD and sales & marketing
{ Experienced and capable management enhanced
GEOGRAPHICAL SALES OPPORTUNITIES
{ Cross-selling through higher margin own sales channels
{ Expanding export territories and Product Portfolio
READ ABOUT OUR MARKETPLACE
ON PAGES 06 AND 07
COMMERCIAL ADVANTAGES OF CRITICAL MASS
{ Critical scale in the large and growing animal health market
{ Appealing distribution partner
{ Potential significant operating efficiencies once integration complete
{ Opportunities in fragmented market for value-enhancing acquisitions
09
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCRSTRATEGIC REPORT OUR BUSINESS OUR STRATEGY
Animalcare will continue to focus on delivering growth both organically
and through selective acquisitions to accelerate its overarching strategy
of becoming a leader in the European animal health market.
The Group’s core areas of strategic focus will be on:
STRATEGIC OBJECTIVE
DESCRIPTION
PERFORMANCE
FOCUS AND GOALS FOR 2018
1
Initiating
cross-selling
{ Initiate opportunities
to cross-sell both
Animalcare’s and
Ecuphar’s products
across existing
customers and
distribution channels
2
Implementing
effective
business
integration
{ Combining product
development
activities, providing
the technology and
systems to drive
product quality
improvement
programmes and
by optimising the
Enlarged Group’s
supply chain
3
Developing
relationships
4
Identifying
acquisitions
{ Developing the
Enlarged Group’s
wider network of
partnerships and
strategic alliances in
order to increase its
exposure, as licensor
and licensee, to global
animal health leaders
{ Leveraging its
platform by identifying
selective value-
accretive acquisitions
that can broaden
the pan-European
sales, marketing and
distribution platform
of the Enlarged Group
Ecuphar UK Sales transferred to
Animalcare UK team
Contracts terminated with former
Animalcare Distribution Partners in
Germany, Spain, Portugal and Italy to
allow direct sales through Ecuphar
sales teams
Full portfolio of 50 licensed drugs,
eight vaccines and over 100 care and
nutraceuticals to be sold direct in
seven countries and exported to 50
markets globally
Fully utilise 100 sales representatives
and 28 agents across Europe
New distribution partners in NZ and
Taiwan established in 2017
In-house product development
pipeline projects to prioritise
17 projects to maximise return
on investment
R&D Group consolidated with full audit
of the regulatory, quality, technical
support and product development
Focus on supply change management
and the opportunity to leverage larger
critical mass
Introduction of a scalable and cost-
effective finance structure
Consolidation of export markets,
through cancellation of former
Animalcare distribution contracts
in regions where the enlarged
group sell directly
The Enlarged group has a well-
established footprint that will prove
attractive to US / Asia companies
seeking European market entry
First licensing agreement signed with
US-based Nutramax
Distribution of Cosequin, a nutritional
supplement for canine joint health
Acquisition of Ecuphar NV by
Animalcare Group plc constituting a
reverse takeover
Acquisition provides direct access
to UK markets for the first time, in
addition to Belgium, Spain, Portugal,
Italy, Germany, and the Netherlands
10
Z Impact of successful cross-selling strategy
to be seen in Q4 2018, with a meaningful
impact on profit margins in 2019
Z Ramp up sales of full portfolio with new
distribution partners in NZ and Taiwan,
including Aqupharm and Isocare which have
just gained regulatory approvals
Z Seeking additional regulatory approvals for
our existing products in new territories
Z Appointed new distribution partners for
territories not currently covered
Z Roll-out of Companion Animal Identification
products beyond the UK
Z R&D consolidation to be completed and
synergies delivered
Z Finalisation of new product development for
launch in 2019
Z Group-wide introduction of common supply
chain management systems to best manage
stock and working capital
Z New finance structure to optimise tax
efficiency and fulfil governance requirements
Z Further consolidation of distributors,
suppliers and centralised export back
office functions
Z Introduction of Group-wide communications
and IT platforms
Z Align sales and marketing areas of excellence
focusing on higher margin products
Z Four major projects are expected to be
licensed-in for distribution
Z Further development of licensing
partnerships to provide further growth
Z Acquisitions pipeline identified
Z Currently looking at a number of
opportunities although focus is on current
integration
Z Areas of interest would include France,
Ireland and Scandinavia
Z Acquisitions should have their own direct
sales and own products to cross-sell, a
pipeline of new products and be profitable
and immediately earnings enhancing
26011 18/05/2018 Proof 4 STRATEGIC OBJECTIVE
DESCRIPTION
PERFORMANCE
FOCUS AND GOALS FOR 2018
5
Diversifying
the Enlarged
Group’s
portfolio
{ Diversifying the
Enlarged Group’s
portfolio of products
into additional
therapeutic areas
within the companion
animal, as well as
production animal and
equine, markets
Product portfolio expanded to
over 300 products including
pharmaceuticals, vaccines, biocides
and nutraceuticals
New products launched during 2017,
including Acecare and Enrocare
The Group has a well-established
development pipeline for new
veterinary pharmaceutical products
One centralised registration was
submitted in 2017
{ Continuing the shift
towards broadening
the Enlarged Group’s
pipeline innovations to
include novel therapies
We have reviewed and prioritised
the pipeline on current development
projects which will allow us to focus on
novel developments in the future.
6
Broaden the
Enlarged
Group’s
pipeline
innovations
Z Further progress of the pipeline to continue
Z Continued registration of relevant new
products through 2018
Z Expected launch of new products where
registration has already been submitted
Z Ongoing progress with product improvement
and maintenance projects
Z New registrations and launches for existing
products in new territories
Z Focus on new areas such as surgery, pain
relief, anti-inflammatories and vaccines
Z Further progress to broaden the product
development pipeline to include
novel therapies
OUR OBJECTIVES IN THE SHORT, MEDIUM AND LONG-TERM
MID-TERM
{ Develop wider
network partnership
opportunities
{ Leverage platform with
accretive opportunities
{ Diversify the product
portfolio into additional
therapeutic areas
LONGER-TERM
{ Shift towards
broadening pipeline
to include novel
therapies
READ ABOUT OUR KPIS
ON PAGE 12
SHORT-TERM
{ Initiate cross selling
opportunities
{ Implement business
integration. This will
involve combining
product development
activities and optimising
the supply chain
11
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCRSTRATEGIC REPORT OUR BUSINESS OUR KEY PERFORMANCE INDICATORS
KPI
WHY THIS IS IMPORTANT
PERFORMANCE (STATUTORY)
RELEVANCE TO STRATEGY
Revenue growth
Our revenue growth
encompasses all aspects of our
strategy and demonstrates our
success in key areas including
leveraging our platform both
organically and via selective
acquisitions and the delivery
of revenue from new products
launched from our product
development pipeline.
Basic Underlying
Earnings per
share (“EPS”)
The measure of how successful
we are in growing our business
organically and by acquisition
coupled with strong financial
disciplines, including those related
to tax and capital allocation, is
captured in the Group’s underlying
earnings per share.
Through maximising existing
portfolio revenues, delivering new
products from our pipeline and
via our network of partnerships,
we aim to achieve organic growth
in excess of our blended market
growth rate, broadly matching
revenue and profit growth in the
medium term.
Acquired businesses have to be a
good fit with our operating culture
and strategy in addition to being
value-enhancing financially.
Underlying EPS is a key measure of
our overall performance and the
return we generate for shareholders
before exceptional items.
We aim to grow the business
from 2018 to deliver year-on-year
earnings enhancement.
(£m)
2016
2017
68.4
83.7
The Group delivered total
revenue growth of 22.4%, of
which 11.3% was from the
continuing Ecuphar business.
(p)
2016
16.7
2017
12.6
The decrease reflects the significant
increase in the adjusted weighted
average number of shares following
the reverse acquisition.
Cash generated
from operations
Cash generation is a measure of
the quality of earnings and having
strong operating cash flow enables
the business to generate the funds
we need to invest in our business
to enhance future growth, maintain
its strong balance sheet and deliver
dividend flow.
(£m)
2016
2017
2.4
9.3
Our stated aim is to deliver strong
cash generation which provides the
Group with freedom to pursue its
strategic goals of organic growth,
acquisitions and continue dividends
without becoming highly leveraged.
The decrease reflects the significant
cash outflow from non-underlying
items and increased working
capital.
Research and
Development
expenditure
(including
additions to
intangibles)
Sustainable investment in research
and development contributes
significantly to organic growth.
(£m)
2016
2017
New product launches underpin
certain elements of the Group
strategy including diversification
of the product portfolio and
continuing the shift towards
broadening innovation to include
novel therapies.
4.3
3.9
READ ABOUT OUR PERFORMANCE
ON PAGES 13 TO 25
READ ABOUT OUR STRATEGY
ON PAGES 10 AND 11
12
26011 18/05/2018 Proof 4 CHIEF EXECUTIVE OFFICER’S REVIEW
“ The key
aim for our
business is to
create a cash-
generative,
growing pan-
European
animal health
company”
CHRIS CARDON
CHIEF EXECUTIVE OFFICER
Introduction and Summary
of the Group
The key aim for our business is to create a
cash-generative, growing pan-European animal
health company and in July 2017 Animalcare
Group plc completed the acquisition of Ecuphar
NV (“Ecuphar”), an acquisition that constituted
a reverse takeover. This brought together two
businesses to create an enlarged group focused
on the development and marketing of innovative
products providing significant benefits to
animal health.
The business now has a considerably enlarged
footprint and sales network with direct sales
teams in 7 European countries and an export
network that covers over 38 countries across
Europe, Asia, Australasia, Africa and South
America through 86 different distribution
partners. Within our product portfolio we have 50
licensed drugs, eight vaccines and over 100 care
and nutraceutical products employing around 100
sales representatives and 28 agents marketing
these products to our global customer base.
Shareholders in Animalcare are now invested in
a substantially increased pan-European animal
health platform with the following characteristics
and strategic objectives:
{ Delivering double digit profit growth:
We expect to deliver further incremental
organic growth across revenues, EBITDA and
underlying net earnings with the potential to
achieve double-digit profit growth.
{ Cash generative: Continuing focus on cash
generation allows us to maintain dividend
payments as well as invest in our business to
drive future growth.
{ Strong organic growth potential: We now
have an increased geographic footprint for
cross-selling; we expect to extract further
synergies taking effect in 2018 but with a
more meaningful impact in 2019, and we
expect to deliver further growth through our
new product development pipeline.
{ Acquisitive growth potential: Our strong
balance sheet and scale also opens
opportunities for value-accretive acquisitions
which would allow us to target direct sales in
other geographical territories.
Business Review
The Group is focused on the development and
sale of veterinary products in the companion
animal, production animal and equine
markets and is divided into two segments:
Pharmaceuticals and Wholesale.
Pharmaceuticals
The Pharmaceuticals segment develops and
markets veterinary pharmaceutical products
which are supplied to animal health professionals
both directly and through our international
distribution network. Our products fall into
two categories: regulated pharmaceuticals and
over the counter products. Products are either
owned by the Group or licensed on long-term
distribution agreements with third parties. We
have a very broad portfolio of over 300 products
including pharmaceuticals, vaccines, biocides
and nutraceuticals and the Group focuses on
certain niche therapy areas including odontology,
dermatology, otology and surgery/anaesthesia.
As a Group we invest significantly in our in-house
development pipeline which I discuss later on in
my report.
13
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCRSTRATEGIC REPORT OUR PERFORMANCE CHIEF EXECUTIVE OFFICER’S REVIEW
Following the acquisition this segment now includes the products
that were previously categorised as Licensed Veterinary Medicines,
Animal Welfare and Companion Animal Identification.
Based on the statutory results for the year ended 31st December
2017, sales in this division (net of intercompany sales) increased by
28.4% to £59.7m (2016: £46.5m), which now accounts for 71.4%
of total revenues. The £13.2m year-on-year increase is attributable
to an additional £7.6m of sales derived from acquisition growth,
with the balance generated through organic growth within the
Ecuphar business.
Organic growth was driven by a number of factors including a
very strong performance from sales into the Production Animals
market, as well as strong growth from Companion Animals.
In the division our top 20 pharmaceutical products, which account
for 51% of this division’s total sales, grew by 15.1% in 2017.
Looking at our direct sales markets, Orozyme, the first product
of the Company that was developed, continues to hold a strong
position in the Oro-dental area. Direct sales for this product grew
by 11% and we expect to see further growth in this area through
the launch of new innovative products in 2018.
Leisguard, our treatment against leishmaniosis in dogs, showed
strong sales across our Mediterranean footprint and we expect to
see future growth for this product in 2018 in Scandinavia. Prazitel
and Caniquantel, which both play an important role in the area of
anti-parasitic treatment, also grew well in 2017.
We were pleased with the performance across our export
network. Our key core export markets of France, the Nordics and
UK and Ireland showed significant growth and we expect to benefit
from ongoing direct sales in the UK now following the acquisition.
During the period we signed new distribution agreements to cover
New Zealand and Taiwan and both regions granted regulatory
approval to sell Aqupharm (intravenous fluid range) and Isocare
(anaesthesia), our recently launched products for use in surgery.
This contributed to the growth of Aqupharm and Isocare sales,
which were ahead of management expectations, and sales of core
established brands such as Danilon (anti-inflammatory), Otoclean
(dermatology) and Caniquantel (anti-parasitics) all showed double
digit growth. Dinalgen (anti-inflammatory) sales were behind prior
year but this was largely down to phasing of purchasing patterns in
major markets.
The positive impact of the cross-selling opportunity was minimal
during the year. We expect to see this contribute to our organic
growth during Q4 2018, later than originally anticipated, with a
more meaningful contribution in 2019.
The underlying EBITDA performance of our Pharmaceuticals division
increased by 15.1% to £9.7m (97.1% of the Group’s underlying
EBITDA) with reported EBITDA reducing to £7.5m (2016: £10.2m).
Whilst this underlying growth was driven by the contribution of the
acquisition, the organic performance in this division was impacted
by lower gross margins, mainly due to a changing sales mix following
higher growth from lower margin Production Animal products and
export sales, as well as pricing pressures in a competitive market
and the disposal of Nutriscience in 2016 which generated £1.3m of
sales at margins in excess of 50%.
Whilst the impact of a changing sales mix and competitive pricing
pressures are likely to persist over the rest of 2018 we expect to
deliver at least double digit growth in underlying EBITDA in this
division and to see further strong sales growth driven by a growing
portfolio of products and a wider geographical sales reach for
these products.
Wholesale
Our Wholesale division focuses on the sale of third-party
veterinary pharmaceuticals, supplies and instruments in Belgium.
Based close to Bruges, in the North West of Belgium, this business
supplies veterinary professionals across the country and has been
trading for 25 years and is well established in a stable market.
The extensive range of over 5,000 products includes own label
and branded items ranging from small disposable items to larger
capital equipment and diagnostic instruments. The division also
specialises in the supply of surgical instruments.
Revenues increased by 9.7%, entirely through organic growth, to
£23.9m (2016: £21.8m) with this division representing 28.6% of
total Group sales. This division delivered underlying and reported
EBITDA of £0.3m (2016: £0.5m) reflecting the investment made
in sales staff to drive future growth. Growth was driven by the
addition of new customers, as well as expanding the range of
products sold to existing customers.
Product Development Pipeline
The focus on building value within our product development
pipeline continues. As an enlarged business our development
team is located across a number of sites providing extensive
skills and capabilities across Belgium, Germany, Spain and UK.
Karolyn Tapper, previously Director of Business Development for
Animalcare Ltd, has been appointed to the new role of Group
Head of Technical and Commercial Development to structure and
integrate the teams to ensure that we continue to grow through
investing in and attracting new product opportunities.
14
26011 18/05/2018 Proof 4 A project rationalisation and prioritisation process for all projects
across the Group has been undertaken. Within the context of
the enlarged Group, technical feasibility, development costs
and commercial forecasts have been reviewed thoroughly to
determine which projects would be continued. The Company is
currently focused on 17 active new product development pipeline
projects within Spain and UK.
In 2017 we launched Acecare, a sedative, from the original UK
pipeline. Sales have been in line with the original project forecast.
One centralised registration was submitted in 2017 and launch
of this product is planned in late 2018. Progress of the pipeline
continues and in 2018 three new products have already been
registered across Europe with additional submissions planned
throughout the year.
Alongside the new product development pipeline, a number of
product improvement and product maintenance projects are
ongoing. Several registrations to expand the global presence of our
products were made in 2017 and launch within new territories is
planned at the end of 2018 and during 2019.
New Products through Strategic Alliances
and Partnerships
In addition to broadening our product portfolio through our own
development pipeline, we are aware that our wide geographical
footprint is attractive to similar companies in the US and Asia who
are seeking routes to market for their products across Europe.
During the period we have seen the first result of this strategy
with an agreement with US-based Nutramax, to provide Europe-
wide distribution of their nutritional supplement Cosequin, which
promotes canine joint health.
People
We currently have 100 sales representatives and 28 agents across
Europe, having invested in an additional 6 sales representatives
and support roles during the year.
As a result of changes in senior and executive management in
the Company it was necessary to find and appoint new Country
Managers in Spain and the UK, the two key territories in the
Group. This has been completed with the new recruits now in post
in the weeks following the year end.
Internal appointments have also been made in the important
areas of Technical and Product Development and Export. These
new roles will progress the integration of the Group and help us to
realise commercial opportunities more quickly.
It is clear that an appointment in supply chain management will be
required in the near future to ensure the operational efficiencies
of the Group within this area are achieved.
In addition, we announced at the end of April that Iain Menneer
has stood down from his role as Chief Operating Officer. We are
very grateful for all of Iain’s work on the integration of Animalcare
and Ecuphar and we wish him well for the future. Iain’s role as
COO will not be replaced and has been redistributed within the
senior management team that he was accountable for, who will
take on further responsibilities and report directly to myself.
The key component to ensuring we continue to deliver on our
long-term growth strategy is to continue to attract and retain the
highest calibre people to drive forward our development. I would
like to extend my thanks to all of our staff for their hard work.
Brexit
The details of how the UK pharmaceutical regulations will be
extracted from the current harmonised European structure are not
yet clear. The Veterinary Medicines Directorate (UK Government
agency) is looking for close cooperation to enable a smooth
transition to ensure animal welfare and food safety. The recent
acquisition has enabled the new Group to start restructuring its
pharmaceutical licence ownership with legal entities in the UK and
Europe post-Brexit to allow uninterrupted commercial supply of
product. We will continue to monitor the situation and take the
necessary action to ensure business continuity.
15
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCRSTRATEGIC REPORT OUR PERFORMANCE CHIEF EXECUTIVE OFFICER’S REVIEW
Further growth is expected through the execution of a clear
strategy for growth via both organic sales growth and through
targeted acquisitions. Our strategy for growth includes:
{ Cross-selling opportunities across customers and
distribution channels
{ More synergies delivered through further integration of the
businesses
{ Enhancing geographic footprint and sales, marketing and
distribution network
{ Developing network of partnerships / strategic alliances to
increase exposure to new opportunities
{ Identifying selective value-accretive acquisitions
{ Diversifying the portfolio of products into additional
therapeutic areas within companion animal as well as
production animal and equine markets
{ Broadening the product development pipeline to
include novel therapies
We expect growth in revenues to be driven by the launch
of new products from our development pipeline, additional
regulatory approvals for our existing products in new territories
and the distribution of new products for US or Asia based third
parties across our European footprint. We also expect margin
improvement to be seen as the opportunity to cross-sell products
fully impacts as existing distribution agreements held by our UK
business for Germany, Spain, Portugal, Italy and Belgium are exited
and replaced by our own direct sales network.
We believe we are on track to deliver double digit profit growth
during 2018 and enhancement to profit margins will be driven
by further synergies and cross-selling opportunities, which will
start to take effect late in 2018 as integration progresses, but will
deliver a more meaningful impact on profit margins during 2019
as the full effect of these changes are felt.
We believe the business is well positioned for future growth
and the Directors remain confident of delivering long-term
shareholder value.
CHRIS CARDON
CHIEF EXECUTIVE OFFICER
Post-period end – Le Vet purchase by Dechra
On 13th February, Dechra plc acquired Le Vet Beheer B.V.
(“Le Vet”), a business which has developed a portfolio of products,
and established a network of marketing partners across Europe.
Le Vet has been a long-term partner of Animalcare and Ecuphar
with distribution agreements in four territories. Whilst certain
distribution arrangements will not change, it is clear that this will
not be the case across all of them. We are taking action now to
mitigate against any material change which could adversely impact
trading part way through 2019.
Strategy and Outlook
The strategy of the business remains focused on building long-
term shareholder value by creating a growing, profitable and
highly cash generative pan-European animal health platform,
capable of investing in a steady flow of new products and
rewarding shareholders with dividend payments.
16
26011 18/05/2018 Proof 4 CHIEF FINANCIAL OFFICER’S REVIEW
CHIEF FINANCIAL OFFICER’S REVIEW
“ The reverse
acquisition
will provide
a number of
opportunities
for growth
and long-term
value creation
for our
shareholders”
CHRIS BREWSTER
CHIEF FINANCIAL OFFICER
Presentation of Results
On 13th July 2017, Animalcare Group plc
completed the acquisition of Ecuphar
NV, a European Animal Health Company
headquartered in Belgium. The acquisition
constituted a reverse takeover for the purposes
of Rule 14 of the AIM Rules for Companies.
This business combination has been treated as
a reverse acquisition in accordance with IFRS 3.
Under the provisions of IFRS 3 the results for the
year ended 31st December 2017 are reported as
a continuation of Ecuphar NV with the results of
Animalcare Group plc consolidated from the date
of acquisition.
Accordingly, the statutory results for the year
end 31st December 2017 reflect 12 months of
Ecuphar NV and approximately five and
a half months of Animalcare Group plc as
previously constituted.
To help shareholders to assess the Group, an
unaudited Pro forma Consolidated Income
Statement has been provided, which reflects
12 months of trading from both entities. The
Board believes that these statements provide the
most appropriate basis for future comparison of
operating performance.
Underlying and Statutory Results
To provide comparability across reporting
periods, the Group presents its results on both
an underlying and statutory (IFRS) basis.
The Directors believe that presenting our
financial results on an underlying basis, which
exclude non – underlying items, provides a
clearer understanding of business performance.
IFRS results include these items to provide the
statutory results.
All figures are reported at actual exchange
rates (AER) unless otherwise stated. Commentary
will include references to constant exchange
rates (CER) to identify the impact of foreign
exchange movements
A reconciliation between underlying and
statutory results is provided at the end of
this financial review prior to the pro- forma
information as described above.
17
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCRSTRATEGIC REPORT OUR PERFORMANCE CHIEF FINANCIAL OFFICER’S REVIEW
Overview of Underlying Results
To assist with the understanding of our underlying financial results, the Group results presented below are split between continuing
operations (Ecuphar NV) and acquisition, being Animalcare Group plc from 13th July 2017.
Revenue
Underlying Gross Profit
Gross Margin %
Underlying Operating Profit
Underlying EBITDA
Underlying EBITDA margin %
Underlying Profit after tax
Basic Underlying EPS (p)
2017
Continuing
£’000
2017
Acquisition
£’000
76,118
30,408
39.9%
6,229
8,415
11.1%
3,824
–
7,558
4,256
56.3%
1,530
1,572
20.8%
1,460
–
2017
Total
£’000
83,676
34,664
41.4%
7,759
9,987
11.9%
5,284
12.6p
2016
Total
£’000
68,361
28,275
41.4%
6,720
8,914
13.0%
3,964
16.7p
% Change at
AER
Continuing
%
11.3%
7.5%
(1.2%)
(7.3%)
(4.2%)
(1.9%)
(3.5%)
–
Total
%
22.4%
22.6%
–
15.5%
11.9%
(1.3%)
33.3%
(24.6%)
The Group delivered total revenue of £83.7m, an increase of 22.4% versus the prior year. This included £76.1m from the continuing
Ecuphar business, an increase of 11.3% (3.8% at CER) and £7.6m contribution from the acquired Animalcare operations.
Underlying EBITDA increased by 11.9% to £10.0m (2016: £8.9m) including a £1.6m contribution from acquisition business. Ecuphar’s
continuing business underlying EBITDA decreased by 5.6% to £8.4m primarily reflecting the lower gross margins, investments
in our infrastructure and people to support future growth and the disposal of NutriScience which Ecuphar sold in October 2016
which contributed profits of approximately £0.2m. More details regarding operational performance are provided within the Trading
Performance section.
Basic underlying EPS decreased by 24.6% to 12.6 pence (2016: 16.7 pence). The 33.3% increase in profit after tax was offset by the
significant increase in the weighted average number of shares from 23.8 million (which has been adjusted for the merger ratio of 63:37
as described in note 9) to 42.0 million.
Trading Performance
The following table sets out Group underlying trading performance by operating segment (see note 5 for more detail) analysed between
continuing and acquisition businesses. This analysis will evolve over time as we integrate the two businesses.
Revenue by Segment
Pharma
Wholesale
Total
Underlying Gross Profit by Segment
Pharma
Wholesale
Total
Underlying EBITDA
Pharma
Wholesale
Total
2017
Continuing
£’000
2017
Acquisition
£’000
52,180
23,938
76,118
27.993
2,415
30,408
8,126
289
8,415
7,558
–
7,558
4,256
–
4,256
1,572
–
1,572
2017
Total
£’000
59,738
23,938
83,676
32,249
2,415
34,664
9,698
289
9,987
2016
Total
£’000
% Change at
AER
Continuing
%
46,530
21,831
68,361
26,003
2,272
28,275
8,429
485
8,914
12.1%
9.7%
11.3%
7.7%
6.3%
7.5%
(3.6%)
(40.4%)
(5.6%)
Total
%
28.4%
9.7%
22.4%
24.0%
5.8%
22.6%
15.1%
(40.4%)
11.9%
18
26011 18/05/2018 Proof 4 Wholesale segment
Our wholesale segment, which comprises the purchase and re-sale
of veterinary pharmaceuticals, supplies and instruments in Belgium,
delivered revenue of £23.9m, representing an increase of 9.7%
on the prior year. Whilst gross margins at 10.1% remained broadly
comparable with prior year (2016: 10.4%), underlying and reported
EBITDA reduced from £0.5m to £0.3m mainly due to increased
employee costs to drive product sales and services growth.
Revenue by Product Category
Companion Animals
Production Animals
Equine
Other products and
services
Total
2017
£’000
42,791
28,390
4,718
7,777
83,676
2016
£’000
30,799
22,668
5,567
9,327
68,361
% Change
at AER
%
38.9%
25.2%
(15.3%)
(16.6%)
11.3%
Companion Animals revenue increased by 38.9% to £42.8m and,
following the reverse acquisition of Animalcare Group plc, now
represents 51.1% of total business, up from 45.1% in the prior
year. Animalcare revenues generated 24.5% of the growth with the
balance of 14.4% delivered by existing business, primarily driven
by increased export sales, increased wholesale sales and market
penetration of core pharmaceuticals.
Production Animals revenue grew by 25.2% on prior year despite
ongoing pressure on antibiotic usage. This growth largely came
from full year sales of new products launched in 2016, in particular
rabbit vaccines, and continued growth of core products in both
our established markets as well as newer geographies such as Italy.
Equine revenues reduced to £4.7m due to the prior year one-off
benefit of horse vaccine sales in Germany as a result of competitor
supply issues.
Reported Financial Results
Given the significant changes to the Group following the reverse
acquisition, the financial results contain a number of non-
underlying items comprising the fair value uplift of inventory
acquired, amortisation and impairment of acquired intangibles
and acquisition and integration costs.
Pharma segment
Revenue in our pharma segment grew by 28.4%, 12.1% of which
was delivered by the continuing Ecuphar business. This growth
was primarily driven by very strong growth in Production Animals
revenue which as an overall category increased by 25.2% versus
prior year to £28.4m together with a strong contribution from
the Companion Animals category. Further detail on revenue by
product category is given below.
Underlying EBITDA improved by 15.1% to £9.7m however declined
by 3.6% from continuing business to £8.1m (2016: £8.4m),
representing an EBITDA margin of 15.6% (2016: 18.1%). This
decline was driven by a combination of lower gross margins which
fell by 2.3% to 53.6% and a £2.3m increase in operating costs.
Gross margins in our continuing business have fallen for three
main reasons:
{ Lower margin sales mix primarily reflecting higher growth in
our Production Animal product category and export markets.
{ Maintaining market share in a competitive environment, at
some expense to margins.
{ Disposal of NutriScience in October 2016 which generated
£1.3m sales at margins in excess of 50%.
Operating costs have increased by £2.3m to £19.9m (2016:
£17.6m) representing 38.2% (2016: 37.8%) of sales. Approximately
£1.5m of this increase relates to investment in our infrastructure
(in particular IT and R&D), people and marketing to position the
business for future growth. The balance of £0.8m reflects higher
distribution costs as a result of significantly increased vaccine sales
together with higher inventory write offs.
Reported EBITDA, which includes £2.2m non-underlying items as
analysed in note 5, reduced to £7.5m (2016: £10.2m).
19
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCRSTRATEGIC REPORT OUR PERFORMANCE CHIEF FINANCIAL OFFICER’S REVIEW
A reconciliation of underlying results to reported results is provided below:
Revenue
Gross Profit
Selling, general & administrative expenses
Research & development expenses
Net other operating income (expenses)
Operating Profit
Net finance expenses
Profit before tax
Taxation
Profit after tax
Basic EPS (p)
2017
Underlying
results
£’000
Fair value
adjustment
on acquired
inventory
£’000
Amortisation
and impairment
of acquired
intangibles
£’000
Acquisition
and integration
costs
£’000
83,676
34,664
(24,912)
(2,048)
55
7,759
(656)
7,103
(1,819)
5,284
12.6p
–
(401)
–
–
–
(401)
–
(401)
76
(325)
–
–
–
(3,590)
(751)
–
(4,341)
–
(4,341)
972
(3,369)
–
–
–
–
–
(1,817)
(1,817)
–
(1,817)
411
(1,406)
–
2017
Reported
results
£’000
83,676
34,263
(28,502)
(2,799)
(1,762)
1,200
(656)
544
(360)
184
0.4p
2016
Reported
results
£’000
68,361
28,275
(22,347)
(1,776)
1,887
6,039
(891)
5,148
(1,632)
3,516
14.8p
Including non-underlying items, the Group’s profit after tax fell to
£0.2m (2016: £3.5m). Non-underlying items incurred in the year
are summarised below (all figures are pre-tax):
{ Fair value adjustment of acquired inventory of £0.4m – this is a
non-cash uplift to the value of acquisition inventory as a result
of the fair value exercise carried out in accordance with IFRS 3
‘Business Combinations’.
{ Amortisation and impairment of acquired intangibles totalling
£4.3m – this comprises £1.7m charge arising on the acquired
intangibles relating to the Animalcare reverse acquisition and
£2.6m in relation to previous acquisitions made by Ecuphar NV,
principally Esteve SA which was acquired on 30th April 2015.
{ Acquisition and integration costs of £1.8m – this principally
includes the transaction costs borne by Ecuphar NV in
relation to the reverse acquisition of Animalcare Group plc
and post-acquisition integration costs including the internal
transfer of Animalcare Ltd to Ecuphar NV and the set-up of a
new long-term incentive plan which the Board is seeking to
implement during 2018.
Earnings per Share and Dividend
Basic underlying EPS decreased by 24.6% to 12.6pence (2016:
16.7 pence). The 33.3% increase in profit after tax was offset by
the significant increase in the weighted average number of shares
from 23.8 million (which has been adjusted for the merger ratio of
63:37 as described in note 8) to 42.0 million.
The reported basic EPS, which incorporates non-underlying items,
decreased to 0.4 pence (2016: 14.8 pence)
The Board is proposing a final dividend of 2.0 pence per share,
added to the second interim dividend of 4.7 pence per share
paid in November 2017, giving a total dividend of 6.7 pence per
share since the reverse acquisition. This final dividend is subject to
shareholder approval at the Annual General Meeting on 27th June
2017. The Board will continue to maintain the current dividend
policy and timing of payments whilst continuing to invest for
future growth.
Cash Flow, Net Debt and Borrowing Facilities
Net debt at 1st January 2017
Net cash generated from operations
Net capital expenditure
Acquisition of subsidiaries net of cash acquired
Receipts from issue of share capital
Net finance expenses
Dividends paid
Other cash movements
Foreign exchange on cash and borrowings
Net debt at 31st December 2017
£’000
(23,782)
2,425
(2,532)
(26,852)
29,402
(657)
(2,816)
(45)
(1,051)
(25,908)
20
26011 18/05/2018 Proof 4 The Group generated £2.4m net cash from operations (2016:
£9.3m) which includes a cash outflow from non-underlying items
totalling £3.8m. Working capital increased by £5.6m principally
reflecting the payment of £2.5m non-underlying items which
were recognised (accrued) at the time of the reverse acquisition,
£2.0m increase in trade receivables due to strong growth in the
final quarter and £1.4m investment in stock. This stock increase
was mainly within our wholesale operation due to anticipated
further antibiotic restrictions with the balance largely in our
high-growth territories.
Net capital expenditure of £2.5m largely comprises investment
in our product development pipeline from which a significant
number of new products launches are expected in 2019 and 2020.
The £33.1m cash consideration for the acquisition of Ecuphar NV
was funded using £4.0m of cash held by Animalcare Group plc and
£29.1m of equity raised through a placing net of £0.9m expenses.
As part of the reverse acquisition, the Group agreed to maintain
the existing Ecuphar NV borrowing facilities (the Facilities) through
four banks which comprised (i) €41.5m revolving credit facility
(RCF), (ii) €10m term facility to finance permitted acquisitions
(Term Loan A) and (iii) €4.08m quarterly amortising term facility
(Term Loan B).
There are three covenants governing the facilities:
(i) a minimum adjusted solvency ratio of 30% measured as
consolidated adjusted equity to consolidated adjusted
total assets;
(ii) a maximum leverage ratio of 3.5 times measured as
consolidated net debt to consolidated EBITDA;
(iii) a minimum interest coverage ratio of 4 times measured as
consolidated EBITDA to consolidated interest expenses.
Based on the 12 months unaudited pro-forma underlying EBITDA
of £11.8m (see below), the Group’s net debt: underlying EBITDA
leverage ratio was 2.2 times. At 31st December 2017, total facilities
were £48.4m, of which £33.5m, net of cash balances, was being
utilised leaving headroom of £14.9m. These bank facilities,
together with the Group’s operational cash flow, indicate that the
Group has sufficient facilities available to fund its operations and
allow for future expansion.
Summary
The transformational reverse acquisition of Ecuphar has created
critical scale for the Group within the European animal health
market, providing a strengthened position to capitalise on growth
in the market to deliver long-term shareholder value.
To support this value creation, and to maximise the commercial,
operational and financial synergies, the Group must deliver a wide-
ranging and comprehensive integration. The historical growth of
Ecuphar was complemented by a series of acquisitions including the
largest and most significant acquisition of Esteve in 2015. Prior to
the reverse, limited integration of these operations was undertaken.
This has presented additional challenges resulting in the current
process to integrate the businesses taking longer than expected.
From a financial performance perspective, we have delivered
strong revenue growth; however, this has not translated through
to our operating profit as we have experienced competitive market
pressures and changing sales mix, leading to margin decline in the
second half of 2017.
Against this backdrop, our priorities for the current year are:
{ Increasing sales of new products from our distribution network
and expanding our geographic footprint
{ Focusing on gross margin and EBITDA development in order to
deliver anticipated profit growth
{ Improving operating cash generation, important in providing
the business with the funds to continue the momentum in our
product development pipeline together with dividend flow
{ Delivering integration to unlock scale benefits and
support EBITDA
We remain firm in our belief that the reverse acquisition will
provide a number of opportunities for growth. Delivering the
comprehensive integration to realise the synergies and benefits
available is key. Ultimately, to create value the combination of our
businesses must become more than the sum of the parts.
We expect to see some benefits of the integration in the current
year but a more meaningful impact on profit in 2019.
Once fully integrated, we believe this will provide a strong platform
for long-term value creation for our shareholders.
21
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCRSTRATEGIC REPORT OUR PERFORMANCE CHIEF FINANCIAL OFFICER’S REVIEW
Proforma Consolidated Financial Information (unaudited)
As noted previously, to help shareholders to assess the Group, an unaudited Proforma Consolidated Income Statement has been
produced, which reflects 12 months of trading from both entities as below. Pro forma information has been prepared in a manner
consistent with the accounting policies adopted by the Group in preparing the audited financial statements for the year ended
31st December 2017.
Proforma Consolidated Income Statement (unaudited)
Revenue
Gross Profit
Operating expenses
Operating Profit
Depreciation, amortisation & impairment
Non-underlying items
Underlying EBITDA
Net financial (expenses)/income
(Loss)/profit before tax
Taxation
Net (loss)/profit
Underlying net profit
Underlying basic EPS (p)
Animalcare
2017
£’000
15,825
8,720
Ecuphar
2017
£’000
76,118
30,408
Total
2017
£’000
91,943
39,128
(8,696)
(28,475)
(37,171)
24
280
3,045
3,349
(40)
(16)
(104)
(120)
2,769
–
1,933
4,843
1,639
8,415
(617)
1,316
(724)
592
3,824
–
1,957
5,123
4,684
11,764
(657)
1,300
(828)
472
6,593
11.0p
Animalcare
2016
£’000
15,556
8,722
(5,353)
3,369
403
172
3,944
36
3,405
(466)
2,939
3,139
–
Ecuphar
2016
£’000
68,361
28,275
Total
2016
£’000
83,917
36,997
(22,236)
(27,589)
6,039
4,689
(1,814)
8,914
(891)
5,148
(1,632)
3,516
3,964
–
9,408
5,092
(1,642)
12,858
(855)
8,553
(2,098)
6,455
7,103
11.8p
Compared to the statutory results, the unaudited proforma
consolidated income statement includes an additional 28 weeks
of Animalcare Group plc’s results prior to the reverse acquisition
which has the impact of increasing revenue and underlying EBITDA
by £8.3m and £1.8m respectively. This is shown in further detail in
the reconciliation section below.
The proforma results are yet to reflect the benefits from leveraging
the Group’s enlarged platform which include commercial
synergies, operating efficiencies and optimisation of the R&D
function. We will continue to deliver the integration throughout
2018 to deliver more significant value creation
from 2019.
On the proforma basis, revenue increased by 9.6% (3.4% at CER)
to £91.9m however underlying EBITDA decreased by 8.5% (12.9%
decrease at CER) to £11.8m.
The principal drivers for the financial performance of the existing
Ecuphar business are described earlier in the Trading
Performance section.
For the acquired Animalcare business, revenues increased 1.7%
to £15.8m, driven by £0.6m growth within export offset by a
£0.4m reduction in sales from our microchipping business, the
latter primarily as a result of the £0.3m incremental sales benefit
observed in 2016 following the introduction of compulsory
microchipping in the UK. Gross profit was flat at £8.7m largely
reflecting the changing sales mix towards lower margin export
business. Operating expenses excluding non-underlying items
increased by £0.4m of which approximately half relates to higher
central costs, including the enlarged Board. The balance primarily
relates to investment in our UK trading business staff base. As a
result, underlying EBITDA fell by £0.6m to £3.3m.
22
26011 18/05/2018 Proof 4 Reconciliation of Pro forma Consolidated Income Statement
A reconciliation of the statutory results to the Pro forma results is shown below:
Fair value
adjustment on
acquired
inventory(1)
2017
£’000
Acquisition and
integration
costs(2)
2017
£’000
–
401
–
401
–
–
401
–
401
(76)
325
–
–
–
–
–
1,817
1,817
–
–
–
–
Amortisation
of Animalcare
acquired
intangibles(3)
Animalcare
pre-acquisition(4)
2017
£’000
–
–
1,645
1,645
(1,645)
–
–
–
1,645
(310)
1,335
2017
£’000
8,267
4,464
(5,753)
(1,289)
199
2,867
1,777
(1)
(1,290)
(82)
(1,372)
Pro forma
results
2017
£’000
91,943
39,128
(37,171)
1,957
5,123
4,684
11,764
(657)
1,300
(828)
472
Reported
results
2017
£’000
83,676
34,263
(33,063)
1,200
6,569
–
7,769
(656)
544
(360)
184
Revenue
Gross profit
Operating expenses
Operating profit/(loss)
Depreciation, amortisation & impairment
Non-underlying items
EBITDA
Net financial (expenses)/income
Profit/(loss) before tax
Taxation
Net profit/(loss)
Notes
1. See description within the reconciliation of underlying to statutory results.
2. See description within the reconciliation of underlying to statutory results.
3. See description within the reconciliation of underlying to statutory results – this is net of £40k amortisation of acquired intangibles
relating to the previous reverse acquisition of Animalcare Ltd in January 2008.
4. Pre-acquisition results of Animalcare Group plc from 1st January 2017 to 12th July 2017.
CHRIS BREWSTER
CHIEF FINANCIAL OFFICER
23
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCRSTRATEGIC REPORT OUR PERFORMANCE OUR PRINCIPAL RISKS
Risk Management Framework
The Board is responsible for maintaining and reviewing the effectiveness of our risk management activities, intended to monitor and
mitigate, rather than eliminate, the significant risks that the Group is exposed to.
In accordance with our governance practices, the Audit Committee supports the Board of Directors in monitoring the Group’s risks and is
responsible for reviewing the effectiveness of the risk management and internal control systems.
Our Risks
A summary of the principal risks together with an explanation of how the Group mitigates each risk their trend and linkage to our
strategy are set out in the table below.
RISK
Competitor risk
Launch of competitor products,
for example other generic or
more superior product profile.
Our product portfolio is broad
however contains products with
strong market share which is
attractive to competitors.
Market risk
In certain geographies the
veterinary market continues to
see the emergence and growth
of buying groups and corporate
customers who are looking for
value from the products and
services we provide.
Integration risk
The integration of Ecuphar
and Animalcare is wide-
ranging and may fail to deliver
expected returns due to
integration challenges.
Product development risk
Pharmaceutical development
is complex, involving technical,
regulatory and financial risk.
Failure to successfully deliver
new product development
projects could have a material
impact on the Group’s results and
damage our market position and
relationship with our customers.
ALIGNMENT
TO STRATEGY
3 4
5 6
POTENTIAL IMPACT
MITIGATION
TREND
Revenues and gross margins
may be adversely affected
should competitors launch
competing generic or
superior (novel) products.
Operating costs may
increase to protect
market share.
We monitor new product registrations
and competitor launches and
develop commercial and marketing
responses accordingly.
Diversification of our product portfolio
and geographies will lessen the impact
on our business.
1 3
4 5
6
The emergence and growth
of corporate customers and
buying groups represents an
opportunity for sales volume
growth but may result in
lower margins.
We continue to develop and
strengthen our sales and marketing
teams in respect of key account
support and achieve our goal to better
serve our changing customer base,
both on a national and in future a
European basis.
1 2
5 6
Failure to deliver the
integration to the expected
timetable together with
anticipated commercial and
operational synergies will
inhibit growth and lead to
higher costs and lower than
expected profits.
Complete failure of
a project or failure
to meet commercial
expectations due to for
example competitor
launches (generic or
novel) would result in
impairment of capitalised
development costs.
An integration plan has been prepared
and is being implemented across key
work streams including supply chain,
technical & product development,
finance, HR, export and IT.
Following careful selection of
development strategy, each new
product development project
undergoes rigorous review by the
cross-discipline senior management
team with final sign-off by the Board.
The pipeline is reviewed regularly, with
corresponding updates provided to
the Board, to ensure each project is
progressing according to plan.
24
Key
Up
Down
Same
26011 18/05/2018 Proof 4 RISK
Reliance on
third parties risk
The supply of products to our
customers in a timely manner is
vital to the success of the Group.
The Group does not manufacture
any of its own products and is
solely reliant on an increasing
third party supplier and contract
manufacturer base across the UK
and Europe.
Regulatory risk
Continuing pressure to reduce
antibiotic usage and resistance.
In certain countries this has
led to increasing government
intervention to limit the
use of antibiotics in food
producing animals.
People risk
The Group has a small Executive
and senior management team
whose skills, knowledge,
experience and performance
make a large contribution to the
success of the Group.
ALIGNMENT
TO STRATEGY
3 4
5 6
POTENTIAL IMPACT
MITIGATION
TREND
Any disruption to the
relationship with our key
supply partners, whether
commercial or via change
of control, or interruption
to the supply chain could
result in significant loss
of revenue and damage
the Group’s reputation
with its customers.
Given the increasing complexity and
diversity in our supply chain, we have
identified the need for increased
specialist resource in this area which
will form part of the integration.
We monitor supplier performance
and maintain adequate inventories,
including safety stock held by our
suppliers, based on risk assessments.
Decline in sales of our
antibiotic product range.
3 4
5 6
Regular dialogue is maintained with
relevant authorities in each country
to ensure we maintain a thorough
understanding of regulatory changes.
We aim to sell products that minimise
antimicrobial resistance concerns.
2 3
4 5
6
Failure to retain and
attract high calibre
individuals in key roles
could impact the successful
implementation of our
strategy and adversely
impact on our results.
The Nomination Committee leads the
process for all potential appointments
to the Board.
Remuneration packages are reviewed
annually to help ensure that the Group
has the right mix of base salary, and
short-term and long-term incentives to
attract, retain and reward key employees
to execute our growth strategy.
25
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCRSTRATEGIC REPORT OUR PERFORMANCE BOARD OF DIRECTORS
JAN BOONE
NON-EXECUTIVE CHAIRMAN
CHRIS CARDON
CHIEF EXECUTIVE OFFICER
CHRIS BREWSTER
CHIEF FINANCIAL OFFICER
AND COMPANY SECRETARY
MARC COUCKE
NON-EXECUTIVE DIRECTOR
Jan was appointed Non-Executive
Chairman of the Group on 13th July
2017 following the acquisition of
Ecuphar NV.
Committee membership
Member of the Audit Committee
and the Nomination and
Remuneration Committee
Relevant skills and experience
Jan is Chief Executive Officer of
Lotus Bakeries which is listed on
Euronext Brussels. He started his
career in the audit department
at PricewaterhouseCoopers and
holds a Master’s degree in Applied
Economics from KU Leuven and
a Master’s degree in Audit from
the University of Mons-Hainaut in
Belgium. Between 2000 and 2005,
Jan served as Head of Corporate
Controlling and Member of the
Executive Committee of Omega
Pharma NV. He became Managing
Director of Lotus Bakeries in 2005
and Chief Executive Officer in 2011
and also serves as a Non-Executive
Director of Club Brugge.
Chris was appointed Chief
Executive Officer of the Group
on 13th July 2017 following the
acquisition of Ecuphar NV where he
was Chief Executive Officer.
Committee membership
By invitation
Relevant skills and experience
Chris founded Ecuphar NV as Chris
Cardon NV in 2001 to capitalise
on opportunities identified in the
animal health industry and grew
the company through a successful
focus on product portfolio
development. Chris graduated as
a pharmacist from the University
of Ghent in 1993 after which he
took over his family’s pharmacy
business. In 1995, he completed
an MBA at the Vlerick Leuven-
Gent Management School. Chris
has a strong entrepreneurial
background in human OTC product
development and in 1996, he
established Mooss-Pharma NV, a
company which developed human
OTC products that were exclusively
distributed by pharmacists and
became a key player in the Belgian
market. In 2001, the OTC assets of
Mooss-Pharma were acquired by
Omega Pharma NV. Chris received
the prestigious award “Export Lion
of Flanders 2005” in the Young
Exporters category.
Chris was appointed Chief Financial
Officer in June 2012. Chris
resigned as Chief Financial Officer
on 13th July 2017 following the
acquisition of Ecuphar NV and took
on the role of UK Country Manager
for the Group. He was reappointed
as Chief Financial Officer on
25th September 2017.
Committee membership
By invitation
Relevant skills and experience
Chris has a broad range of
experience gained during his ten
years working across a number of
functions at KPMG and through his
role as Group Accounting Manager
at Findus Group. Since joining
Animalcare, Chris has developed
the systems, controls and
management information needed
to support the growth and strategy
of the business. More recently
Chris has taken responsibility for
supporting the changes required
within the supply chain function
to provide a robust platform for
growth and the integration of the
Ecuphar business into the Group.
Marc was appointed as a Non-
Executive Director on 13th July
2017 following the acquisition of
Ecuphar NV.
Committee membership
Member of the Nomination and
Remuneration Committee
Relevant skills and experience
Marc founded Omega Pharma NV
in 1987, developing the company
into a leading pan-European OTC
health and personal care business
and serving as both Chairman and
Chief Executive Officer. Following
the sale of Omega Pharma in 2015
to Perrigo Company plc, he invests
via his private investment firm,
Alychlo NV, in several listed and
non-listed companies. He currently
serves as Chairman of Mithra
Pharmaceuticals and as Non-
Executive Director of Fagron, both
Belgian companies, in addition to
a number of private companies.
Marc graduated as a pharmacist
from the University of Ghent after
which he completed an MBA at the
Vlerick Leuven-Gent Management
School. As Chief Executive Officer
of Omega Pharma, he was awarded
the EY Flemish Entrepreneur of the
Year in 2002.
26
26011 18/05/2018 Proof 4 NICK DOWNSHIRE
NON-EXECUTIVE DIRECTOR
EDWIN TORR
NON-EXECUTIVE DIRECTOR
SENIOR INDEPENDENT DIRECTOR
JAMES LAMBERT
NON-EXECUTIVE DIRECTOR
Nick joined the Board of
Animalcare in 2008 when it was
acquired by Ritchey plc for whom
he was a director from 1998
Committee membership
Chairman of the Audit Committee
Relevant skills and experience
Nick is a qualified chartered
accountant who worked in
corporate finance and venture
capital before becoming the
finance director of a software
company. He has held non-
executive directorships in a
diverse range of businesses in the
insurance, agricultural, hospitality,
education and technology sectors.
Nick runs an estate in Yorkshire and
is a former Chairman of the CLA
for Yorkshire, as well as acting as a
Trustee for a number of charitable
and land related trusts. He is a
council member and chairs the
Audit Committee for the Duchy
of Lancaster. His experience
with other organisations and his
professional background assist him
in chairing the Audit Committee
and bringing objectivity and
analysis to the Remuneration
Committee.
James was appointed Chairman of
Animalcare in 2008 when it was
acquired by Ritchey plc, for whom
he was Chairman from 2005 and a
Non-Executive Director from 2003.
He stood down as Chairman on
13th July 2017 following the
acquisition of Ecuphar NV.
Committee membership
Chairman of the Nomination and
Remuneration Committee
Relevant skills and experience
In 1985, James co-founded R&R
Ice Cream where he was Chief
Executive Officer for 28 years and
retired as Executive Chairman in
2014. He was appointed Chairman
of Burton’s Biscuits in 2013,
Chairman of Inspired Pet Nutrition
in 2015, Chairman of Whitman
Howard in 2016 and Non-Executive
Director of Story Homes in
2016. James has spent his career
helping build, develop and manage
successful businesses, enabling
them to reach their full potential
and give them strategic direction.
He won the EY UK Entrepreneur
of the Year award in 2014 and
represented the UK in the EY
World finals.
Edwin was appointed as a Non-
Executive Director and Senior
Independent Director on 13th July
2017 following the acquisition of
Ecuphar NV.
Committee membership
Member of the Audit Committee
and Nomination and Remuneration
Committee
Relevant skills and experience
Edwin has significant experience
of international veterinary and
animal health markets, gained over
a period of more than 20 years,
during which time he has worked
for ICI, Pitman Moore, Alfa Laval
Agri and Dechra Pharmaceuticals.
He was part of the management
buyout team that set up Dechra
Veterinary Products in 1997 and
was an executive director on the
board of the Dechra entity listed on
the London Stock Exchange from
2000 until 2013. During this time,
he was responsible for business
development and managing the
European business unit, and was
instrumental in setting up the US
business. Since 2014, Edwin has
independently advised various
companies on sales and marketing
structures, M&A opportunities, ‘in’
and ‘out’ licensing of products and
investment opportunities within
the veterinary and animal health
market sector.
27
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR GOVERNANCE CORPORATE GOVERNANCE STATEMENT
“ As a Board, we
recognise that
applying sound
governance
principles is
essential to the
successful running
of the Group,
and supports its
long-term success
and strategy for
growth.”
JAN BOONE
NON-EXECUTIVE CHAIRMAN
Our Board and Committee Structure
An Introduction from our Chairman
I have pleasure in introducing the Corporate Governance Statement. This report
summarises our approach to governance and provides information about how the
Board and its committees operate.
As a Board, we recognise that applying sound governance principles is essential to the
successful running of the Group, and supports its long-term success and strategy for
growth. It is our goal therefore to continue to improve and develop our governance
structures. As a company listed on AIM, we are not required to comply with the UK
Corporate Governance Code 2016 (“the UK Code”). We consider that the Quoted
Companies Alliance’s Corporate Governance Code for small and mid-size quoted
companies (“the QCA Code”) is more relevant for AIM companies such as Animalcare
and we apply wherever possible, and as appropriate to the size, nature and resources of
the Group, the QCA code.
The policies and procedures we have put in place following the acquisition of Ecuphar
NV in July 2017 give us a firm foundation for our governance structures and we will
continue to build on these.
JAN BOONE
NON-EXECUTIVE CHAIRMAN
15th May 2018
28
26011 18/05/2018 Proof 4BOARD OF DIRECTORSCEOSENIOR MANAGEMENT TEAMNOMINATIONAND REMUNERATION COMMITTEEAUDITCOMMITTEE The Role of the Board
The Board is responsible to the shareholders and sets the Group’s
strategy for achieving long-term success. It is also ultimately
responsible for the management, governance, controls, risk
management, direction and performance of the Group.
The Composition of the Board
The composition of the Board has been structured to ensure that
no one individual can dominate its decision-making processes.
Following completion of the acquisition of Ecuphar NV on
13th July 2017, the Board was restructured to take account of
the activities of the enlarged Group. Before that date, the Board
comprised the Non-Executive Chairman, James Lambert, two Non-
Executive Directors, Nick Downshire and Ray Harding, and two
Executive Directors, the Chief Executive Officer Iain Menneer and
the Chief Financial Officer Chris Brewster. On 13th July 2017, the
Board was restructured as follows:
{ James Lambert stepped down from his role as Non-
Executive Chairman but remained on the Board as Non-
Executive Director.
{ Jan Boone was appointed as Non-Executive Chairman.
{ Iain Menneer stepped down from his role as Chief Executive
Officer but remained on the Board as Chief Operation Officer.
{ Chris Cardon was appointed as Chief Executive Officer.
{ Chris Brewster stepped down as Chief Financial Officer.
{ Walter Beyers was appointed as Chief Financial Officer.
{ Ray Harding resigned as a Non-Executive Director.
{ Marc Coucke and Edwin Torr were appointed as Non-
Executive Directors.
On 25th September 2017, Walter Beyers resigned as Chief
Financial Officer and Chris Brewster was reappointed as Chief
Financial Officer.
On 26th April 2017, Iain Menneer resigned as Chief
Operating Officer.
The Board currently comprises two Executive Directors and five
Non-Executive Directors.
The Non-Executive Chairman Jan Boone and Senior Independent
Director Edwin Torr are considered to be independent and
therefore the Board is compliant with the QCA Code, having at
least two independent Non-Executive Directors. Nick Downshire
and James Lambert have been directors of the Company for more
than ten years and were significant shareholders of the Group,
holding over 3% of issued share capital, prior to the acquisition of
Ecuphar NV in July 2017. Following the increase in issued share
capital following the Placing in July 2017, their shareholdings
have been diluted and they are no longer classed as significant
shareholders. Notwithstanding their length of tenure and their
interests in the share capital of the Company, the Board also
considers Nick Downshire and James Lambert to be independent
in character and judgement.
On completion of the acquisition of Ecuphar NV, 23.1% of the
issued share capital of the Company is held by Ecuphar Invest NV,
an entity controlled by Chris Cardon, and a further 23.1% of the
issued share capital is held by Alychlo NV, an entity wholly owned
by Marc Coucke. The Board is aware of its duty to hear the voices
of, and protect the interests of, minority shareholders and has put
in place contractual arrangements with Ecuphar Invest NV and
Alychlo NV, in the form of a relationship agreement in order to
protect minority shareholder interests. A copy of the relationship
agreement is available on the Company’s website
(www.animalcaregroup.co.uk).
Appointments to the Board and re-election
The Board has delegated to the Nomination and Remuneration
Committee the tasks of reviewing Board composition, searching
for appropriate candidates and making recommendations to the
Board on candidates to be appointed as Directors. Further details
on the role of the Nomination and Remuneration Committee may
be found in its report on page 34.
The Directors have the power to appoint Directors during the year
but any person so appointed must stand for election at the next
Annual General Meeting as required by the Company’s Articles of
Association (“Articles”). Under the Articles, any Director who was
not elected or re-elected at either of the two preceding Annual
General Meetings must retire by rotation at the next Annual
General Meeting, and at each Annual General Meeting, at least one
third of the Directors must retire and be eligible for re-election. In
accordance with the Articles, Jan Boone, Chris Cardon, Marc Coucke,
Edwin Torr, Chris Brewster and Nick Downshire will retire and offer
themselves for re-election at the next Annual General Meeting. The
Board considers that each of these Directors offering themselves for
re-election continues to make a valuable contribution to the Board
and continues to demonstrate commitment.
29
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR GOVERNANCE CORPORATE GOVERNANCE STATEMENT
Development, information and support
The Company Secretary ensures that all Directors are kept
abreast of changes in relevant legislation and regulations, with
the assistance of the Company’s advisers where appropriate.
Executive Directors are subject to the Company’s performance
development review process through which their performance
against predetermined objectives is reviewed and their personal
and professional development needs considered. Non-Executive
Directors are encouraged to raise any personal development or
training needs with the Chairman or Company Secretary.
Performance Evaluation
An informal Board evaluation process was conducted using a
questionnaire and self-assessment in August 2016. Given the
changes on the Board in 2017, it was not felt appropriate to
conduct an evaluation. However, the Board intends to evaluate its
performance and that of its committees on an annual basis.
Independent Professional Advice
Directors have access to independent professional advice at the
Company’s expense. In addition, they have access to the advice
and services of the Company Secretary who is responsible for
advice on corporate governance matters to the Board.
Directors’ and Officers’ Liability Insurance
The Company has purchased Directors’ and officers’ liability
insurance during the year as allowed by the Company’s articles.
How the Board operates
The Board is responsible for the Group’s strategy and for its overall
management. The operation of the Board is documented in a
formal schedule of matters reserved for its approval, which sets
out the Board’s responsibilities.
These include matters relating to:
{ the Group’s strategic aims and objectives
{ the structure and capital of the Group
{ financial reporting, financial controls and dividend policy
{ internal control, risk and the Group’s risk appetite
{ the approval of significant contracts and expenditure
{ effective communication with shareholders
{ any changes to Board membership or structure
The Board meets at regular intervals and Non-Executive Directors
communicate directly with Executive Directors and senior
management between formal Board meetings. The Board held
a focused meeting on strategy in December 2017 and intends to
continue to schedule similar meetings annually.
An agenda and accompanying detailed papers, including reports
from the Executive Directors and other members of senior
management, are circulated to the Board in advance of each
Board meeting.
Directors are expected to attend all meetings of the Board and the
Committees on which they sit, and to devote sufficient time to the
Group’s affairs to enable them to fulfil their duties as Directors.
This requirement is also included in their letters of appointment.
In the event that Directors are unable to attend a meeting, their
comments on papers to be considered at the meeting will be
discussed in advance with the Chairman so that their contribution
can be included in the wider Board discussion.
Directors are encouraged to question and voice any concerns they
may have on any topic put to the Board for debate.
The Board is supported in its work by Board Committees, which
are responsible for a variety of tasks delegated by the Board. There
is also an Executive Committee composed of the Chief Financial
Officer and representatives from senior management whose
responsibilities are to implement the decisions of the Board and
review the key business objectives and status of projects.
Board decisions and activity during the year
There are a number of standing and routine items included for
review on each Board agenda. These include the CEO’s report and
operations reports, financial reports, consideration of reports from
the Board Committees and investor relations updates. In addition,
key areas put to the Board for consideration and review included:
{ Strategy presentations
{ Presentations from various parts of the business
{ Consideration of financing structures
{ Approval of annual report and financial statements
{ Review of Budget
{ Going concern and cash flow
{ Briefing and review of conflicts of interest
{ Review of AGM business
{ Market Abuse Regulation Compliance
{ Share Dealing Code
30
26011 18/05/2018 Proof 4 Relations with shareholders
The Group maintains communication with institutional
shareholders through individual meetings with Executive Directors,
particularly following publication of the Group’s interim and
full year results. Private shareholders are encouraged to attend
the Annual General Meeting at which the Group’s activities are
considered and questions answered.
General information about the Group is also available on the
Group’s website (www.animalcaregroup.co.uk). This includes
an overview of activities of the Group and details of all recent
Group announcements. The Non-Executive Directors are available
to discuss any matter stakeholders might wish to raise, and the
Chairman and independent Non-Executive Directors will attend
meetings with investors and analysts as required. A review of the
share register is a standing item on the Board’s agenda.
Annual General Meeting
The Company’s Annual General meeting will be held at
11.30 a.m. on Wednesday 27th June 2018 at the offices of Panmure
Gordon & Co, 1 New Change, London, EC4M 9AF. The Notice of
Annual General meeting including the resolutions to be proposed
is set out in a separate Notice of Meeting which accompanies
this report and is available on the Company’s website
(www.animalcaregroup.co.uk).
The Board Committees
There are two Board Committees, the Audit Committee and the
Nomination and Remuneration Committee, both consisting of at
least two independent Non-Executive Directors.
Each Board Committee has approved Terms of Reference setting
out their responsibilities. The Terms of Reference were approved
and reviewed by the Board during the year and are available on
the Company’s website (www.animalcaregroup.co.uk).
Details of the operation of the Board Committees are set out in
their respective reports below. All of the Board Committees are
authorised to obtain, at the Company’s expense, professional
advice on any matter within their Terms of Reference and to have
access to sufficient resources in order to carry out their duties.
Accountability
The Company has in place a system of internal financial controls
commensurate with its current size and activities, which is
designed to ensure that the possibility of misstatement or loss is
kept to a minimum. These procedures include the preparation of
management accounts, forecast variance analysis and other
ad hoc reports. There are clearly defined authority limits
throughout the Group, including those matters that are reserved
specifically for the Board.
Risks throughout the Group are considered and reviewed on a
regular basis. Risks are identified and mitigating actions put into
place as appropriate. Principal risks identified are set out in the
Strategic report on pages 24 and 25. Internal control and risk
management procedures can only provide reasonable and not
absolute assurance against material misstatement. The internal
control procedures were in place throughout the financial year
and up to the date of approval of this report.
31
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR GOVERNANCE Duties
The main duties of the Committee are set out in its Terms of
Reference which are available on the Company’s website (www.
animalcaregroup.co.uk) and include the following:
{ To monitor the integrity of the financial statements of the
Company and any formal announcements relating to the
Company’s financial performance, reviewing significant
financial reporting judgements contained in them;
{ To review the Company’s internal financial controls and, unless
expressly addressed by a separate Board committee composed
of independent directors, or by the Board itself to review the
Group’s internal control and risk management systems;
{ To monitor and review the requirement for, and if established,
the effectiveness of the Group’s internal audit function;
{ To make recommendations to the Board, for it to put to the
shareholders for their approval in general meeting, in relation
to the appointment, reappointment and removal of the
external auditors and to approve the remuneration and terms
of engagement of the external auditors;
{ To review and monitor the external auditors’ independence
and objectivity and the effectiveness of the audit process,
taking into consideration relevant UK professional and
regulatory requirements;
{ To develop and implement policy on the engagement of the
external auditors to supply non-audit services, taking into
account relevant ethical guidance regarding the provision of
non-audit services by the external audit firm; and to report
to the Board, identifying any matters in respect of which it
considers that action or improvement is needed and making
recommendations as to the steps to be taken; and
{ To report to the Board on how it has discharged
its responsibilities.
AUDIT COMMITTEE REPORT
Members of the Committee
Prior to the acquisition of Ecuphar in July 2017, the Audit
Committee comprised two Non-Executive Directors, Nick
Downshire and James Lambert. Following the Board restructure in
July 2017, the Audit Committee (‘the Committee’) now comprises
three Non-Executive Directors:
Nick Downshire (Chairman)
Jan Boone
Edwin Torr
The Board is satisfied that Nick Downshire, as Chairman of the
Committee, has recent and relevant financial experience, being
a qualified chartered accountant who has worked in corporate
finance and venture capital.
The Committee oversees the Group’s and its subsidiaries’ internal
financial controls and risk management systems, recommends the
half and full year financial results to the Board and monitors the
integrity of all formal reports and announcements relating to the
Group’s financial performance.
The Committee challenges both the external auditors and
the management of the Group and reports the findings and
recommendations of the external auditors to the Board. The
Committee will meet to review the proposed audit work, review
the results of the audit work and consider any recommendations
arising from the audit.
The Committee will meet at least three times a year and at such
other times during the year as is necessary to discharge its duties.
Although only members of the Committee have the right to attend
meetings, the Chief Executive Officer, Chief Financial Officer
and external advisers, may be invited to attend for all or a part of
the meeting.
32
26011 18/05/2018 Proof 4 Principal Activities during the Year
The main activities of the Committee during the year included:
{ review of the financial statements and Annual Report
{ consideration of the external audit report and management
representation letter
{ going concern review
{ a retendering exercise for the appointment of the
external auditors
{ review of the 2017 audit plan and audit engagement letter
{ review of the risk management and internal control systems
{ review and approval of the interim results
{ assessment of the need for an internal audit function; and
{ meeting with the external auditors without
management present
Tender Process for the Appointment of the
external auditors
Following the acquisition of Ecuphar NV in July 2071, the
Committee considered it appropriate to retender for the provision
of external audit services to the enlarged Group. A competitive
tender process was conducted in late 2017, resulting in the
appointment of PricewaterhouseCoopers LLP as the Company’s
external auditor with effect from 15th January 2018.
Role of the external auditors
The Committee monitors the relationship with the external auditors
to ensure that auditor independence and objectivity are maintained.
As part of its review the Committee monitors the provision of
non-audit services by the external auditors. The breakdown of fees
between audit and non-audit services is provided in note 22 to the
Group’s Consolidated Financial Statements.
The Committee also assesses the auditors’ independence and
performance. Having reviewed the auditors’ independence
and performance, the Committee recommends that
PricewaterhouseCoopers LLP be reappointed as the Group’s
auditors at the next Annual General Meeting.
Internal Audit
At present the Group does not have an internal audit function
and the Committee believes that management is able to derive
assurance as to the adequacy and effectiveness of internal controls
and risk management procedures without one.
Audit Process
The external auditors prepares an audit plan for its review of the
full year financial statements. The audit plan sets out the scope
of the audit, areas to be targeted and audit timetable. This plan
is reviewed and agreed in advance by the Audit Committee.
Following its review, the external auditors presented their
findings to the Audit Committee for discussion. No major areas
of concern were highlighted by the external auditors during the
year; however, areas of significant risk and other matters of audit
relevance are regularly communicated.
Risk Management and Internal Controls
The Group has established a framework of risk management
and internal control systems, policies and procedures. The Audit
Committee is responsible for reviewing the risk management
and internal control framework and ensuring that it operates
effectively. During the year, the Committee has reviewed the
framework and the Committee is satisfied that the internal control
systems in place are currently operating effectively.
Whistleblowing
The Company has a whistleblowing procedure under which staff
may report any suspicion of fraud, financial irregularity or other
malpractice to any Executive Director.
NICK DOWNSHIRE
CHAIRMAN OF THE AUDIT COMMITTEE
15th May 2018
33
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR GOVERNANCE NOMINATION AND REMUNERATION
COMMITTEE REPORT
Principal activities during the year
{ Recommending to the Board the appointment of new Directors
following the acquisition of Ecuphar NV
{ Consideration of Executive Directors’ bonuses and salaries
{ Consideration of Non-Executive Directors’ fees
{ Review of share option plans
{ Succession planning
Diversity
The Group has in place anti-discrimination policies and encourages
the promotion of women into senior management positions.
This will widen the pool of executives from which to make senior
appointments. The Board believes that appointments to the Board
should be made relative to various criteria including diversity of
background and personal attributes as well as gender, along with
the appropriate skills, experience and expertise. All appointments
are made taking these criteria into account.
JAMES LAMBERT
CHAIRMAN OF THE NOMINATION AND
REMUNERATION COMMITTEE
15th May 2018
Members of the Nomination and
Remuneration Committee
Prior to the acquisition of Ecuphar in July 2017, the Nomination
Committee comprised two Non-Executive Directors, Ray Harding
and James Lambert, and the Remuneration Committee comprised
two Non-Executive Directors, Ray Harding and Nick Downshire.
Following a review of the Group’s governance framework after
the acquisition of Ecuphar NV, it was considered appropriate to
constitute a joint Nomination and Remuneration Committee (“the
Committee”). This comprises five Non-Executive Directors:
James Lambert (Chairman)
Jan Boone
Marc Coucke
Nick Downshire
Edwin Torr
The Committee works closely with the Board to formulate
remuneration policy and to consider succession plans and possible
internal candidates for future Board roles, having regard to the
views of shareholders.
Duties
The main duties of the Committee are set out in its Terms
of Reference which are available on the Company’s website
(www.animalcaregroup.co.uk) and include the following key
responsibilities:
Nomination
{ Leading the process for all potential appointments to the Board
and making recommendations to the Board in relation to
potential appointments;
{ Evaluating the balance of skills, experience, independence and
knowledge on the Board; and
{ In the light of any evaluation, prepare a description of the role
and capabilities required for a particular appointment.
Remuneration
{ Setting remuneration for all Executive Directors and the
Chairman, including pension rights and any compensation
payments; and
{ Recommending and monitoring the level and structure of
remuneration for senior management.
34
26011 18/05/2018 Proof 4 DIRECTORS’ REMUNERATION REPORT
This report covers the period from 1st July 2016 to 31st December
2017 which represents 18 months of remuneration paid to the
Directors of Animalcare Group plc and includes the remuneration
of the Directors who were appointed on 13th July 2017 following
completion of the acquisition of Ecuphar NV.
The disclosures in this report are made to support the Board’s
goals of working towards best practice governance standards as
an AIM company and to promote transparency about how our
Directors are rewarded.
The Nomination and Remuneration Committee
The Board has delegated certain responsibilities for executive
remuneration to the Nomination and Remuneration Committee.
Details of the Nomination and Remuneration Committee, its remit
and its activities are set out on page 34.
The Nomination and Remuneration Committee (“the
Committee”) is, among other things, responsible for setting the
remuneration policy for Executive Directors and the Chairman
and recommending and monitoring the level and structure of
remuneration for senior management.
Remuneration policy
In formulating remuneration policy for the Executive Directors, the
Committee considers a number of factors designed to:
{ have regard to the Director’s experience and the nature and
complexity of their work in order to pay a competitive salary,
in line with comparable companies, that attracts and retains
Directors of the highest quality;
{ reflect the Director’s personal performance; and
{ link individual remuneration packages to the Group’s long-term
performance and continued success of the Group through the
award of annual bonuses and share-based incentive schemes.
The objective of the remuneration policy is to promote the
long-term success of the Company, having regard to the views of
shareholders and stakeholders.
Executive Directors
Current components of the Executive Directors’ remuneration are
base salary, annual bonus and share-based incentive schemes.
Base salary
Base salary is reviewed annually by the Committee.
Annual bonus
The Committee has agreed performance conditions for the annual
bonuses of the Executive Directors based on the achievement of
certain financial and operational KPIs. Each Executive Director has
performance conditions related to the profitable growth of the
Group and has additional performance conditions relevant to their
own areas of responsibility.
Other benefits
A range of benefits may be provided including private medical
insurance, life assurance, long-term disability insurance,
general employee benefits and travel and related expenses. The
Committee also retains the discretion to offer additional benefits
as appropriate, such as assistance with relocation, tax equalisation
and overseas tax advisory fees.
Service agreements and termination payments
Details of the Executive Directors’ service agreements are set
out below.
Director
Chris Cardon
Chris Brewster
Date of
contract
Unexpired
term
23rd June
2017
24th
January
2012
Rolling
contract
Rolling
contract
Notice
period by
Company
Notice
period by
Director
12 months
12 months
6 months
6 months
Iain Menneer resigned as a director on 26th April 2018.
The Executive Directors may be put on gardening leave during
their notice period, and the Company can elect to terminate their
employment by making a payment in lieu of notice of up to the
applicable notice period.
Employees’ pay
Employees’ pay and conditions across the Group are considered
when reviewing remuneration policy for Executive Directors.
Non-Executive Directors
The remuneration payable to Non-Executive Directors (other than
the Chairman) is decided by the Chairman and Executive Directors.
Fees are designed to ensure the Company attracts and retains high
calibre individuals. They are reviewed on an annual basis and account
is taken of the level of fees paid by other companies of a similar
size and complexity. Non-Executive Directors do not participate in
any annual bonus, share options or pension arrangements. The
Company repays the reasonable expenses that Non-Executive
Directors incur in carrying out their duties as Directors.
Terms of appointment
Each of the Non-Executive Directors signed a letter of appointment
on 23rd June 2017 for a period of three years which can be
terminated by either party giving to the other one month’s prior
written notice.
35
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR GOVERNANCE ANNUAL REMUNERATION REPORT
This report covers the period from 1st July 2016 to 31st December 2017 which represents 18 months of remuneration paid to the
Directors of Animalcare Group plc and includes the remuneration of the Directors who were appointed on 13th July 2017 following
completion of the acquisition of Ecuphar NV. This report also sets out details of the Executive Directors’ share options and the Directors’
interests in the share capital of the Company.
Directors’ remuneration table (audited)
Director
Executive Directors
Chris Brewster
(resigned on 13th July 2017, reappointed on 25th September 2017)
Chris Cardon (appointed 13th July 2017)
Iain Menneer
Walter Beyers
(appointed 13th July 2017, resigned 25th September 2017)
Non-Executive Directors
Jan Boone (appointed 13th July 2017)
Marc Coucke (appointed 13th July 2017)
Nick Downshire
Ray Harding (resigned 13th July 2017)
James Lambert
Edwin Torr (appointed 13th July 2017)
Base
salary
£’000
Benefits
in kind
£’000
Pensions
£’000
Annual
performance
bonus
£’000
Compensation
for loss
of office
Total 18 month
period to
31st December
2017
£’000
Total
2016
(12 months)
£’000
184
205
282
71
35
19
43
24
55
19
12
–
15
–
–
–
5
–
–
–
22
–
34
–
–
–
–
–
–
–
46
–
63
–
–
–
–
–
–
–
–
–
–
45
–
–
–
12
–
–
264
205
394
116
35
19
48
36
55
19
137
–
186
–
–
–
26
23
35
–
Share option schemes
Prior to the acquisition of Ecuphar NV on 13th July 2017, the Company operated three share option schemes: the Executive Share Option
scheme under the Enterprise Management Incentive (EMI) scheme, the Savings Related Share Option scheme (SAYE) and a Long Term
Incentive Plan (LTIP).
Non-Executive Directors are not eligible to participate in the Company’s share option schemes.
Details of the options held by the Executive Directors under the Executive Share Option Scheme, EMI and SAYE at the beginning and
the end of the period and details of options exercised during the period are set out below. All vested options were exercised following
completion of the acquisition of Ecuphar NV on 13th July 2017.
EMI
EMI
EMI Unapproved
SAYE Unapproved
EMI
SAYE
Total
£1.30
22nd June
2012
£1.30
2nd Aug
2012
£1.325
20th Nov
2012
£1.40
21st Feb
2013
£1.03
22nd May
2013
£1.415
20th June
2013
£1.415
20th June
2013
£1.05
28th Nov
2014
–
–
–
60,000
(60,000)
–
50,000
(50,000)
–
90,000
(90,000)
–
30,000
(30,000)
30,000
(30,000)
–
–
–
–
–
–
–
4,377
(4,377)
–
8,754
(8,754)
–
90,000
(90,000)
–
–
–
–
5,142
5,142
299,519
– (294,377)
5,142
–
–
–
40,000
(40,000)
–
8,571
117,325
(8,571) (108,754)
8,571
8,571
Scheme
Exercise Price
Date of Grant
Iain Menneer
Outstanding at 1st July 2016
Exercised during the period
Open at 31st December 2017
Chris Brewster
Outstanding at 1st July 2016
Exercised during the period
Open at 31st December 2017
36
26011 18/05/2018 Proof 4 The Group previously operated a Long Term Incentive Plan which
was introduced in June 2014 (“LTIP 2014”) and was implemented
via a subscription for growth shares in the capital of Animalcare Ltd,
a subsidiary of the Company. This is closed to new members and no
further options will be granted under the LTIP 2014. In 2014, Iain
Menneer and Chris Brewster were granted the following options
{ Iain Menneer – 31,955 A Ordinary Shares of £1.00 each (“A
Shares”) for a total cash subscription of £31,955, representing
5.2% of Animalcare Ltd’s issued share capital; and
{ Chris Brewster – 19,173 A Shares, representing 3% of
Animalcare Ltd’s issued share capital and 11,800 B Ordinary
Shares of £1.00 each (“B Shares”), representing a further
2% of Animalcare Ltd’s issued share capital, for a total cash
subscription of £30,973.
The total cash subscriptions were, based on independent
valuation, considered to be equal to fair value at the time of
acquisition. Both Directors had the right to sell their A Shares to
the Company at any time after 27th June 2017 in exchange for
Ordinary Shares of 20 pence each in the Company (“Ordinary
Shares”). Their rights to sell the A Shares are subject to, amongst
other provisions, the Company having a market capitalisation
in excess of £39.0m (“the Hurdle”) at the time of sale. The
Hurdle was determined by the Remuneration Committee and
broadly represented a 20% premium to the Company’s market
capitalisation on 27th June 2014. Each holder of A Shares would, on
a sale of his entire holding to the Company, be entitled to receive
Ordinary Shares representing a percentage of the increase in the
Company’s market capitalisation above the Hurdle; being 5% for
Iain Menneer and 3% for Chris Brewster. Holders of the A Shares
did not have a right to receive a dividend, except for any amounts
distributed on the winding up of the Company or on an asset sale.
Holders of the B Shares were not entitled to participate in any
increase in the value of the Company above the Hurdle but can be
exchanged for Ordinary Shares of an equal value at any time after
27th June 2017. Holders of the B Shares had a right to an annual
dividend (on a non-fixed coupon basis), calculated by applying a
rate of LIBOR + 2% to the nominal value of the B Shares.
In June 2017, it was agreed between the Company, Iain Menneer
and Chris Brewster that the options under the LTIP 2014 did not
become exercisable as a result of the acquisition of Ecuphar NV.
The Company however determined that it was appropriate to
offer the right to exchange their shares in Animalcare Limited for
Ordinary Shares shortly before completion of the acquisition, and
each took up that right. As a consequence, 918,896 new Ordinary
Shares were issued to Iain Menneer and Chris Brewster on
12th July 2017. The number of new Ordinary Shares issued
pursuant to the exercise of these rights was determined using the
lower of the closing middle market price for an Ordinary Share on
22nd June 2017, being the dealing day before the date the offer to
exchange was made and the average of the closing middle market
prices for an Ordinary Share over the dealing days in the 30 day
period before that date, being 392.5 pence.
A new Long Term Incentive Plan, the Animalcare Group plc Long
Term Incentive Plan 2017 (“the New LTIP”) was approved by the
Board in June 2017. A summary of the New LTIP was set out in the
circular sent to shareholders on 24th June 2017 which is available
on the Company’s website (www.animalcaregroup.co.uk). No
options have been granted under the New LTIP as at the date of
this report. The Nomination and Remuneration Committee will
consider the grant of options to Executive Directors under the New
LTIP during the current financial year.
Directors’ Interests in the Share Capital of the Company
The Directors’ interests in the share capital of the Company as at 31st December 2017 and the movements during the period covered by
this report are set out below:
Director
Jan Boone
Chris Brewster
Chris Cardon
Marc Coucke
Nick Downshire
James Lambert
Iain Menneer
Edwin Torr
Number of
shares
held as at
1st July
2016
–
4,079
Acquired/
(disposed)
during the
period
50,171
276,434
–
–
13,857,297
13,857,297
1,109,583
1,313,691
17,739
–
(77,992)
–
584,193
107,455
Number of
shares held
as at
31st December
2017
Percentage of
ISC as at
31st December
2017
50,171
280,513
13,857,297
13,857,297
1,031,591
1,313,691
601,932
107,455
0.08
0.47
23.09
23.09
1.72
2.19
1.00
0.18
In addition, as at 1st July 2016, Nick Downshire had a non-beneficial interest of 310,446 held via the Downshire 1992 Settlement Trust.
On 16th August 2017, The Downshire 1992 Settlement Trust disposed of 120,000 shares. As at 31st December 2017, Nick Downshire had a
non-beneficial interest of 190,446 shares.
JAMES LAMBERT
CHAIRMAN OF THE NOMINATION
AND REMUNERATION COMMITTEE
15th May 2018
37
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR GOVERNANCE DIRECTORS’ REPORT
The Directors present their report on the Group and Company,
together with the audited Consolidated Financial Statements of
the Group for the year ended 31st December 2017 and the audited
Financial Statements of the Company for the 18 month period
ended 31st December 2017.
Principal Activities
Animalcare Group plc is a public limited company incorporated
in England and Wales with registered number 01058015, which
is listed on the Alternative Investment Market (“AIM”) of London
Stock Exchange.
The principal activity of the Group during the period was the
development, sale and distribution of licensed veterinary
pharmaceuticals and identification products and services to
companion animal veterinary markets.
Statutory Information contained elsewhere in the
Annual Report
Information required to be part of the Directors’ report can
be found elsewhere in this document, as indicated, and is
incorporated into this report by reference:
Results and dividend in the Chairman’s Statement on page 02.
Corporate Governance and the Group’s financial risk management
objectives in the Corporate Governance report on pages 28 to 39.
Details of the salaries, bonuses, benefits and share interests of
Directors in the Directors’ remuneration report on page 36 and 37.
Directors’ responsibility statements on page 40.
Likely future events and all post-balance sheet events are disclosed
within the Strategic report on pages 10 to 25.
Directors and Directors’ Interests
The names of the current Directors of the Company and their
biographical details are shown on pages 26 to 27. Changes to
directorships during the reporting period are shown on page
29. Details of Directors’ interests in the shares of the Company
are shown on page 37. This information is incorporated into this
report by reference.
Research and Development
Our new product development programme is key to the future
long-term growth and success of the Group and we are committed
to the development of new and innovative products to meet the
needs of our customers. Further information in relation to product
development can be found in the Chief Executive Officer’s Review.
During the period under review, the Group incurred research and
development expenditure including additions to intangibles of
£3.9m (2016: £4.3m).
Articles of Association
Any amendments to the Articles of Association of the Company
may be made by Special Resolution of the shareholders.
Financial Instruments and Risk Management
Disclosures regarding risk management and financial instruments
are provided within the Strategic Report and in note 23 to the
Consolidated Financial Statements on page 86.
Share capital
The Company’s issued share capital as at 31st December 2017 was
£11,982,780 divided into 59, 913,900 ordinary shares of 20 pence
each. Further details of changes to the Company’s issued share
capital during the financial period are provided in note 21 to the
Consolidated Financial Statements on page 84.
Since the end of the financial period, the Company allotted
100,619 ordinary shares of 20 pence each on 22nd February 2018,
in respect of its Save As Your Earn (SAYE) Share Option Scheme.
The Company’s issued share capital as at 9th May 2018, being the
latest practicable date before the publication of this report, was
60,014,519 ordinary shares of 20 pence each.
The Company’s ordinary shares rank pari passu in all respects with
each other, including for voting purposes and for all dividends.
Further information on the voting and other rights of shareholders
are set out in the Company’s Articles of Association which are
available on the Company’s website (www.animalcaregroup.co.uk).
Directors’ Liability Insurance
The Group purchases and maintains Directors’ and Officers’
liability insurance for the benefit of its Directors, which was in
place throughout the period ended 31st December 2017 and
remains in place at the date of this report.
Political Donations
No political donations were made during the year (2016: £nil).
Employees
The Board recognises that the Group’s performance and success
are directly related to our ability to attract, retain and motivate
high calibre employees. We are committed to linking reward to
business and individual performance, thereby giving employees
the opportunity to share in the financial success of the Group.
Employees are typically provided with financial incentives related
to the performance of the Group in the form of annual bonuses.
The Board also recognises employees for their contribution
through the use of employee incentive plans and share plans
within overall remuneration.
Applications for employment by disabled persons are given
full and fair consideration. When existing employees become
disabled every effort is made to provide continuing employment
wherever possible.
38
26011 18/05/2018 Proof 4 Significant Shareholdings
The Company has been notified of the following interests or is
otherwise aware of the following interests,representing 3% or
more of the issued share capital of the Company as at 30th April
2018, a date not more than one month before the date of the
notice of the Annual General Meeting:
Name of holder
Alychlo NV
Ecuphar Invest NV
Liontrust Asset Management
Hargreave Hale
No. of
ordinary
shares
13,857,297
13,857,297
4,724,689
2,188,591
%
holding
23.09
23.09
7.87
3.65
Relationship Agreement
On 23rd June 2017, the Company entered into the Relationship
Agreement with Panmure Gordon,the Company’s nominated
adviser and broker and Alychlo NV and Ecuphar Invest NV (“the
Substantial Shareholders”). The Substantial Shareholders together
own more than 40% of the Group’s total issued share capital.
The Relationship Agreement is intended to ensure that the
Company will at all times be capable of carrying on the business
independently of each of the Substantial Shareholders and
their respective Shareholder Groups (being the Associate of the
Substantial Shareholders) and all transactions and arrangements
between i) the Company and ii) each of the Substantial
Shareholders and the members of their respective Shareholder
Groups will be at arm’s length and on normal commercial terms.
The Board confirms that, at all times since it was entered into:
{ the Company has complied with its obligations under the
Relationship Agreement; and
{ so far as the Company is aware, the Substantial Shareholders
and their respective Shareholder Groups have complied with
the provisions of the Relationship Agreement.
Going Concern
The principal risks and uncertainties facing the Group are set out
on pages 24 to 25.
For the purposes of their assessment of the appropriateness
of the preparation of the Group’s accounts on a going concern
basis, the Directors have considered the current cash position
and forecasts of future trading including working capital and
investment requirements.
During the year the Group met its day-to-day general corporate
and working capital requirements through existing cash resources.
At 31st December 2017 the Group had cash on hand of £7.1m
(30th June 2015: £5.8m).
Overall, the Directors believe the Group is well placed to manage
its business risks successfully and continue to be profitable and
cash generative. The Group’s forecasts and projections, taking
account of reasonable possible changes in trading performance,
show that the Group should have sufficient cash resources to meet
its requirements for at least the next 12 months. Accordingly, the
adoption of the going concern basis in preparing the financial
statements remains appropriate.
Auditors
Each of the persons who is a Director at the date of this Annual
Report confirms that:
{ So far as the Director is aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
{ The Director has taken all the steps that he ought to have taken
as a Director in order to make himself aware of any relevant
audit information and to establish that the Group’s auditor is
aware of that information.
This confirmation is given and should be interpreted in accordance
with the provisions of s418 of the Companies Act 2006.
A resolution to reappoint PricewaterhouseCoopers LLP as auditors
and to authorise the Directors to determine their remuneration will
be put to the members at the forthcoming Annual General Meeting.
Annual General Meeting
The Company’s Annual General meeting will be held at 11.30 a.m.
on Wednesday 27th June 2018 at the offices of Panmure Gordon,
1 New Change, London, EC4M 9AF. The Notice of Annual General
meeting including the resolutions to be proposed is set out in a
separate Notice of Meeting which accompanies this report and is
available on the Company’s website www.animalcaregroup.co.uk
Approval
The Strategic report on pages 01 to 25 and this Directors’ report on
pages 38 to 39 were approved by the Board on 15th May 2018.
Approved by the Board and signed on its behalf
CHRIS BREWSTER
CHIEF FINANCIAL OFFICER
AND COMPANY SECRETARY
15th May 2018
39
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR GOVERNANCE STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulation.
The directors are also responsible for safeguarding the assets of
the group and company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
Company law requires the directors to prepare financial
statements for each financial period. Under that law the directors
have prepared the group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted
by the European Union and company financial statements in
accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union. Under company law
the directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state
of affairs of the group and company and of the profit or loss of
the group and company for that period. In preparing the financial
statements, the directors are required to:
{ select suitable accounting policies and then apply them
consistently;
{ state whether applicable IFRSs as adopted by the European
Union have been followed for the group financial statements
and IFRSs as adopted by the European Union have been
followed for the company financial statements, subject to any
material departures disclosed and explained in the financial
statements;
{ make judgements and accounting estimates that are
reasonable and prudent; and
{ prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and
company will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the group and
company’s transactions and disclose with reasonable accuracy
at any time the financial position of the group and company and
enable them to ensure that the financial statements comply
with the Companies Act 2006 and, as regards the group financial
statements, Article 4 of the IAS Regulation.
The directors are responsible for the maintenance and integrity
of the company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The directors consider that the annual report and accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the group and
company’s performance, business model and strategy.
Each of the directors, whose names and functions are listed
in the Board of Directors section confirm that, to the best of
their knowledge:
{ the company financial statements, which have been prepared
in accordance with IFRSs as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial
position and profit of the company;
{ the group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give
a true and fair view of the assets, liabilities, financial position
and profit of the group; and
{ the Directors’ Report includes a fair review of the development
and performance of the business and the position of the group
and company, together with a description of the principal risks
and uncertainties that it faces.
CHRIS BREWSTER
CHIEF FINANCIAL OFFICER
AND COMPANY SECRETARY
15th May 2018
40
26011 18/05/2018 Proof 4 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF ANIMALCARE GROUP PLC
Report on the audit of the financial statements
Opinion
In our opinion, Animalcare Group plc’s Group financial statements and Company financial statements (the “financial statements”):
{ give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31st December 2017 and of the Group’s profit
and the Group’s and the Company’s cash flows for the period then ended;
{ have been properly prepared in accordance with IFRSs as adopted by the European Union and, as regards the Company’s financial
statements, as applied in accordance with the provisions of the Companies Act 2006; and
{ have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report, which comprise: the Group and parent Company
statements of financial position as at 31st December 2017; the Group income statement and statement of comprehensive income, the
Group and parent Company statements of cash flows, and the Group and parent Company statements of changes in equity for the period
then ended; and the notes to the financial statements, which include a description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of
our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
Our audit approach
Overview
Materiality
Audit scope
Key
Audit
Ma�ers
{ Overall Group materiality: £255,000, based on 2.5% of Adjusted EBITDA.
{ Overall Company materiality: £100,000, based on the lower of component and statutory
materiality (statutory materiality based on 0.5% of net assets).
{ We, as the Group engagement team, audited the two components based in the UK - being
Animalcare Group plc and Animalcare Limited.
{ The components based overseas - being Ecuphar NV, Medini NV, Othopaedics and Ecuphar
Spain - have been audited by PwC component auditors. We were heavily involved at all
stages of their audits by virtue of numerous communications throughout the process,
including the issuance of detailed audit instructions, review and discussion of audit findings,
in particular over our areas of focus.
{ As a result of this scoping we obtained coverage over 77% of the Group’s external revenues
and 88% of the Group’s EBITDA.
{ Accounting for the reverse acquisition of Ecuphar NV (Group and parent).
{ Accounting for complex customer arrangements (Group).
{ Carrying value of intangibles in relation to New Product Development (Group).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In
particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that
involved making assumptions and considering future events that are inherently uncertain.
As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was
evidence of bias by the Directors that represented a risk of material misstatement due to fraud.
41
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF ANIMALCARE GROUP PLC
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures
thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
We obtained and read the relevant terms of the purchase
agreements to inform our further audit procedures to test the
accounting for the acquisition.
We tested the recognition in the Consolidated Financial
Statements of the fair value of the assets and liabilities acquired
(and residual goodwill). In doing so, we:
{ tested the valuation of the acquired intangibles by testing
if the assumptions used in the calculations were consistent
with our understanding of the acquisition and through
agreement to supporting evidence. In addition, we utilised our
internal valuation experts to assess the reasonableness of the
valuation methodology and other key assumptions driving the
valuation, specifically the discount rate applied. We found no
inconsistencies in the assumptions used in the valuation; and
{ considered whether any other intangible assets should have
been identified, based on our understanding of the transaction,
our knowledge of the business, the purchase agreements and
discussions with the Directors; we did not identify any.
We have also reviewed the financial statement disclosures to
ensure that the reverse acquisition is appropriately disclosed in
line with IFRS; we did not identify any issues.
To test customer rebates, we:
{ recalculated, for a sample of customers, the customer rebate
expense recognised within the Income Statement in the year,
and provided for at the Balance Sheet date, finding them to be
broadly consistent;
{ tested whether any rebate arrangements had been omitted
from the amounts charged in the year, and liabilities held at the
Balance Sheet date, by checking the contractual arrangements
with the Group’s most significant customers to make sure that
all rebate arrangements had been identified by the Directors
and did not identify any that had been omitted; and
{ agreed amounts settled with customers post period end to
source documentation (credit notes and cash payment) to
check they had been accounted for in the right accounting
period, and found no instances of amounts recorded in the
wrong period.
Accounting for the reverse acquisition of Ecuphar N.V.
On 13th July 2017 the Group acquired 100% of the share capital
of Ecuphar NV via a share-for-share exchange. In line with the
requirements of IFRS 3, this is being accounted for as a reverse
acquisition given the relative size of Ecuphar NV in comparison
to Animalcare Group plc.
We focused on this area because the accounting for acquisitions
involves judgement and estimates that have a material impact
on the amounts recognised in the Group Financial Statements,
including:
{ determining the fair value of intangible assets acquired,
which largely consists of Animalcare Group plc’s proprietary
product portfolio and pipeline of new products, and the
useful economic lives of these identified intangibles;
{ determining the fair value of other assets and liabilities
acquired; and
{ determining the appropriate disclosures and accounting
treatment in relation to the reverse acquisition.
Accounting for complex customer arrangements
The Group provide rebate discounts and equipment deals
to buying groups, corporate owned veterinary practices and
independent veterinary practices. These are contractual and
vary by customer and product type.
We focused on this area because the amount of customer
rebates payable in respect of the year is determined by the
contract terms for each customer, which are negotiated
separately and, as a result, differ from one another. This means
that the calculation of the rebates recognised in the Income
Statement, and as a payable at the year end, relies on a manual
process, which is inherently more prone to error than systems-
based processes. We also focused on the completeness of the
Income Statement charge and year end provision due to the risk
of potential omission given the manual nature of the process.
42
26011 18/05/2018 Proof 4 Key audit matter
How our audit addressed the key audit matter
Carrying value of intangibles in relation to
New Product Development
New Product Development expenditure is capitalised and
amortised over the estimated economic life of the product
when the relevant criteria of IAS 38 “Intangible assets” are
met. Judgement is required when assessing the technical and
commercial feasibility of New Product Development projects,
including whether regulatory approval will be achieved. Given
the level of judgement involved we have focused on this area.
The risk we focused on is that the carrying value of these
intangibles may be overstated and that an impairment charge
may be required.
To assess the carrying value of intangibles in relation to New
Product Development we have:
{ tested a sample of costs capitalised during the year to assess
whether these have been appropriately treated in line with
the Group’s accounting policy and accounting standards, most
notably IAS 38 “Intangible assets”, and noted no issues;
{ met with management responsible for the particular costs
to obtain an understanding of the associated project and to
independently assess whether project costs meet the criteria
for capitalisation as set out in accounting standards; we agreed
with management’s judgements;
{ reviewed management’s feasibility analysis for ongoing new
product development projects, which considers the payback
period, being the point in time when the New Product
Development will turn a profit based on its expected future
earnings potential. This has been reviewed to assess the
carrying value of the related intangible assets with no issues
noted; and
{ determined that the disclosure detailed within note 10 is
consistent with the requirements of IAS 38 “Intangible assets”.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements
as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in
which they operate.
The Group operates through 13 components in a number of different countries. The procedures performed over the components (either
by the Group team or PwC component audit teams) accounted for 77% of the Group’s external revenues and 88% of the Group’s EBITDA.
We, as the Group engagement team, tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial statements as a whole, taking into account the geographic structure of the Group, the accounting processes and
controls, and the industry in which the Group operates.
We, as the Group engagement team, performed an audit of the complete financial information for the two UK components – Animalcare
Group plc and Animalcare Limited. For the remaining components of the Group, being Ecuphar NV, Medini NV, Othopaedics and Ecuphar
Spain, PwC component auditors, under our instructions, performed an audit of their complete financial information.
Where the work was performed by PwC component auditors we determined the level of involvement we needed to have in the
audit work at those components to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis
for our opinion on the Group financial statements as a whole. We were involved at all stages of their audits by virtue of numerous
communications throughout the process, including the issuance of detailed audit instructions, review and discussion of audit findings, in
particular over our areas of focus. We, as the Group engagement team, were also responsible for other head office activities such as the
Purchase Price Allocation in relation to the reverse acquisition of Ecuphar and the financial statement disclosures.
The procedures performed over the components (either by the Group team or PwC component audit teams) accounted for 77% of the
Group’s external revenues and 88% of the Group’s EBITDA.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our
audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.
43
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF ANIMALCARE GROUP PLC
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Company financial statements
Overall materiality
£255,000
£100,000
How we determined it
2.5% of Adjusted EBITDA.
Based on the lower of component and statutory
materiality (statutory materiality based on 0.5% of
net assets).
Rationale for benchmark
applied
Based on the benchmarks used in the Annual
Report, EBITDA is the primary measure used by
the shareholders in assessing the performance of
the Group, and is a generally accepted auditing
benchmark.
We believe that net assets is considered to be
appropriate as it is not a profit-oriented company.
The Company holds the investments in subsidiaries
and therefore net assets is deemed a generally
accepted auditing benchmark.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range
of materiality allocated across components was between £100,000 and £240,000.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £13,000 (Group audit)
and £13,000 (Company audit) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when:
{ the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
{ the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about
the Group’s and Company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months
from the date when the financial statements are authorised for issue.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s and
Company’s ability to continue as a going concern.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any
form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are
required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies
Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report
certain opinions and matters as described below.
44
26011 18/05/2018 Proof 4
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’
Report for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements.
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we
did not identify any material misstatements in the Strategic Report and Directors’ Report.
Responsibilities for the financial statements and the audit
Responsibilities of the Directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the financial
statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are also
responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Company’s ability to continue as
a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3
of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for
any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
{ we have not received all the information and explanations we require for our audit; or
{ adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from
branches not visited by us; or
{ certain disclosures of Directors’ remuneration specified by law are not made; or
{ the Company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
IAN MORRISON (SENIOR STATUTORY AUDITOR)
FOR AND ON BEHALF OF PRICEWATERHOUSECOOPERS LLP
CHARTERED ACCOUNTANTS AND STATUTORY AUDITORS
LEEDS
15th May 2018
45
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS CONSOLIDATED INCOME STATEMENT
Y E A R E N D E D 31 S T D E C E M B E R 2017
Non-
underlying
(note 5)
Underlying
Total
2017
£’000
83,676
(49,413)
34,263
(2,799)
2017
£’000
−
(401)
(401)
(751)
−
(14,098)
Non-
underlying
(note 5)
2016
£’000
−
−
−
(272)
−
Underlying
2016
£’000
68,361
(40,086)
28,275
(1,504)
(9,740)
Total
2016
£’000
68,361
(40,086)
28,275
(1,776)
(9,740)
(3,590)
(14,404)
(10,384)
(2,223)
(12,607)
(1,817)
(6,559)
−
−
(6,559)
1,459
(5,100)
(1,762)
1,200
(747)
91
544
(360)
184
73
6,720
(988)
97
5,829
(1,864)
3,965
1,814
(681)
−
−
(681)
232
(449)
1,887
6,039
(988)
97
5,148
(1,632)
3,516
Notes
6
7.1
7.2
7.3
7.4
7.5
7.8
7.9
7.10
2017
£’000
83,676
(49,012)
34,664
(2,048)
(14,098)
(10,814)
55
7,759
(747)
91
7,103
(1,819)
5,284
5,284
(5,100)
184
3,965
(449)
3,515
8
8
12.6p
12.5p
0.4p
0.4p
16.7p
16.7p
14.8p
14.8p
Revenue
Cost of sales
Gross profit
Research and development expenses
Selling and marketing expenses
General and administrative expenses
Net other operating income/
(expenses)
Operating profit/(loss)
Financial expenses
Financial income
Profit/(loss) before tax
Income tax
Net profit/(loss)
Net profit/(loss) attributable to:
The owners of the parent
Earnings per share attributable to
ordinary owners of the parent
Basic
Diluted
In order to aid understanding of underlying business performance, the Directors have presented underlying results before the effect of
exceptional and other items. These exceptional and other items are analysed in detail in note 5 to these financial statements.
The accompanying notes form an integral part of the consolidated financial information.
46
26011 18/05/2018 Proof 4
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
Y E A R E N D E D 31 S T D E C E M B E R 2017
Net profit for the year
Other comprehensive income
Financial instruments at fair value through OCI *
Cumulative translation differences *
Other comprehensive income, net of tax
Total comprehensive income for the year, net of tax
Total comprehensive income attributable to:
The owners of the parent
* May be reclassified subsequently to profit & loss.
2017
£’000
184
−
664
664
848
848
2016
£’000
3,516
(5)
2,515
2,510
6,026
6,026
47
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION
Y E A R E N D E D 31 S T D E C E M B E R 2017
Assets
Non-current assets
Goodwill
Intangible assets
Property, plant & equipment
Deferred tax assets
Other financial assets
Other non-current assets
Total non-current assets
Current assets
Inventories
Trade receivables
Available-for-sale financial assets
Other current assets
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Borrowings
Trade payables
Tax payables
Accrued charges & deferred income
Other current liabilities
Total current liabilities
Non-current liabilities
Borrowings
Deferred tax liabilities
Deferred income
Provisions
Total non-current liabilities
Total Liabilities
Net Assets
Equity
Share capital
Share premium
Reverse acquisition reserve
Retained earnings
Other reserves
Equity attributable to the owners of the parent
Non-controlling interest
Total equity
Notes
9
10
11
7.10
12
13
20
13
14
16
15
18
19
16
7.10
18
17
21
21
21
2017
£’000
2016
£’000
51,413
54,037
825
1,603
72
−
107,950
16,795
16,680
464
1,934
7,579
43,452
151,402
(633)
(14,128)
(2,741)
(2,116)
(1,980)
(21,598)
(32,854)
(6,454)
(780)
(72)
(40,160)
(61,758)
89,644
11,983
132,588
(56,762)
(1,347)
3,180
89,642
2
89,644
9,959
21,246
719
1,269
69
1
33,263
13,254
10,781
423
1,191
951
26,600
59,863
(631)
(10,012)
(1,774)
(812)
(2,237)
(15,466)
(24,102)
(224)
−
(216)
(24,542)
(40,008)
19,855
4,244
6,687
5,146
1,258
2,518
19,853
2
19,855
The accompanying notes form an integral part of these consolidated financial statements.
The financial statements of Animalcare Group Plc, registered number 1058025, were approved by the board of directors and authorized
for issue on 15th May 2018. They were signed on behalf by:
CHRIS CARDON
CHIEF EXECUTIVE OFFICER
CHRIS BREWSTER
CHIEF FINANCIAL OFFICER
48
26011 18/05/2018 Proof 4
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
Y E A R E N D E D 31 S T D E C E M B E R 2017
At 1st January 2017
Net profit
Other comprehensive
income
Total comprehensive
income
Dividends paid
Shares issued as
consideration
Share
capital
£’000
4,244
Share
premium
£’000
6,687
−
−
−
−
−
−
−
−
5,750
94,880
Exercise of share options
275
3,953
Share issue cost
Arising on reverse
acquisition
−
−
(1,218)
−
Issue of new shares
1,714
28,286
Share-based payments
−
−
At 31st December 2017
11,983
132,588
Attributable to the owners of the parent
Treasury
shares
£’000
Retained
earnings
£’000
Reverse
acquisition
reserve
£’000
Other
reserve
£’000
Non-
controlling
interest
£’000
Total
£’000
1,258
184
−
184
(2,816)
−
−
−
−
−
27
5,146
2,518
19,853
−
−
−
−
−
−
−
(61,908)
−
−
−
184
662
662
662
846
−
−
−
−
−
−
−
(2,816)
100,630
4,228
(1,218)
(61,908)
30,000
27
2
−
−
−
−
−
−
−
−
−
−
Total
equity
£’000
19,855
184
662
846
(2,816)
100,630
4,228
(1,218)
(61,908)
30,000
27
At 1st January 2016
Net profit
Other comprehensive income
Total comprehensive income
Dividends paid
Capital increase in cash
Share
capital
£’000
7,256
−
−
−
−
−
−
At 31st December 2016
7,256
8,821
Arising on reverse acquisition
(3,012)
(2,134)
At 31st December 2016
4,244
6,687
(1,347)
(56,762)
3,180
89,642
2
89,644
Attributable to the owners of the parent
Share
premium
£’000
Treasury
shares
£’000
Retained
earnings
£’000
Reverse
acquisition
reserve
£’000
8,821
(646)
−
−
−
−
−
−
(142)
3,515
−
3,515
(1,469)
646
(646)
−
−
−
−
−
1,258
−
1,258
−
−
−
−
−
−
−
−
5,146
5,146
Other
reserve
£’000
8
−
2,510
2,510
−
−
−
Total
£’000
15,297
3,515
2,510
6,025
(1,469)
−
−
2,518
19,853
−
−
2,518
19,853
Non-
controlling
interest
£’000
Total
equity
£’000
2
15,299
−
−
−
−
−
−
2
−
2
3,515
2,510
6,025
(1,469)
−
−
19,855
−
19,855
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
Reverse acquisition reserve
Reverse acquisition reserve represents the reserve that has been created upon the reverse acquisition of Animalcare Group plc.
Other reserve
Other reserve mainly relates to currency translation differences. These exchange differences arise on the translation of subsidiaries with
a functional currency other than Sterling.
49
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS
CONSOLIDATED CASH FLOW
STATEMENT
Y E A R E N D E D 31 S T D E C E M B E R 2017
Operating activities
Profit before tax
Non-cash and operational adjustments
Depreciation of property, plant and equipment
Amortisation of intangible assets
Share-based payment expense
Loss/(gain) on disposal of property, plant and equipment
Movement in allowance for bad debt and inventories
Financial income
Financial expense
Impact of foreign currencies
Gain from sale of subsidiaries
Other
Movements in working capital
Increase in trade receivables
Decrease /(increase) in inventories
(Decrease)/increase in payables
Income tax paid
Net cash flow from operating activities
Investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from the sale of property, plant and equipment (net)
Payments to acquire subsidiaries
Cash and cash equivalents acquired under reverse acquisition
Proceeds from sale of subsidiary
Purchase available for sale financial investments
Net cash flow used in investing activities
Notes
2017
£’000
2016
£’000
544
5,148
11
10
7.9
7.8
4
11
10
4
4
4
327
6,053
27
2
652
(91)
747
25
−
(30)
(2,079)
(1,359)
(2,115)
(278)
2,425
(184)
(2,379)
31
(33,145)
6,293
−
(45)
(29,429)
326
3,982
−
(1)
536
(97)
988
1,787
(2,432)
30
(1,447)
(890)
2,530
(1,172)
9,288
(463)
(1,185)
74
−
–
3,211
(409)
1,228
50
26011 18/05/2018 Proof 4
CONSOLIDATED CASH FLOW
STATEMENT CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
Financing activities
Proceeds from loans and borrowings and convertible debt
Repayment of loans and borrowings
Receipts from issue of share capital
Dividends paid
Interest paid
Other financial expense
Net cash flow from financing activities
Net increase of cash and cash equivalents
Cash and cash equivalents at beginning of the year
Exchange rate differences on cash and cash equivalents
Cash and cash equivalents at end of the year
Reconciliation of net cash flow to movement in net debt
Net increase in cash and cash equivalents in the year
Cash flow from (increase)/decrease in debt financing
Foreign exchange differences on cash and borrowings
Movement in net debt in the year
Net debt at the start of the year
Net debt at the end of the year
Notes
2017
£’000
2016
£’000
8,298
(649)
29,402
(2,816)
(528)
(129)
33,578
6,574
951
54
7,579
6,574
(7,649)
(1,051)
(2,126)
(23,782)
(25,908)
15,852
(23,925)
−
(1,469)
(663)
(241)
(10,446)
70
749
132
951
70
8,073
(4,045)
4,098
(27,880)
(23,782)
14
14
51
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Y E A R E N D E D 31 S T D E C E M B E R 2017
{ The retained earnings and other equity balances recognised
in the Group financial statements reflect the retained earnings
and other equity balances of Ecuphar NV immediately before
the business combination
{ The results of the period from 1st January 2017 to the date of
the business combination are those of Ecuphar NV;
{ The equity structure appearing in the Group financial
statements reflects the equity structure of the legal parent,
including the equity instruments issued under the share-
for-share exchange to effect the business combination and
adjusted in accordance with IFRS 3. This results in the creation
of a “reverse acquisition reserve” as at 1st January 2017, being
the difference between the Company equity structure and that
of Ecuphar NV.
The consolidated financial statements cover the year ended
31st December 2017. The financial statements for the comparative
year ended 31st December 2016 represent the substance of the
reverse acquisition and are those of Ecuphar NV.
3 Summary of Significant Accounting Policies
Going concern
An analysis of the factors likely to impact on the Group’s future
business activities, performance and strategy are set out in the
Chief Executive’s Review and Chief Financial Officer’s Review. The
principal risks and uncertainties facing the Group are set out in the
Strategic Report on pages 01 to 25.
For the purposes of their assessment of the appropriateness
of the preparation of the Group’s accounts on a going concern
basis, the Directors have considered the current cash position
and forecasts of future trading including working capital and
investment requirements.
During the year, the Group met its day-to-day general corporate
and working capital requirements through existing cash resources.
At 31st December 2017 the Group had cash on hand of £7,579k
(2016: £951k).
Overall, the Directors believe the Group is well placed to
manage its business risks successfully. The Group’s forecasts and
projections, taking account of reasonable possible changes in
trading performance, show that the Group should have sufficient
cash resources to meet its requirements for at least the next 12
months. Accordingly, the adoption of the going concern basis in
preparing the financial statements remains appropriate.
Basis for consolidation
The consolidated financial statements comprise the financial
statements of the Group and its subsidiaries.
1 Financial Information
Animalcare Group plc (“the Company”) is a public company
incorporated in the United Kingdom under the Companies
Act 2006 and is domiciled in the United Kingdom. The Group
comprises Animalcare Group plc and its subsidiaries. The nature
of the Group’s operations and its principal activities are set out in
note 6 and within the Directors’ Report.
Details of the subsidiaries can be found in note 27.
2 Basis of Preparation
The Group financial statements have been prepared and approved
by the Directors under the historical cost convention, except for
the revaluation of certain financial instruments, in accordance
with International Financial Reporting Standards (“IFRS”) as
adopted by the European Union (“adopted IFRSs”), the Companies
Act 2006 as applicable to companies reporting under IFRS and the
IFRS Interpretations Committee (IFRIC) interpretation. They have
also been prepared in accordance with the requirements of the
AIM Rules.
The consolidated financial statements are presented in thousands
of pound sterling (£K or thousands of £) and all “currency”
values are rounded to the nearest thousand (£000), except when
otherwise indicated.
The preparation of financial statements in compliance with
adopted IFRS requires the use of certain critical accounting
estimates. It also requires Group management to exercise
judgement in applying the Group’s accounting policies. The areas
where significant judgement and estimates have been made in
preparing the financial statements and their effect are disclosed in
Note 3. The accounting policies have been applied consistently.
On 13th July 2017 the Company acquired the entire issued ordinary
share capital of Ecuphar NV and became the legal parent of
Ecuphar NV.
The accounting policy adopted by the Directors applies the
principles of IFRS 3 (Revised) “Business Combinations” in
identifying the accounting parent as Ecuphar NV and the
presentation of the Group consolidated statements of the
Company (the legal parent) as a continuation of financial
statements of the accounting parent or legal subsidiary
(Ecuphar NV).
This policy reflects the commercial substance of this transaction
as follows:
{ The original shareholders of the legal subsidiary undertaking
were the most significant shareholders following admission to
AIM, owning 46.9% of the issued share capital;
{ The assets and liabilities of the legal subsidiary Ecuphar NV are
recognised and measured in the Group financial statements at
the pre-combination carrying amounts without restatement to
fair value;
52
26011 18/05/2018 Proof 4 Entities are fully consolidated from the date of acquisition, which
is the date when the Group obtains control, and continue to be
consolidated until the date when such control ceases. The financial
statements of the entities are prepared for the same reporting
period as the parent Company, using consistent accounting
policies. All intra-Group balances, transactions, unrealised gains
and losses resulting from intra-Group transactions and dividends
are fully eliminated.
The Group attributes profit or loss and each component of other
comprehensive income to the owners of the parent Company
and to the non-controlling interest based on present ownership
interests, even if the results in the non-controlling interest have a
negative balance.
A change in the ownership interest of a subsidiary, without a loss
of control, is accounted for as an equity transaction. If the Group
loses control over the subsidiary, it will derecognise the assets
(including goodwill) and liabilities of the subsidiary, any non-
controlling interest and the other components that are equity-
related to the subsidiary. Any surplus or deficit arising from the
loss of control is recognised in profit or loss. If the Group retains an
interest in the previous subsidiary, then such interest is measured
at fair value at the date the control is lost.
The proportion allocated to the parent and non-controlling
interests in preparing the consolidated financial statements is
determined based solely on present ownership interests.
Non-underlying items
Non-underlying items are material items of income or expense
which, because of their nature and the expected frequency of the
events giving rise to them, merit separate disclosure.
Other items relates to the amortisation of acquired intangible
assets and fair value movements on foreign exchange hedging
instruments.
The separate presentation of exceptional and other items enables
the users of the accounts to better understand the elements of
trading performance during the year and hence to better assess
trends in that performance.
Non-controlling interests
The Group has the choice, on a transaction by transaction
basis, to initially recognise any non-controlling interest in the
acquiree which is a present ownership interest and entitles its
holders to a proportionate share of the entity’s net assets in the
event of liquidation at either acquisition date fair value or, at
the present ownership instruments’ proportionate share in the
recognised amounts of the acquiree’s identifiable net assets.
Other components of non-controlling interest such as outstanding
share options are generally measured at fair value. The Group
has not elected to take the option to use fair value in acquisitions
completed to date and currently only has minor non-controlling
interest resulting from business combinations.
Segment reporting
Operating segments are reported in a manner consistent with
the internal reporting provided 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 Executive Committee.
Operating segments are aggregated when they have similar
economic characteristics which is the case when there is similarity
in terms of: (a) the nature of the products and services; (b)
the nature of the production processes; (c) the type or class of
customer for their products and services; (d) the methods used
to distribute their products or provide their services; and (e) if
applicable, the nature of the regulatory environment. The Group
has two operating segments: Pharmaceutical and Wholesale.
Foreign currency translation
Functional and presentation currency
The Group’s consolidated financial statements are presented
in Pounds Sterling (GBP) which is the Group’s presentational
currency.
For each entity, the Group determines the functional currency,
and items included in the financial statements of each entity are
measured using the functional currency. The functional currency
of most subsidiaries of the Group is Euros.
The statement of financial position is translated into GBP at the
closing rate on the reporting date and their income statement is
translated at the average exchange rate at year-end. Differences
resulting from the translation of the financial statements of the
parent and the subsidiaries are recognised in other comprehensive
income as “cumulative translation differences”.
Foreign currency transactions
Transactions denominated in foreign currencies are translated into
Euros at the exchange rate at the end of the previous month-
end. Monetary items in the statement of financial position are
translated at the closing rate at each reporting date and the
relevant translation adjustments are recognised in financial or
operating result depending on its nature.
Business combinations
Business combinations are accounted for using the acquisition
method at the acquisition date, which is the date at which the
Group obtains control over the entity.
The cost of an acquisition is measured as the amount of the
consideration transferred to the seller, measured at the acquisition
date fair value, and the amount of any non-controlling interest in
the acquiree.
53
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
3 Summary of Significant Accounting Policies (continued)
Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are, with limited exceptions,
measured initially at their fair values at the acquisition date. The
Group recognises any non-controlling interest in the acquired
entity on an acquisition-by-acquisition basis either at fair value
or at the non-controlling interest’s proportionate share of the
acquired entity’s net identifiable assets.
The Group measures goodwill initially at cost at the acquisition
date, being:
{ the fair value of the consideration transferred to the seller, plus
{ the amount of any non-controlling interest in the acquiree, plus
{ if the business combination is achieved in stages, the fair value
of the existing equity interest in the acquiree remeasured at
the acquisition date, less
{ the fair value of the net identifiable assets acquired and
assumed liabilities.
Goodwill is recognised as an intangible asset with any impairment
in carrying value being charged to the consolidated income
statement. Where the fair value of identifiable assets, liabilities
and contingent liabilities exceed the fair value of consideration
paid, the excess is credited in full to the consolidated income
statement on acquisition date.
Acquisition costs incurred are expensed and included in general
and administrative expenses.
Property, plant and equipment
Property, plant and equipment is stated at cost, net of accumulated
depreciation and/or accumulated impairment losses, if any. Such
cost includes borrowing costs directly attributable to construction
projects if the asset necessarily takes a substantial period of time to
get ready for its intended use, it is probable that they will result in
future economic benefits to the Group and the cost can be measured
reliably. When significant parts of property, plant and equipment
are required to be replaced at intervals, the Group recognises such
parts as individual assets with specific useful lives and depreciates
them accordingly. Likewise, when a major inspection is performed, its
cost is recognised in the carrying amount of the property, plant and
equipment as a replacement if the recognition criteria are satisfied.
All other repair and maintenance costs are recognised in the income
statement as incurred.
Depreciation is calculated on a straight-line basis over the
estimated useful lives of the assets as follows:
{ Equipment
{ Office furniture and office equipment
5 years
3–5 years or
lease term if
shorter
A leased asset is depreciated over the useful life of the asset.
However, if there is no reasonable certainty that the Group
will obtain ownership by the end of the lease term, the asset is
depreciated over the shorter of the estimated useful life of the
asset or the lease term.
An item of property, plant and equipment and any significant part
initially recognised is derecognised upon disposal or when no
future economic benefits are expected from its use or disposal.
Any gain or loss arising on derecognition of the asset (calculated as
the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the income statement when
the asset is derecognised.
The assets’ residual values, useful lives and methods of
depreciation are reviewed at each financial year-end and adjusted
prospectively, if appropriate.
Leases
The determination of whether an arrangement is, or contains,
a lease is based on the substance of the arrangement at
the inception date, whether fulfilment of the arrangement
is dependent on the use of a specific asset or assets or the
arrangement conveys a right to use the asset, even if that right is
not explicitly specified in an arrangement.
Finance leases which transfer to the Group substantially all the
risks and benefits incidental to ownership of the leased item, are
capitalised at the commencement of the lease at the fair value of
the leased item or, if lower, at the present value of the minimum
lease payments. Lease payments are apportioned between finance
charges and reduction of the lease liability so as to achieve a
constant rate of interest on the remaining balance of the liability.
Finance charges are recognised as financial expenses in the
consolidated income statement.
Where substantially all of the risks and rewards incidental to
ownership are not transferred to the Group (an “operating lease”),
the total rentals payable under the lease are charged to the
consolidated income statement on a straight-line basis over the
lease term. The aggregate benefit of lease incentives is recognised
as a reduction of the rental expense over the lease term on a
straight-line basis.
Intangible assets
Intangible assets comprise the acquired product portfolios,
in-process research and development, licensing and distribution
rights and customer acquired in connection with business
combinations, product portfolios and product development costs
and capitalised software.
{ Leased equipment
{ Leasehold improvements
Land is not depreciated.
4–5 years
5 years or lease
term if shorter
54
26011 18/05/2018 Proof 4
5 years;
7–12 years;
Not amortised.
Not amortised;
The useful life of the intangible assets is as follows:
{ Capitalised software:
{ Patents, distribution rights and licenses:
{ Product portfolios and product development: 10 years;
{ In-process research and development:
{ Goodwill:
Intangible assets acquired separately
Intangible assets with finite useful lives which are acquired
separately are carried at cost less accumulated amortisation
and accumulated impairment losses. Intangible assets with
finite lives are amortised over their useful economic lives and
assessed for impairment whenever there is an indication that
the intangible asset may be impaired. The amortisation period
and the amortisation method for an intangible asset with a finite
useful life are reviewed at least at the end of each reporting
period. The amortisation expense on intangible assets with finite
lives is recognised in the consolidated income statement based
on its function which may be “cost of sales”, “sales and marketing
expenses”, “research and development expenses” and “general
and administrative expenses”.
Intangible assets with indefinite useful lives that are acquired
separately are carried at cost less accumulated impairment losses.
Goodwill
Goodwill is not amortised but it is tested for impairment annually,
or more frequently if events or changes in circumstances indicate
that it might be impaired, and is carried at cost less accumulated
impairment losses. Gains and losses on the disposal of an entity
include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose
of impairment testing. The allocation is made to those cash-
generating units or groups of cash-generating units that are
expected to benefit from the business combination in which
the goodwill arose. The units or groups of units are identified
at the lowest level at which goodwill is monitored for internal
management purposes, being the operating segments.
Internally generated intangible assets - research and
development expenditures
Research and development includes the costs incurred by
activities related to the development of software solutions
(new products, updates and enhancements), guides and other
products. Expenditures in research and development activities are
recognized as an expense in the period in which they are incurred.
Development activities involve the application of research
findings or other knowledge to a plan or a design of new or
substantially improved (software) products before the start of the
commercial use.
Internal development expenditures on an individual project
are recognised as an intangible asset when the Group can
demonstrate:
{ the technical feasibility of completing the intangible asset so
that the asset will be available for use or sale;
{ its intention to complete and its ability to use or sell the asset;
{ how the asset will generate future economic benefits;
{ the availability of resources to complete the asset;
{ the ability to measure reliably the expenditure during
development.
Internal development expenditures not satisfying the above
criteria and expenditures on the research phase are recognised in
the consolidated income statement as incurred.
Subsequent to initial recognition, internally generated intangible
assets are reported at cost less accumulated amortisation and
accumulated impairment losses, on the same basis as intangible
assets which are acquired separately.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and
recognised separately from goodwill are initially recognised at
their fair value at the acquisition date (which is regarded as their
cost). Subsequent to initial recognition, intangible assets acquired
in a business combination are measured at cost less accumulated
amortisation and accumulated impairment losses, on the same
basis as intangible assets which are acquired separately.
Impairment of non-financial assets
Impairment tests on goodwill and other intangible assets with
indefinite useful economic lives are undertaken annually at the
financial year end. Other non-financial assets are subject to
impairment tests whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable.
Where the carrying value of an asset exceeds its recoverable
amount (i.e. the higher of value in use and fair value less costs to
sell), the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an
individual asset, the impairment test is carried out on the smallest
group of assets to which it belongs for which there are separately
identifiable cash flows; its cash-generating units (“CGUs”).
Goodwill is allocated on initial recognition to each of the Group’s
CGUs that are expected to benefit from the synergies of the
combination giving rise to the goodwill.
55
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
3 Summary of Significant Accounting Policies (continued)
The Group bases its impairment calculation on detailed budgets
and forecast calculations, which are prepared separately for each
of the Group’s CGUs to which the individual assets are allocated.
These budgets and forecast calculations generally cover a period
of five years. For longer periods, a long-term growth rate is
calculated and applied to future cash flows projected after the
fifth year.
Impairment charges are included in profit or loss, except, where
applicable, to the extent they reverse gains previously recognised
in other comprehensive income. An impairment loss recognised
for goodwill is not reversed.
Where goodwill forms part of a cash-generating unit and part of the
operation within that unit is disposed of, the goodwill associated
with the operation disposed of is included in the carrying amount of
the operation when determining the gain or loss on disposal of the
operation. Goodwill disposed of in this circumstance is measured
based on the relative values of the operation disposed of and the
portion of the cash-generating unit retained.
Inventories
Inventories are valued at the lower of cost and net realisable value.
Costs incurred in bringing each product to its present location and
condition are accounted for as follows:
{ Raw materials: purchase cost on a first in, first out basis;
{ Goods purchased for resale: purchase cost on a first in,
first out basis.
Net realisable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and the
estimated costs necessary to make the sale.
Financial assets
Financial assets include loans, deposits, receivables measured
at amortised cost and available-for-sale financial investments
measured at fair value.
Financial assets measured at amortised cost
The Group has loans and receivables that are measured at
amortised cost.
The Group’s loans and receivables comprise trade and other
receivables, other financial assets and cash and cash equivalents in
the consolidated statement of financial position.
Cash and cash equivalents includes cash in hand, deposits held at
call with banks, other short-term highly liquid investments with
original maturities of three months or less, and – for the purpose
of the statement of cash flows – bank overdrafts. Bank overdrafts
are shown within loans and borrowings in current liabilities on the
consolidated statement of financial position.
Financial assets that are classified as loans and receivables
are initially measured at fair value plus transaction costs and
subsequently at amortised cost using the effective interest rate
method (EIR). Amortised cost is calculated by taking into account
any discount or premium on acquisition and fees or costs that are
an integral part of the EIR. The EIR amortisation is included under
financial income in the consolidated income statement. The losses
arising from impairment are recognised in the consolidated income
statement under other operating expenses or financial expenses.
Available-for-sale financial assets measured at fair value
Available-for-sale financial assets relate to investments that
are not initially acquired in view of a short-term sale (shares
and securities) and that are not fully consolidated nor equity
consolidated. Assets in this category are measured at fair value
with the resulting gains and losses being directly recognised in
other comprehensive income (equity).
Assets in this category are measured at cost when there is no price
input available in an active market and the fair value cannot be
measured reliably by applying alternative valuation methods.
Impairment of financial assets
The Group assesses at each reporting date whether there is any
objective evidence that a financial asset or a group of financial
assets is impaired. A financial asset or a group of financial assets
is to be impaired if there is objective evidence of impairment as
a result of one or more events that has occurred after the initial
recognition of the asset (an incurred “loss event”) and that loss
event has an impact on the estimated future cash flows of
the financial asset or the group of financial assets that can be
reliably estimated.
In cases of available-for-sale financial assets, objective evidence
would include a significant or prolonged decline in the fair value of
the investment below its cost.
If there is objective evidence that an impairment loss has been
incurred, the amount of the loss is measured as the difference
between the asset’s carrying amount and the present value of
estimated future cash flows (excluding future expected credit
losses that have not yet been incurred) or its current fair value, in
cases of available-for-sale financial assets. The present value of the
estimated future cash flows is discounted at the financial asset’s
original effective interest rate. If a loan has a variable interest rate,
the discount rate for measuring any impairment loss is the current
effective interest rate.
The carrying amount of the asset is reduced through the use of
an allowance account and the amount of loss is recognised in
the income statement. In the event of an impairment loss for
available-for-sale financial assets, the accumulated impairment
loss is removed from other comprehensive income and recognised
in the consolidated statement of profit or loss. Impairment losses
on available-for-sale financial assets are not reversed.
56
26011 18/05/2018 Proof 4 Financial liabilities
The Group has financial liabilities measured at amortised cost
which include loans and borrowings, trade payables and other
payables and financial liabilities resulting from an interest rate
swap (classified as held for trading).
Financial liabilities at amortised cost
Those financial liabilities are recognised initially at fair value
plus directly attributable transaction costs and are measured at
amortised cost using the effective interest rate method. Gains and
losses are recognised in the income statement when the liabilities
are derecognised as well as through the effective interest rate
method amortisation process.
Derivative financial liabilities
The Group uses derivative financial instruments to hedge the
exposure to changes in interest rates, however the use of
derivatives is limited and does not represent significant amounts.
Derivative financial instruments are initially measured at fair value.
After initial recognition, the financial instruments are measured at
fair value on the balance sheet date.
Such hedging transactions do not qualify for hedge accounting
criteria, although they offer economic hedging according to the
Group’s risk policy. Changes in the fair value of such instruments are
recognised directly in the consolidated statement of profit or loss.
Derecognition
A financial liability is derecognised when the obligation under the
liability is discharged or cancelled or expires.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net
amount is reported in the consolidated statement of financial
position if there is a currently enforceable legal right to offset
the recognised amounts and there is an intention to settle
on a net basis, or to realise the assets and settle the liabilities
simultaneously.
Share capital
Financial instruments issued by the Group are classified as equity
only to the extent that they do not meet the definition of a
financial liability or financial asset. The Group’s ordinary shares are
classified as equity instruments.
Dividends
Dividends paid are recognised within the statement of changes in
equity only when an obligation to pay the dividends arises prior to
the year end.
Share-based payments
The Group issues equity-settled share-based payments to certain
employees. Equity-settled share-based payments 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-based payments is
expensed on a straight-line basis over the vesting period, based
on the Group’s estimate of shares that will eventually vest and
adjusted for the effect of non-market-based vesting conditions
(with a corresponding movement in equity).
Fair value is measured by use of the Black–Scholes model. The
expected life used in the model has been adjusted, based on
management’s best estimate, for the effects of non-transferability,
exercise restrictions, and behavioural considerations.
The fair value of the shares issued under the new Long Term
Incentive Plan were valued on a discounted cash flow basis in
conjunction with a third party valuation specialist.
Provisions
Provisions are recognised when the Group has a present obligation
(legal or constructive) as a result of a past event, it is probable
that an outflow of resources embodying economic benefits will
be required to settle the obligation and a reliable estimate can be
made of the amount of the obligation.
Employee benefits
Short-term employee benefits
The Group has short-term employee benefits which are recognised
when the service is performed as a liability and expense. The
short-term employee benefit is the undiscounted amount
expected to be paid.
Management incentive plans
The Group has implemented an incentive plan for some of its
employees. The liability recognised is the undiscounted amount
expected to be paid.
Post-employment benefits
The Group has a defined contribution obligation where the Group
pays contributions based on salaries to an insurance company, in
accordance with the laws and agreements in each country.
The Belgian defined contribution pension plans are by law subject
to minimum guaranteed rates of return, currently 3.25% on
employer contributions and 3.75% on employee contributions.
These rates have been modified by the law of 18th December 2015
and effective for contributions paid as from 2016 to a new variable
minimum return based on the Belgian government bonds, with a
minimum of 1.75% and a maximum of 3.75%.
57
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
3 Summary of Significant Accounting Policies (continued)
These plans qualify as a defined benefit plan as from 1st January
2016 considering the modified law. Previously, the Group has
adopted a retrospective approach whereby the net liability
recognised in the statement of financial position is based on the
sum of the positive differences, determined by individual plan
participant, between the minimum guaranteed reserves and the
benefits accrued at the closing date based on the actual rates
of return.
Sales of services
When the outcome of a transaction involving the rendering
of services is estimated reliably, revenue associated with the
transaction is recognised when the services are rendered. The
outcome of a transaction is estimated reliably when all of the
following four conditions are satisfied:
{ The amount of revenue is measured reliably;
{ It is probable that the economic benefits associated with the
transaction will flow to the Group;
The impact of the defined contribution plans accounted for as a
defined benefit plan is not material.
{ The stage of completion of the transaction at the balance sheet
date can be measured reliably; and
Contributions are recognized as expenses for the period in
which employees perform the corresponding services.
Outstanding payments at the end of the period are shown as other
current liabilities.
Employee benefits – pensions
The Group operates a stakeholder pension scheme available to all
eligible employees. Payments to this scheme are charged as an
expense as they fall due.
Revenue recognition
Sales of goods
Revenue is measured at the fair value of the consideration
received or receivable, and represents amounts receivable for
goods supplied, stated net of discounts, returns and value added
taxes.
Revenue from the sale of goods is recognised when all of the
following five conditions are met:
{ The Group transfers to the buyer the significant risks and
rewards of ownership of the goods;
{ The Group retains neither continuing managerial involvement
to the degree usually associated with ownership nor effective
control over the goods sold;
{ The Group can measure reliably the amount of revenue;
{ It is probable that the economic benefits associated with the
transaction will flow to the Group; and
{ The Group can measure reliably the costs incurred or to be
incurred in respect of the transaction.
Trade goods include goods produced for the purpose of sale and
goods purchased for resale.
The Group bases its estimate of returns on historical results, taking
into consideration the type of customer, the type of transaction
and the specifics of each arrangement.
{ The costs incurred for the transaction and the costs to
complete the transaction are measured reliably.
In general, these services are invoiced as they are performed and
the amounts directly recognised in the income statement and do
not require the measurement of the stage of completion.
Upfront income received in relation to long-term service contracts
is deferred and subsequently recognised over the life of the
relevant contracts.
Interest income
For all financial instruments measured at amortised cost, interest
income is recorded using the effective interest rate, which is the
rate that exactly discounts the estimated future cash payments
or receipts over the expected life of the financial instrument or a
shorter period, where appropriate, to the net carrying amount of
the financial asset or liability. Interest income is included under
financial income in the income statement.
Financing costs
Financing costs relate to interests and other costs incurred by the
Group related to the borrowing of funds. Such costs mostly relate
to interest charges on short- and long-term borrowings as well as
the amortisation of additional costs incurred on the issuance of
the related debt. Financing costs are recognised in profit and loss
for the period or capitalised in case they are related to a qualifying
asset.
Other financial income and expenses
Other financial income and expenses include mainly foreign
currency gains or losses on financial transactions and bank-related
expenses.
Taxes
Current income tax
Income tax assets and liabilities for the current period are
measured at the amount expected to be recovered from or paid
to the taxation authorities. The tax rates and tax laws used to
compute the amount are those that are enacted or substantively
enacted, at the reporting date.
58
26011 18/05/2018 Proof 4 Current income tax relating to items that are recognised directly
in equity is recognised in equity and not in the income statement.
Management periodically evaluates positions taken in the
tax returns with respect to situations in which applicable tax
regulations are subject to interpretation and establishes provisions
where appropriate.
Deferred tax
Deferred tax is calculated using the liability method on temporary
differences at the reporting date between the tax bases of assets
and liabilities and their carrying amounts for financial reporting
purposes.
Deferred tax liabilities are recognised for all taxable temporary
differences. Deferred tax assets are recognised for all deductible
temporary differences, carry forward of unused tax credits and
unused tax losses, to the extent that it is probable that taxable
profit will be available against which the deductible temporary
differences, and the carry forward of unused tax credits and
unused tax losses can be utilised.
The carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow
all or part of the deferred tax asset to be utilised. Unrecognised
deferred tax assets are reassessed at each reporting date and are
recognised to the extent that it has become probable that future
taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply in the year when the asset is realised or
the liability is settled, based on tax rates (and tax laws) that have
been enacted or substantively enacted at the reporting date.
Deferred tax assets and deferred tax liabilities are offset, if a legally
enforceable right exists to set off current tax assets against current
income tax liabilities and the deferred taxes relate to the same
taxable entity and the same taxation authority.
Fair value measurements
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction
to sell the asset or transfer the liability takes place either in the
principal market for the asset or liability or in the absence of a
principal market, in the most advantageous market for the asset
or liability. The principal or the most advantageous market must
be accessible by the Group. The fair value of an asset or a liability
is measured using the assumptions that market participants would
use when pricing the asset or liability, assuming that market
participants act in their economic best interest.
All assets and liabilities for which fair value is measured or
disclosed in the financial statements are categorised within the
fair value hierarchy, described as follows, based on the lowest level
input that is significant to the fair value measurement as a whole:
{ Level 1 — Quoted (unadjusted) market prices in active markets
for identical assets or liabilities
{ Level 2 — Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable
{ Level 3 — Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable
Events after balance sheet date
Events after the balance sheet date which provide additional
information about the Company’s position as at the balance sheet
date (adjusting events) are reflected in the financial statements.
Events after the balance sheet date which are not adjusting events
are disclosed in the notes if material.
New and revised standards not yet adopted
Standards and interpretations applicable for the annual period
beginning on 1st January 2017:
{ Amendments to IAS 7 Statement of Cash Flows – Disclosure
Initiative , effective 1st January 2017
{ Amendments to IAS 12 Income Taxes – Recognition of Deferred
Tax Assets for Unrealised Losses, effective 1st January 2017
{ Annual Improvements Cycle - 2014-2016 – Amendments to IAS
12, effective 1st January 2017
The application of those IFRS standards had no material effect on
the 2017 consolidated financial statements of the Group.
The standards and interpretations that are issued, but not yet
effective, up to the closing date of the Group’s financial statements
are disclosed below.
IFRS 9 Financial Instruments and subsequent amendments
The final version of IFRS 9 replaces IAS 39 Financial Instruments:
Recognition and Measurement. IFRS 9 brings together all three
aspects of the accounting for financial instruments project:
classification and measurement, impairment, and hedge
accounting. IFRS 9 is effective for annual periods beginning
on or after 1st January 2018. Early application is permitted by
applying all of the requirements in this standard at the same
time. Alternatively, entities may elect to early apply only the
requirements for the presentation of gains and losses on financial
liabilities designated as FVTPL without applying the other
requirements in the standard. Except for hedge accounting,
retrospective application is required but providing comparative
information is not compulsory. For hedge accounting, the
requirements are generally applied prospectively, with some
limited exceptions.
59
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
3 Summary of Significant Accounting Policies (continued)
The Group plans to adopt the new standard on the required
effective date. The Group has performed an impact assessment
of all three aspects of IFRS 9. Overall, the Group expects no
significant impact on its balance sheet and equity of applying the
impairment requirements of IFRS 9.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 specifies how and when a company will recognise revenue
as well as requiring such entities to provide users of financial
statements with more informative, relevant disclosures. The
standard provides a single, principles-based five-step model to be
applied to all contracts with customers as follows:
{ Identify the contract(s) with a customer;
{ Identify the performance obligations in the contract;
{ Determine the transaction price;
{ Allocate the transaction price to the performance obligations in
the contract; and
{ Recognise revenue when (or as) the entity satisfies a
performance obligation.
Under IFRS 15, revenue is recognised at an amount that reflects
the consideration to which an entity expects to be entitled in
exchange for transferring goods or services to a customer. The new
revenue standard will supersede all current revenue recognition
requirements under IFRS. Either a full retrospective application or
a modified retrospective application is required for annual periods
beginning on or after 1st January 2018. Early adoption is permitted.
The Group plans to adopt the new standard on the required
effective date using the full retrospective method. During 2017,
the Group performed an assessment of IFRS 15. This analysis
showed that there is no material impact on the results of
the Group.
IFRS 16, Leases
IFRS 16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases and requires lessees to
account for all leases under a single on-balance sheet model
similar to the accounting for finance leases under IAS 17 Leases.
The standard includes two recognition exemptions for lessees –
leases of “low-value” assets (e.g. personal computers) and short-
term leases (i.e. leases with a lease term of 12 months or less).
At the commencement date of a lease, a lessee will recognise a
liability to make lease payments (i.e. the lease liability) and an
asset representing the right to use the underlying asset during the
lease term (i.e. the right-of-use asset). Lessees will be required to
separately recognise the interest expense on the lease liability and
the depreciation expense on the right-of-use asset. Lessees will be
also required to remeasure the lease liability upon the occurrence
of certain events (e.g. a change in the lease term, a change in
future lease payments resulting from a change in an index or rate
used to determine those payments). The lessee will generally
recognise the amount of the remeasurement of the lease liability
as an adjustment to the right-of-use asset.
Lessor accounting under IFRS 16 is substantially unchanged from
today’s lessor accounting under IAS 17. Lessors will continue to
classify all leases using the same classification principle as in IAS
17 and distinguish between two types of leases: operating and
finance leases.
IFRS 16 also requires lessees and lessors to make more extensive
disclosures than under IAS 17.
The new standard is effective for annual periods beginning on
or after 1st January 2019. Early application is permitted, but not
before an entity applies IFRS 15 Revenue from Contracts with
Customers. A lessee can choose to apply the standard using either
a full retrospective or a modified retrospective approach. The
standard’s transition provisions permit certain reliefs.
As at the reporting date, the Group has non-cancellable operating
lease commitments of £3,302k, see note 22. However, the Group
has not yet determined to what extent these commitments
will result in the recognition of an asset and a liability for
future payments and how this will affect the Group’s profit and
classification of cash flows.
The other standards, interpretations and amendments issued by
the IASB (all of them still subject to endorsement by the European
Union) but not yet effective are not expected to have a material
impact on the Group’s future consolidated financial statements,
and those applicable for the Group are listed below:
{ Amendments to IFRS 2 Share-based Payment - Classification
and Measurement of Share-based Payment Transactions
(applicable for annual periods beginning on or after
1st January 2018).
{ Amendments to IFRS 4 Insurance Contracts – Applying IFRS
9 Financial Instruments with IFRS 4 Insurance Contracts
(applicable for annual periods beginning on or after
1st January 2018).
{ IFRS 9 Financial Instruments (applicable for annual periods
beginning on or after 1st January 2018).
{ Amendments to IFRS 9 Prepayment Features with Negative
Compensation (applicable for annual periods beginning on or
after 1st January 2019, but not yet endorsed in the EU).
{ IFRS 15 Revenue from Contracts with Customers, including
amendments to IFRS 15: Effective date of IFRS 15 and
Clarifications to IFRS 15 Revenue from Contracts with
Customers (applicable for annual periods beginning on or after
1st January 2018).
{ IFRS 16 Leases (applicable for annual periods beginning on or
after 1st January 2019).
{ IFRS 17 Insurance Contracts (applicable for annual periods
beginning on or after 1st January 2021, but not yet endorsed in
the EU).
60
26011 18/05/2018 Proof 4 { Amendments to IAS 40 Investment Property – Transfers of
Investment Property (applicable for annual periods beginning
on or after 1st January 2018).
{ IFRIC 22 Foreign Currency Transactions and Advance
Consideration (applicable for annual periods beginning on or
after 1st January 2018, but not yet endorsed in the EU).
{ IFRIC 23 Uncertainty Over Income Tax Treatments (applicable
for annual periods beginning on or after 1st January 2019, but
not yet endorsed in the EU).
{ Annual Improvements Cycle - 2014-2016 – Amendments to
IFRS 1 and IAS 28 (applicable for annual periods beginning on
or after 1st January 2018).
{ Amendments to IAS 28 Long-term Interests in Associates and
Joint Ventures (applicable for annual periods beginning on or
after 1st January 2019, but not yet endorsed in the EU).
{ Annual Improvements Cycle – 2015-2017 (applicable for annual
periods beginning on or after 1st January 2019, but not yet
endorsed in the EU).
{ Amendments to IAS 19: Plan Amendment, Curtailment or
Settlement (applicable for annual periods beginning on or after
1st January 2019, but not yet endorsed in the EU).
Significant accounting judgements,
estimates and assumptions
The preparation of the Group’s consolidated financial statements
requires management to make judgements, estimates and
assumptions that affect the reported amounts of revenue,
expenses, assets and liabilities, and the accompanying disclosures.
Uncertainty about these assumptions and estimates could result
in outcomes that require a material adjustment to the carrying
amount of assets or liabilities for future periods.
On an ongoing basis, the Group evaluates its estimates,
assumptions and judgements, including those related to revenue
recognition, development expenses, income taxes, impairment of
goodwill, intangible assets and property, plant and equipment and
business combinations.
The Group based its assumptions and estimates on parameters
available when the consolidated financial statements were
prepared. Existing circumstances and assumptions about future
developments, however, may change due to market changes
or circumstances arising beyond the control of the Group. Such
changes are reflected in the assumptions when they occur.
Internally developed intangible assets
Under IAS 38, internally generated intangible assets from the
development phase are recognised if certain conditions are met.
These conditions include the technical feasibility, intention to
complete, the ability to use or sell the asset under development,
and the demonstration of how the asset will generate probable
future economic benefits. The cost of a recognised internally
generated intangible asset comprises all directly attributable cost
necessary to make the asset capable of being used as intended
by management. In contrast, all expenditures arising from the
research phase are expensed as incurred.
Determining whether internally generated intangible assets from
development are to be recognised as intangible assets requires
significant judgement, particularly in determining whether the
activities are considered research activities or development
activities, whether the product enhancement is substantial,
whether the completion of the asset is technically feasible
considering a company-specific approach, and the probability of
future economic benefits from the sale or use.
Management has determined that the conditions for recognising
internally generated intangible assets from product development
activities are not met until shortly before the developed products
are available for sale. This assessment is monitored by the Group
on a regular basis.
Capitalised software expenditure
The Group has historically capitalised software projects and
developments. Expenditure on a bespoke web-based system,
designed to facilitate online ordering of its products and services,
is currently capitalised in the Group’s financial statements as the
Directors have adjudged it to meet the relevant criteria. The rate
of depreciation on capitalised software is set so as to reflect the
pattern of usage and the level of pace of change within the global
information technology market.
Income taxes
Deferred tax assets are recognised for unused tax losses to the
extent that it is probable that taxable profit will be available
against which the losses can be utilised. Significant management
judgement is required to determine the amount of deferred tax
assets that can be recognised, based upon the likely timing and
the level of future taxable profits together with future tax planning
strategies.
As at 31st December 2017, the Group had £664k (2016: £255k) of
tax losses carried forward and other tax credits such as investment
tax credits and notional interest deduction. These losses relate to
the subsidiaries that have a history of losses, do not expire and
may not be used to offset taxable income elsewhere in the Group.
The Group may also be required to evaluate some uncertainty
surrounding potential liability in relation to uncertain tax
positions. Uncertain tax positions (whether assets or liabilities)
are recognised using a “probable” threshold in accordance with
IAS 12, and they are reflected at the amount expected to be
recovered from, or paid to, the taxation authorities. It may also
include interpretations of complex tax laws as well as transfer
pricing considerations which could be disputed by tax authorities.
Assessing uncertain tax positions requires significant judgement
from management.
61
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
4 Business Combinations and Disposals of
Subsidiaries
Business combinations
Reverse acquisition of Animalcare Group plc
On 13th July 2017 Animalcare Group plc acquired 100% of the
share capital of Ecuphar NV for a total consideration of £133,775k,
satisfied through a combination of a share-for-share exchange and
£33,145k in cash net of commissions.
The acquisition of Ecuphar NV by Animalcare Group plc is deemed
to be a reverse acquisition under the provisions of IFRS 3 “Business
Combinations”.
In accounting for a reverse acquisition (rather than an
acquisition) the combined financial statements are deemed to
be a continuation of the books of the legal acquiree (Ecuphar
NV) rather than a continuation of those of the legal acquirer
(Animalcare Group plc).
The assets and liabilities of Ecuphar NV are recognised and
measured in the Group financial statements at the pre-
combination carrying amounts, without restatement to fair value
and no goodwill arises in relation to them.
Conversely, the assets of Animalcare Group plc and Animalcare Ltd
are consolidated at their fair values.
The overall effect is that the consolidated financial statements are
prepared from an Ecuphar NV perspective rather than Animalcare
Group plc, and in summary this means:
{ the comparative consolidated financial information is that of
Ecuphar NV rather than that of Animalcare Group plc;
{ the result for the year and consolidated cumulative profit
and loss reserves are those of the Ecuphar NV plus the post-
acquisition results of the Animalcare Group plc;
{ a reverse acquisition reserve of (£56,762k) has been created;
{ the share capital and share premium account are that of
Animalcare Group plc; and
{ the cost of the combination has been determined from the
perspective of Ecuphar NV.
Goodwill arises on the reverse acquisition when comparing the
deemed fair value consideration of Animalcare Group plc acquiring
the shares of Ecuphar NV. The fair value of the consideration is the
market capitalisation of Animalcare Group plc at the acquisition date
based on the closing share price on 12th July of 355p per share.
3 Summary of Significant Accounting Policies (continued)
Impairment of goodwill
The Group has goodwill for a total amount of £51,413k (2016:
£9,959k) which has been subject to an impairment test. The
goodwill is tested for impairment based on the Fair Value Less
Costs of Disposal (FVLCD) method which uses sales and EBITDA
multiples. The key assumptions used to determine the recoverable
amount for the different CGU’s are disclosed and further explained
in note 9.
No impairment charges have been recorded during the reported
periods.
Impairment of slow-moving and obsolete inventory
The Group performs regular stockholding reviews, in conjunction
with sales and market information, to help determine any slow-
moving or obsolete lines. Where identified, adequate provision is
made in the financial statements for writing down or writing off the
value of such lines in order to reflect the realisable value of its stock.
Business combinations
The Group determines and allocates the purchase price of an
acquired business to the assets acquired and liabilities assumed as
of the business combination date. The purchase price allocation
process requires the Group to use significant estimates and
assumptions, including:
{ estimated fair value of the acquired intangible assets;
{ estimated fair value of property, plant and equipment;
While the Group is using its best estimates and assumptions as
part of the purchase price allocation process to accurately value
assets acquired and liabilities assumed at the date of acquisition,
our estimates and assumptions are inherently uncertain and
subject to refinement. Examples of critical estimates in valuing
certain of the intangible assets the Group has acquired or may
acquire in the future include but are not limited to:
{ future expected cash flows from customer contracts and
relationships, software licence sales and maintenance
agreements;
{ the fair value of the plant and equipment;
{ the fair value of the deferred revenue;
{ discount rates; and
{ the determination of useful lives and amortisation period of
acquired intangible assets.
62
26011 18/05/2018 Proof 4 Reverse acquisition – Animalcare Group plc
Assets
Historical goodwill
Intangible assets
Tangible assets
Deferred tax asset
Inventory
Trade receivables
Other current assets
Cash
Liabilities
Financial debts
Deferred tax liabilities
Trade payables
Other liabilities
Total identified assets and liabilities
Goodwill
Fair value of consideration
Carrying
value at
acquisition
date
£’000
Fair value
adjustments
£’000
Fair value
at acquisition
date
£’000
12,711
4,658
227
149
2,014
3,392
559
6,293
(12,711)
30,957
−
885
401
−
−
−
−
35,615
227
1,034
2,415
3,392
559
6,293
30,003
19,532
49,535
−
(414)
(3,948)
(4,040)
(8,402)
21,601
−
(6,843)
−
−
(6,843)
12,689
−
−
−
(7,257)
(3,948)
(4,040)
(15,245)
34,290
41,048
75,338
The acquisition consideration, net assets and goodwill are based upon the reverse acquisition of Animalcare Group plc by Ecuphar NV.
The fair value of the consideration is the market capitalisation of Animalcare Group plc at the closing share price of 355p per share on
12th July 2017. Transaction costs of equity transactions relating to the issue and readmission of the Company’s shares are accounted for
as a deduction from equity where they relate to the issue of new shares.
The fair value of the net assets acquired and shown in the table above was £34,290k. The fair value of the consideration was £75,338k
resulting in goodwill on reverse acquisition of £41,048k. In addition, the fair value uplift of inventory amounted to £401k, and the fair
value uplift of the identified intangibles amounted to £30,957k. Deferred tax assets and liabilities respectively were increased by £885k
and (£6,843k).
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
Disposal of subsidiaries
Nutriscience
On 31st October 2016 the Group entered into a share purchase agreement with Swedencare AB regarding the sale of one of its
subsidiaries, Nutriscience Ltd. The consideration received by the Group amounts to £3,507k and this resulted in a gain of £2,432k. The
effect of this transaction on the financial position and cash flows of the Group is as follows:
Nutriscience
Assets
Goodwill
Property, plant and equipment
Inventories
Trade receivables
Other receivables
Cash and cash equivalents
Liabilities
Financial debts
Trade payables
Other payables
Total assets and liabilities
Gain on sale of Nutriscience
Selling price received in cash
Cash flow from sale
Cash and cash equivalents transferred
Selling price
Total cash flow
Carrying value
at selling date
£’000
419
53
407
419
37
296
1,631
−
(315)
(241)
(556)
1,075
2,432
3,507
(296)
3,507
3,211
This disposal did not meet the IFRS 5 criteria as a component of a group, as a separate major line of business or as a geographical area of
operations. Therefore, discontinued operations and asset held for sale disclosures were not required.
64
26011 18/05/2018 Proof 4
5 Non-underlying Items
Amortisation of acquisition-related intangibles
Classified within Research and development expenses
Classified within General and administrative expenses
Total amortisation of acquisition-related intangibles
Fair value uplift of inventory acquired through reverse acquisition
Acquisition and integration costs
Gain on sale of Nutriscience
Other non-underlying items
Total non-underlying items before taxes
Tax impact
Total non-underlying items after taxes
2017
£’000
751
3,590
4,341
401
1,454
−
362
6,559
(1,459)
5,100
2016
£’000
272
2,223
2,495
−
−
(2,432)
618
681
(232)
449
The amortisation charge of acquisition-related intangibles largely relates to the Esteve acquisition of £2,017k (2016: £1,880k) and the
reverse acquisition of Animalcare Group plc of £1,685k.
6 Segment Information
For management purposes, the Group is organised into two segments: the Pharmaceuticals and the Wholesale segments.
The Pharmaceuticals segment is active in the development and marketing of innovative pharmaceutical products that provide significant
benefits to animal health.
The Wholesale segment focuses on the sale of veterinary pharmaceuticals, supplies and instruments in the Belgian market.
The measurement principles used by the Group in preparing this segment reporting are also the basis for segment performance
assessment. The Board of Directors of the Group is considered as the Chief Operating Decision Maker. As a performance indicator, the
Chief Operating Decision Maker controls performance by the Group’s revenue, gross margin, underlying EBITDA and EBITDA. EBITDA is
defined by the Group as net profit plus finance expenses, less financial income, plus income taxes and deferred taxes, plus depreciation,
amortisation and impairment. Underlying EBITDA equals EBITDA plus non-underlying items.
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26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
The following table summarises the segment reporting for each of the reportable periods ending 31st December. As management’s
controlling instrument is mainly revenue-based, the reporting information does not include assets and liabilities by segment and is as
such not presented per segment.
Pharma
£’000
Wholesales
£’000
Total segments
£’000
Adjustments
and
eliminations
£’000
Consolidated
£’000
For the year ended 31st December 2017
Revenues
Gross Margin
Gross Margin %
Segment underlying EBITDA
Segment underlying EBITDA %
Segment EBITDA
Segment EBITDA %
For the year ended 31st December 2016
Revenues
Gross Margin
Gross Margin %
Segment underlying EBITDA
Segment underlying EBITDA %
Segment EBITDA
Segment EBITDA %
62,291
31,924
51%
9,698
16%
7,496
12%
48,355
26,007
54%
8,420
17%
10,235
21%
23,938
2,415
10%
289
1%
273
1%
21,831
2,272
10%
485
2%
484
2%
86,229
34,339
40%
9,987
12%
7,769
9%
70,186
28,279
40%
8,905
13%
10,719
15%
The segment EBITDA is reconciled with the consolidated net profit of the year as follows:
Segment EBITDA
Depreciation, amortisation and impairment
Operating profit
Financial expenses
Financial income
Income taxes
Deferred taxes
Net profit
66
(2,553)
(76)
−
−
(1,825)
(4)
8
8
2017
£’000
7,769
(6,569)
1,200
(747)
91
(643)
283
184
83,676
34,263
41%
9,987
12%
7,769
9%
68,361
28,275
41%
8,913
13%
10,727
16%
2016
£’000
10,727
(4,689)
6,038
(988)
97
(1,305)
(327)
3,515
26011 18/05/2018 Proof 4
Non-current assets excluding deferred tax assets and financial instruments located in Belgium, Spain, Portugal, the United Kingdom and
other geographies are as follows:
Belgium
Spain
Portugal
UK
Other
Non-current assets excluding deferred tax assets and financial instruments
Revenue by product category:
Companion animals
Production animals
Horses
Pet food, instrumentals and services
Total
Revenue by geographical area:
Europe
Belgium
The Netherlands
United Kingdom
Germany
Spain
Italy
Portugal
European Union – other
Asia
Middle East and Africa
Other
Total
2017
£’000
19,691
2,170
4,101
76,010
4,375
106,347
2017
£’000
42,791
28,390
4,718
7,777
83,676
2017
£’000
82,803
29,501
1,726
9,459
8,930
20,909
4,458
4,514
3,306
473
47
353
2016
£’000
21,378
2,229
3,913
−
4,474
31,994
2016
£’000
30,799
22,668
5,567
9,327
68,361
2016
£’000
67,842
27,797
1,434
2,516
6,714
18,695
3,559
4,044
3,083
309
5
205
83,676
68,361
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26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
Revenue by category:
Product sales
Services sales
Total
7 Income and Expenses
7.1 Cost of sales
Cost of sales includes the following expenses:
Purchase of goods and services
Inventory and other write-downs
Payroll expenses
Other expenses
Total
7.2 Research and development expenses
Research and development expenses include the following:
Amortisation and depreciation
Payroll expenses
Other
Total
7.3 Selling and marketing expenses
Selling and marketing expenses include the following:
Transport costs of sold goods
Promotion costs
Payroll expenses
Amortisation and depreciation
Other
Total
68
2017
£’000
83,314
362
83,676
2017
£’000
48,156
478
417
362
2016
£’000
67,656
705
68,361
2016
£’000
38,917
682
242
245
49,413
40,086
2017
£’000
749
1,958
92
2,799
2017
£’000
979
2,438
9,089
25
1,567
14,098
2016
£’000
269
1,507
−
1,776
2016
£’000
907
2,002
6,081
23
727
9,740
26011 18/05/2018 Proof 4 7.4 General and administrative expenses
General and administrative expenses include the following:
Amortisation and depreciation
Payroll expenses
Other
Total
7.5 Net other operating (expense) income
The net other operating (expense) income can be detailed as follows:
Re-invoicing costs
Losses on disposals of fixed assets
Other operating income
Impairments
Other operating expenses
Total
2017
£’000
5,552
2,826
6,026
2016
£’000
3,962
3,448
5,197
14,404
12,607
2017
£’000
5
(2)
262
(35)
(1,992)
(1,762)
2016
£’000
11
−
2,453
(29)
(548)
1,887
Other operating expenses for 2017 mainly relate to the reverse acquisition of Animalcare Group plc.
Other operating income for 2016 mainly relates to a gain of £2,432k on the sale of Nutriscience Ltd on 31 October 2016. Impairments
were recorded in 2017 and 2016 on certain intangible assets of £35k and £29k respectively.
Other operating expenses incurred during 2016 mostly relate to the loss on disposal of intangibles related to Nutriscience Ltd and Sogeval.
7.6 Expenses by nature
Other operating lease rentals
Employee expenses
Depreciation and amortisation
Transport costs of sold goods
Promotion costs
Other operating expense/(income) – see note 7.5
Other expenses
Total expenses
2017
£’000
1,899
13,873
6,381
979
2,668
1,762
5,501
33,063
2016
£’000
1,365
11,036
4,254
1,046
2,207
(1,887)
4,215
22,236
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FINANCIAL STATEMENTS CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
7.7 Payroll expenses
The following table shows the breakdown of payroll expenses for 2017 and 2016:
Wages and salaries
Social security expenses
Other employee expenses
Total
Average registered employees during the year
2017
£’000
10,655
2,197
1,440
14,292
265
2016
£’000
8,421
1,875
982
11,278
179
Key management following the reverse acquisition comprises the Board of Directors. Details of the remuneration, share options and
shareholdings are included in the Annual Remuneration Report on pages 36 to 37.
Emoluments of the Directors for the year ended 31st December 2017 in accordance with the basis of preparation were as follows:
W Beyers1
J Boone* (appointed 13th July 2017)
C Brewster (appointed 26th September
2017)
C Cardon2
M Coucke*3
Lord Downshire*4
J S Lambert*4
Dr I D Menneer4
E Torr* (appointed 13th July 2017)
J Bastijns
P Derks
L Vanmullem
E Gil
Total
* Indicates Non-Executive Directors
Salary
£’000
Bonus
£’000
Company
pension
contributions
£’000
Benefits
£’000
177
35
54
345
45
19
19
110
19
224
−
152
208
1,407
−
−
−
−
−
−
−
−
−
16
−
16
51
83
−
−
6
−
−
−
−
13
−
−
−
−
13
32
−
−
3
−
−
2
−
5
−
−
−
−
57
67
Termination
benefits
£’000
70
−
−
−
−
−
−
−
−
−
60
−
−
130
Total
2017
£’000
247
35
63
345
45
21
19
128
19
240
60
168
329
1,719
1. W Beyers was a Director of the newly formed Group from 13th July 2017 to 26th September 2017, and a Director of Ecuphar NV from 1st January 2017. The remuneration
included above is for the period from 1st January 2017 to 26th September 2017.
2. C Cardon was a Director of the newly formed Group from 13th July 2017 and a Director of Ecuphar NV for the year. The remuneration included above is for the year ended
31st December 2017.
3. M Coucke was a Director of the newly formed Group from 13th July 2017 and a Director of Ecuphar NV for the year. The remuneration included above is for the year ended
31st December 2017.
4. Were Directors of Animalcare Group plc from 1st January 2017 to 31st December 2017. The remuneration included above is for the period from 13th July 2017 to
31st December 2017.
70
26011 18/05/2018 Proof 4 For the year ended 2016, the emolument of key management personnel of Ecuphar NV was as follows:
C Cardon
J Bastijns
P Derks
W Beyers
L Vanmullem
E Gil
M Couke*
Total
Salary
Bonus
Company
pension
contributions
Compensation
for loss
of office
Benefits
373
225
243
174
142
191
98
1,377
22
18
18
−
−
106
−
164
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
Total
395
243
261
174
142
297
98
1,610
* Indicates Non-Executive Directors
All Company pension contributions relate to defined contribution pension schemes. Benefits consist of company car and private medical
insurance.
Share options:
I D Menneer
Scheme
Exercise price
Date of grant
Acquired during the year
Exercised during the period
Open at 31st December 2017
C J Brewster
Scheme
Exercise price
Date of grant
Acquired during the year
Exercised during the period
Open at 31st December 2017
EMI
Unapproved
Unapproved
£1.325
£1.40
£1.415
SAYE
£1.05
Total
20th November
2012
21st February
2013
20th June
2013
28th November
2014
50,000
(50,000)
−
90,000
(90,000)
−
90,000
(90,000)
5,142
235,142
−
(230,000)
−
5,142
5,142
EMI
£1.30
EMI
£1.415
SAYE
£1.05
Total
2nd August
2012
20th June
2013
28th November
2014
30,000
(30,000)
−
40,000
(40,000)
−
8,571
−
8,571
78,571
(70,000)
8,571
In connection with the reverse acquisition of Ecuphar NV, all vested options were exercised following completion on 13th July 2017.
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26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
Long Term Incentive Plan (LTIP)
Under the Animalcare Group plc LTIP, which was introduced in June 2014, the Directors’ interests in the LTIP, which was implemented via
a subscription for growth shares in the capital of Animalcare Ltd, a subsidiary of the Company, are as follows:
{ Iain Menneer – 31,955 A Ordinary Shares of £1.00 each (“A Shares”) for a total cash subscription of £31,955, representing 5.2% of
Animalcare Ltd’s issued share capital; and
{ Chris Brewster – 19,173 A Shares, representing 3% of Animalcare Ltd’s issued share capital and 11,800 B Ordinary Shares of £1.00
each (“B Shares”), representing a further 2% of Animalcare Ltd’s issued share capital, for a total cash subscription of £30,973.
The total cash subscriptions were, based on independent valuation, considered to be equal to fair value at the time of acquisition.
Dr Menneer and Mr Brewster had the right to sell their A Shares to the Company at any time after 27th June 2017 in exchange for
Ordinary Shares of 20 pence each in the Company (“Ordinary Shares”). Their rights to sell the A Shares are subject to, amongst
other provisions, the Company having a market capitalisation in excess of £39.0m (“the Hurdle”) at the time of sale. The Hurdle was
determined by Animalcare’s Remuneration Committee and broadly represented a 20% premium to the Company’s market capitalisation
on 27th June 2014. Each holder of A Shares would, on a sale of his entire holding to the Company, be entitled to receive Ordinary Shares
representing a percentage of the increase in the Company’s market capitalisation above the Hurdle; being 5% for Dr Menneer and 3%
for Mr Brewster. The A Shares do not have a right to receive a dividend, except for any amounts distributed on the winding up of the
Company or on an asset sale.
The B Shares are not entitled to participate in any increase in the value of the Company above the Hurdle but can be exchanged for
Ordinary Shares of an equal value at any time after 27th June 2017. The B Shares have a right to an annual dividend (on a non-fixed
coupon basis), calculated by applying a rate of LIBOR + 2% to the nominal value of the B Shares.
Further details of the Plan, including the Hurdle, anti-dilution and other provisions, are set out in Animalcare Ltd’s articles
of association, which is available within the Investors section (constitutional documents) of the Company’s website
at http://www.animalcaregroup.co.uk.
It was agreed between the Company, Dr Menneer and Mr Brewster, that the put options did not become exercisable as a result of
the reverse acquisition of Ecuphar NV. The Company however, determined that it was appropriate to offer the right to exchange their
shares in Animalcare Ltd for Ordinary Shares shortly before completion of the reverse acquisition, and each took up that right. As a
consequence, 918,896 new Ordinary Shares were issued to Dr Menneer and Mr Brewster. The number of new Ordinary Shares issued
pursuant to the exercise of these rights was determined using the lower of the closing middle market price for an Ordinary Share on
22nd June 2017, being the dealing day before the date the offer to exchange was made and the average of the closing middle market
prices for an Ordinary Share over the dealing days in the 30th day period before that date, being 392.5 pence.
7.8 Financial expenses
Financial expenses include the following elements:
Interest expense
Foreign currency losses
Change in fair value – losses on financial instruments
Other financial expenses
Total
2017
£’000
528
118
–
101
747
2016
£’000
663
81
–
244
988
72
26011 18/05/2018 Proof 4 7.9 Financial income
Financial income includes the following elements:
Foreign currency exchange gains
Change in fair value – gains on financial instruments
Other financial income
Total
7.10 Income tax expense
Income tax
The following table shows the breakdown of the tax expense for 2017 and 2016:
Current tax
Current tax charge
Tax adjustments in respect of previous years
Total current tax charge
Deferred tax
Deferred tax – origination and reversal of temporary differences
Total tax expense for the year
The total tax expense can be reconciled to the accounting profit as follows:
Profit before tax
Income tax at weighted average tax rate
Non-deductible expenses
Income not subject to tax
Other tax credits and tax deductions
Other permanent tax differences
Other taxes
Tax adjustments in respect of previous year
Changes in statutory enacted tax rate
Withholding taxes on acquisition treasury shares
Income tax expense as reported in the consolidated income statement
2017
£’000
69
−
22
91
2017
£’000
(821)
178
(643)
283
(360)
2017
£’000
544
(4)
(212)
66
(1)
(56)
(37)
178
(294)
−
(360)
2016
£’000
28
18
51
97
2016
£’000
(1,335)
30
(1,305)
(327)
(1,632)
2016
£’000
5,147
(1,310)
(90)
−
62
(73)
(29)
30
(68)
(154)
(1,632)
The tax credit of £1,459k (2016: £232k) shown within “non-underlying items” on the face of the consolidated income statement, which
forms part of the overall tax charge of £360k (2016: £1,632k) relates to the items analysed in note 5.
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26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
The tax rates used for the 2017 and 2016 reconciliation above are the corporate tax rates of 33.99% (Belgium), 25% (the Netherlands),
29% (Germany), 33% (France), 25% (Spain), 34% in 2017 and 24% in 2016 (Italy), 21% (Portugal) and 19% in 2017 and 20% in 2016
(the United Kingdom). These taxes are payable by corporate entities in the above mentioned countries on taxable profits under tax law
in that jurisdiction.
Changes to the UK corporation tax rate were substantially enacted as part of the Finance Bill 2017 (on 6th September 2016). They include
reductions to the main rate to reduce the rate to 17% from 1st April 2020.
A similar tax reform in Belgium was substantially enacted in December 2017. The tax rate will gradually decrease from 33.99% (current)
to 29.58% in 2018 and 2019 and to 25% from 2020 onwards.
Deferred taxes at the balance sheet date have been measured using the enacted tax rates and reflected in these financial statements.
Deferred tax
(a) Recognised deferred tax assets and liabilities
Goodwill
Intangible assets
Property, plant and equipment
Financial fixed assets
Inventory
Trade and other payables
Accruals and deferred income
Tax losses carried forward
Total
(b) Movements during the year
Movement of deferred taxes during 2017:
£’000
Goodwill
Intangible assets
Property, plant and equipment
Financial fixed assets
Inventory
Trade and other payables
Accruals and deferred income
Tax losses carried forward
Gross profit
2017
£’000
(7)
515
28
1
51
297
19
699
Assets
2016
£’000
44
175
13
1
43
565
173
255
2017
£’000
(362)
(6,118)
(25)
−
(24)
−
75
−
1,603
1,269
(6,454)
Balance at
31st December
2016
£’000
Recognised
in income
£’000
(220)
175
13
1
46
565
173
292
1,045
(138)
565
27
−
53
(285)
(331)
392
283
Liabilities
2016
£’000
(264)
−
3
−
−
−
−
37
(224)
Acquired
through
business
combinations
£’000
−
(6,356)
(38)
−
(76)
−
247
−
(6,223)
2017
£’000
(369)
(5,603)
3
1
27
297
94
699
Total
2016
£’000
(220)
175
16
1
43
565
173
292
(4,851)
1,045
Foreign
exchange
adjustments
£’000
Balance at
31st December
2017
£’000
(11)
13
1
−
3
18
5
15
44
(369)
(5,603)
3
1
26
298
94
699
(4,851)
74
26011 18/05/2018 Proof 4 Movement of deferred taxes during 2016:
£’000
Goodwill
Intangible assets
Property, plant and equipment
Financial fixed assets
Inventory
Trade and other payables
Accruals and deferred income
Derivatives
Borrowings
Tax losses carried forward
Gross profit
Balance at
31st December
2015
£’000
Recognised
in income
£’000
Acquired
through
business
combinations
£’000
Foreign
exchange
adjustments
£’000
Balance at
31st December
2016
£’000
(7)
194
2
1
26
759
103
6
23
89
1,196
(205)
(44)
11
−
15
(304)
51
(6)
(26)
181
(327)
−
−
−
−
−
−
−
−
−
−
−
(8)
25
−
−
5
110
19
−
3
22
176
(220)
175
13
1
46
565
173
−
−
292
1,045
(c) Tax losses
The Group has unused tax losses, tax credits and notional interest deduction available in an amount of £2,636k for 2017 (2016: £1,045k).
Deferred tax assets have been recognised on all available tax losses carried forward, resulting in amounts recognised of £699k (2016:
£292k). This was based on management’s estimate that sufficient positive taxable basis will be generated in the near future for the
related legal entities with fiscal losses.
8 Earnings Per Share
Basic earnings per share amounts are calculated by dividing the net profit for the year attributable to ordinary equity holders of the
parent Company by the weighted average number of ordinary shares outstanding during the year.
The weighted average number of ordinary shares outstanding during 2016 has been calculated by multiplying the existing Ecuphar NV
ordinary shares of 13,957,720 by the merger ratio of 63:37 Ecuphar/Animalcare (after taking into account dilution from the exercise of
certain Animalcare share incentive arrangements) giving a total adjusted weighted average of 23,765,858 shares.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holder of the parent
Company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of
ordinary shares that would be issued on conversion of all potential dilutive ordinary shares.
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26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
The following income and share data was used in the earnings per share computations:
Net profit attributable to ordinary equity holders of the parent adjusted
for the effect of dilution
Weighted average number of ordinary shares for basic
earnings per share
Dilutive potential ordinary shares
Weighted average number of ordinary shares adjusted for
effect of dilution
Earnings per share are as follows:
Underlying
2017
£’000
Underlying
2016
£’000
5,284
3,965
Total
2017
£’000
184
Total
2016
£’000
3,515
2017
Number
2016
Number
2017
Number
2016
Number
41,998,692
23,765,848
41,998,692
23,765,858
178,191
−
178,191
−
42,176,883
23,765,848
42,176,883
23,765,858
Earnings per share attributable to ordinary owners of the parent
Basic
Diluted
9 Goodwill
Goodwill has been allocated to the cash-generating units (“CGU”) as follows:
2017
Pence
12.6p
12.5p
2016
Pence
16.7p
16.7p
CGU: Pharmaceuticals
CGU: Wholesale
Total
The changes in the carrying value of the goodwill can be presented as follows for the years 2017 and 2016:
Gross
£’000
8,974
(419)
1,403
9,958
41,048
406
51,413
At 1st January 2016
Disposals
Currency translation
At 31st December 2016
Additions
Currency translation
At 31st December 2017
76
2017
Pence
0.4p
0.4p
2017
£’000
50,856
557
51,413
Impairment
£’000
−
−
−
−
−
−
−
2016
Pence
14.8p
14.8p
2016
£’000
9,425
534
9,959
Total
£’000
8,974
(419)
1,403
9,958
41,048
406
51,413
26011 18/05/2018 Proof 4 In addition to currency translation effects, the goodwill balance increased as a result of the reverse acquisition of the Animalcare
business in 2017 by £41,048k and decreased as a result of the disposal of Nutriscience Ltd in 2016 by £419k (see note 4).
As of 31st December 2017, goodwill allocated to the Pharmaceuticals CGU includes goodwill recognised as a result of past business
combinations of Esteve, Equipharma NV, Ecuphar BV, Cardon Chemicals NV and the reverse acquisition of Animalcare Group plc in
2017. As of 31st December 2017, goodwill allocated to the Wholesale CGU includes goodwill recognised as a result of the past business
combinations of Medini NV and Orthopaedics NV.
The Group has performed an impairment test based on a discounted cash flow model including cash flows derived from the three-year
budget plan and residual value as of the fourth year.
Both the Pharmaceuticals and Wholesale CGUs are included in their respective reportable segment Pharmaceuticals and Wholesale.
CGU Pharmaceuticals
The recoverable amount of this cash-generating unit is based on the Fair Value Less Costs of Disposal “FVLCD” which uses a multiples model.
For the calculation of the FVLCD we used both the sales and EBITDA multiples. The multiples used in the model are based on the most
conservative multiples used by Rothschild for the purpose of valuing both Ecuphar and Animalcare at the time of the acquisition.
The sales multiples for 2018 of the old Animalcare and Ecuphar businesses are respectively 3.5 and 1.6. The EBITDA multiples used are
13.8 for Animalcare and 10.9 for Ecuphar. From 2019 onwards, the multiples are determined for the combined businesses. The sales
multiple is 1.9 and the EBITDA multiple is 11.5. EBITDA and sales are based on the 2018 and 2019 budget provided by management.
Based on the sales multiple model, the value of the Pharmaceuticals segment is determined at £179,479k, leaving a headroom of £65,882k.
The value of the Pharmaceuticals segment is determined at £153,489k when using the EBITDA multiples approach. This leaves a
headroom of £39,893k.
CGU Wholesale
The recoverable amount of this cash-generating unit is based on the Fair Value Less Costs of Disposal “FVLCD” which uses a multiples model.
For the calculation of the FVLCD we used both the sales and EBITDA multiples. The multiples used in the model are based on the most
conservative multiples used by Rothschild for the purpose of valuing both Ecuphar and Animalcare at the time of the acquisition.
The sales multiples for 2018 of the old Animalcare and Ecuphar businesses are respectively 3.5 and 1.6. The EBITDA multiples used are
13.8 for Animalcare and 10.9 for Ecuphar. From 2019 onwards, the multiples are determined for the combined businesses. The sales
multiple is 1.9 and the EBITDA multiple is 11.5. EBITDA and sales are based on the 2018 and 2019 budget provided by management.
Based on the sales multiple model, the value of the Wholesale segment is determined at £53,061k, leaving a headroom of £51,106k. The
value of the Wholesale segment is determined on £5,602k when using the EBITDA multiples approach. This leaves a headroom of £3,647k.
77
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
10 Intangible Assets
The changes in the carrying value of the intangible assets can be presented as follows for the years 2017 and 2016:
Acquisition value
At 1st January 2016
Additions
Disposals
Transfers
Currency translation
Other
At 31st December 2016
Additions
Change due to business combinations
Disposals
Currency translation
Other
At 31st December 2017
Amortisation
At 1st January 2016
Additions
Disposals
Transfers
Currency translation
Other
At 31st December 2016
Additions
Currency translation
Other
At 31st December 2017
Net carrying value
At 31st December 2017
At 31st December 2016
Patents,
distribution
rights and
licences
£’000
Product
portfolios
and product
development
costs
£’000
In-process
R&D
£’000
Capitalised
software
£’000
2,451
−
−
−
388
−
2,839
550
10,013
−
116
−
11,065
1,735
(2,090)
−
1,736
(9)
12,437
187
4,561
(29)
510
19
13,735
1,036
−
−
2,219
(34)
16,956
1,174
21,041
−
704
−
−
−
−
179
8
−
187
468
−
−
14
48
Total
£’000
27,251
2,771
(2,090)
179
4,351
(43)
32,419
2,379
35,615
(29)
1,344
67
13,518
17,685
39,875
717
71,795
(160)
(268)
−
−
(39)
−
(467)
(751)
(23)
−
(1,820)
(2,256)
2,016
−
(299)
8
(2,351)
(2,523)
(124)
8
(5,856)
(1,457)
7
(1)
(991)
−
(8,298)
(2,589)
(359)
5
(1,241)
(4,990)
(11,241)
12,277
2,372
12,695
10,086
28,634
8,658
−
−
−
(55)
(2)
−
(57)
(190)
(5)
(34)
(286)
431
130
(7,836)
(3,981)
2,023
(56)
(1,331)
8
(11,173)
(6,053)
(511)
(21)
(17,758)
54,037
21,246
In-process Research & Development relates to acquired development projects as part of the Esteve business combination in 2015, the
reverse acquisition of Animalcare Group plc in 2017 and external and internal in-process R&D costs for which the capitalisation criteria
are met.
78
26011 18/05/2018 Proof 4
Patents, distribution rights and licences include amounts paid for exclusive distribution rights as well as distribution rights acquired as
part of the Esteve business combination in 2015 and the reverse acquisition of Animalcare Group plc in 2017.
Product portfolios and product development costs relate to amounts paid for acquired brands as well as external and internal product
development costs capitalised on the development projects in the pipeline for which the capitalisation criteria are met.
The total amortisation charge for 2017 is £6,053k (2016: £3,981k) which is included in lines cost of sales, research and development
expenses, sales and marketing expenses and general and administrative expenses of the consolidated income statement.
11 Property, Plant and Equipment
The changes in the carrying value of the property, plant and equipment can be presented as follows for the years 2017 and 2016:
Acquisition value
At 1st January 2016
Additions
Change due to business combinations
Disposals
Transfers
Currency translation
At 31st December 2016
Additions
Change due to business combinations
Disposals
Currency translation
At 31st December 2017
Depreciation
At 1st January 2016
Depreciation charge for the year
Disposals
Transfers
Change due to business combinations
Currency translation
At 31st December 2016
Depreciation charge for the year
Disposals
Change due to business combinations
Currency translation
At 31st December 2017
Net book value
At 31st December 2017
At 31st December 2016
Equipment
£’000
Office furniture
and equipment
£’000
Finance
leases
£’000
Leasehold
improvements
£’000
428
25
(196)
−
−
60
317
25
383
(1)
15
739
(303)
(37)
−
−
149
(43)
(234)
(50)
−
(274)
(9)
(567)
172
83
1,014
391
(59)
(23)
(174)
166
1,315
134
195
(9)
55
1,690
(632)
(234)
17
52
57
(105)
(845)
(215)
3
(169)
(37)
(1,263)
427
470
52
−
−
−
−
8
60
−
−
−
2
62
(10)
(11)
−
−
−
(2)
(23)
(12)
−
−
(1)
(36)
26
37
370
47
(164)
−
−
53
306
25
184
−
13
528
(257)
(44)
−
−
160
(36)
(177)
(50)
−
(93)
(8)
(328)
200
129
Total
£’000
1,864
463
(419)
(23)
(174)
287
1,998
184
762
(10)
85
3,019
(1,202)
(326)
17
52
366
(186)
(1,279)
(327)
3
(536)
(55)
(2,194)
825
719
The investment in property, plant and equipment in 2017 amounted to £184k (2016: £463k) and mainly related to the acquisitions of IT
and office equipment.
79
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
The Group realised a net result on disposals of property, plant and equipment of £nil in 2017 (2016: £nil).
No impairment of property, plant and equipment was recorded.
Finance leases
The carrying value of assets held under finance leases at 31st December 2017 was £26k (2016: £37k). Finance leases mainly relate to
leased trucks.
Borrowing costs
No borrowing costs were capitalised during the year ended 31st December 2017 or 31 December 2016.
12 Inventories
Inventories include the following:
Raw materials
Goods purchased for resale
Total inventories (at cost or net realisable value)
2017
£’000
1,062
15,733
16,795
2016
£’000
966
12,288
13,254
The amount of inventory recognised as an expense during 2017 amounts to £48,156k (2016: £38,918k). Inventory write-downs during
2017 amounted to £680k (2016: £523k).
13 Trade Receivables and Other Current Assets
Trade receivables include the following:
Trade receivables
Allowance on trade receivables
Total
2017
£’000
16,811
(131)
16,680
2016
£’000
10,904
(123)
10,781
Trade receivables are non-interest-bearing and are generally on payment terms of between 30 to 90 days.
As at 31st December 2017, trade receivables of an initial value of £131k (2016: £123k) were impaired and fully provided for. The table
below shows the changes in the allowance of receivables.
At 1st January 2016
Additional impairments
Change due to business combinations
Exchange difference
Other movement
At 31st December 2016
Additional impairments
Change due to business combinations
Reversal impairment
Exchange difference
Other movement
At 31st December 2017
80
£’000
(23)
(102)
9
(8)
1
(123)
(84)
(14)
26
(5)
69
(131)
26011 18/05/2018 Proof 4 Other current assets include the following:
Other receivables
Deferred charges
Total
2017
£’000
1,118
816
1,934
Other current assets amount to £1,934k (2016: £1,191k) at the end of the reporting period. Deferred charges mainly include
prepayments totalling £562k (2016: £nil).
14 Cash and Cash Equivalents
Cash and cash equivalents include the following:
Cash at bank
Cash equivalents
Total
2017
£’000
7,577
2
7,579
2016
£’000
956
235
1,191
2016
£’000
945
6
951
Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less. There were no
restrictions on cash during 2017 and 2016.
15 Trade Payables
Trade payables
Total
The Directors consider that the carrying amount of trade payables approximates to their fair value.
16 Borrowings
The loans and borrowings include the following:
Other loans
Revolving credit facilities
Roll over investment facility
Acquisition loan
Total loans and borrowings
of which: non -current
current
Interest
rate
1.56%
Maturity
EURIBOR +1.50%
March 22
EURIBOR +1.50%
March 22
EURIBOR +1.75%
March 22
2017
£’000
14,128
14,128
2017
£’000
51
26,768
2,676
3,992
33,487
32,854
633
2016
£’000
10,012
10,012
2016
£’000
75
21,482
3,176
−
24,733
24,102
631
81
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
Revolving credit facilities and roll over investment facilities
In mid-2016, the Group refinanced all of its outstanding investment loans with different banks. Financing arrangements were entered into
with four Belgian banks. These financing arrangements have been split equally amongst these four banks. The new agreements consist of:
{ €41.5m revolving credit facilities
{ €10m available acquisition financing
{ €4.08m investment loans
The loans have a variable, EURIBOR based interest rate, increased with a margin of 1.5% or 1.75%. The revolving credit facilities and the
acquisition financing have a bullet maturity in March 2022. The investment loans are repaid in 23 monthly instalments.
17 Provisions
Provisions consist of the following:
Provisions for redundancy
Provisions for risks and charges
Total
2017
£’000
−
72
72
2016
£’000
20
196
216
Provisions for risks and charges amount to £72k in December 2017 (2016: £196k) and relate to various obligations which are not
individually significant.
The assessment of the accounting treatment of the Belgian employee benefit contribution plans with a minimal guaranteed return was
based on actuarial calculations which resulted in an immaterial impact as only a limited number of individuals can benefit from the plan
given the limited fixed amount which is being covered per covered individual. No provision has been recognised as at 31st December
2017 and 2016. As a result no further disclosures have been provided.
18 Deferred Income and Accrued Charges
Deferred income and accrued charges consists of the following:
Accrued charges
Deferred income – due within one year
Other
Total due within one year
Deferred income – due after one year
2017
£’000
1,868
219
29
2,116
780
2016
£’000
806
−
6
812
−
Accrued charges mainly relate to accrued product development expenses of £757k, accrued management bonuses in Ecuphar NV of
£93k (2016: £350k) and several accrued charges relating to commissions and bonuses in Ecuphar Veterinaria for an amount of £333k
(2016: £318k).
Deferred income arises from certain services sold by the Group’s subsidiary Animalcare Ltd. In return for a single upfront payment,
Animalcare Ltd commits to a fixed term contract to provide certain database, pet reunification and other support services to customers.
There is no contractual restriction on the amount of times the customer makes use of the services. At the commencement of the
contract, it is not possible to determine how many times the customer will make use of the services, nor does historical evidence provide
indications of any future pattern of use. As such, income is recognised evenly over the term of the contract, currently between 8 and
14 years.
82
26011 18/05/2018 Proof 4 Movements in the Group’s deferred income liabilities during the current year are as follows:
Balance at the beginning of the year
Acquired through business combinations
Income deferred to following periods
Release of income deferred from previous periods
Balance at the end of the year
The deferred income liabilities fall due as follows:
Within one year
After one year
Balance at the end of the year
19 Other Current Liabilities
Other current liabilities include the following:
Payroll-related liabilities
Other current liabilities
Total
£’000
−
925
181
(107)
999
£’000
219
780
999
2016
£’000
572
1,665
2,237
2017
£’000
1052
928
1,980
Other current liabilities mainly relate to outstanding payables at the year-end for expected contractual pay-outs under a licence
agreement for £763k as at 31st December 2017 (2016: £1,665k).
20 Fair Value
Financial assets
The carrying value and fair value of the financial assets for 31st December 2017 and 2016 are presented as follows:
Financial assets measured at fair value
Assets available for sale at FV through OCI
Loans and receivables measured at amortised cost
Trade and other receivables (current)
Other financial assets (non-current)
Other current assets
Cash and cash equivalents
Total loans and other receivables
Carrying value
2016
£’000
423
11,737
69
1,191
951
13,948
2017
£’000
464
17,798
72
1,934
7,579
27,383
2017
£’000
464
17,798
72
1,934
7,579
27,383
Fair value
2016
£’000
423
11,737
69
1,191
951
13,948
83
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
The fair value of the financial assets has been determined on the basis of the following methods and assumptions:
{ The carrying value of the cash and cash equivalents and the current receivables approximate their fair value due to their short-term
character.
{ The fair value of the financial assets at fair value through other comprehensive income is derived from market observable data,
namely stock and foreign exchange market data (Level 1 inputs). The Group has no financial instruments carried at fair value in the
statement of financial position on 31st December 2017 and 2016 except for an investment in a company through publicly listed
shares. The fair value of this investment is determined based on Level 1 inputs.
{ Trade and other receivables are being evaluated on the basis of their credit risk and interest rate. Their fair value is not different from
their carrying value on 31st December 2017 and 2016.
Financial liabilities
The carrying value and fair value of the financial liabilities for 31st December 2017 and 2016 are presented as follows:
Financial liabilities measured at amortised cost
Borrowings
Trade payables
Other liabilities
Total financial liabilities measured at amortised cost
Financial liabilities measured at fair value
Derivative financial instruments at FV through PL
Total financial liabilities measured at fair value
Total non-current
Total current
Carrying value
2016
£’000
24,733
10,012
4,822
39,567
–
–
24,102
15,465
2017
£’000
33,487
14,128
6,837
54,452
–
–
32,854
21,598
2017
£’000
33,487
14,128
6,837
54,452
–
–
32,854
21,598
Fair value
2016
£’000
24,733
10,012
4,822
39,567
–
–
24,102
15,465
The fair value of the financial liabilities has been determined on the basis of the following methods and assumptions:
{ The carrying value of trade payables and other liabilities approximates their fair value due to the short-term character of these
instruments.
{ Loans and borrowings are evaluated based on their interest rates and maturity date. Most interest-bearing debts have floating
interest rates and their fair value approximates to their amortised cost value.
Fair value hierarchy
The Group has no financial instruments carried at fair value in the statement of financial position on 31st December 2017 and 2016
except for an investment in a company through publicly listed shares. The fair value of this investment is a Level 1 fair value.
21 Equity
Share capital
Allotted, called up and fully paid Ordinary Shares of 20p each
2017
Number of
shares
2016
Number of
shares
59,913,900
21,222,110
84
26011 18/05/2018 Proof 4
Allotted, called up and fully paid Ordinary Shares of 20p each
The following share transactions have taken place during the year ended 31st December 2017:
At 1st July 2016
Issued as consideration for business combinations
Exercise of share options
At 31st December 2017
2017
£’000
11,983
2017
Number of
shares
21,222,110
37,322,894
1,368,896
59,913,900
2016
£’000
4,244
2016
£’000
4,244
7,465
274
11,983
On 13th July 2017, the Group announced that it had completed the reverse acquisition. In aggregate, 37,322,894 new Ordinary Shares
were allotted and issued, comprising 8,571,428 new placing shares and 28,751,466 consideration shares.
During the year a total of 1,368,896 shares were issued in respect of the exercise of share options. This comprised a total of 1,218,896
shares issued to certain Directors as described in note 7.7, with the balance of 150,000 shares issued in relation to the grant of options
over the Company’s share by Animalcare Ltd under the Animalcare Group plc Executive Share Option Scheme and the Save As You Earn
(SAYE) Share Option Scheme referred to in note 25.
Dividends
The Group paid an ordinary interim dividend of 4.7p per share, totalling £2,816k, on 24th November 2017. During the year ended
31st December 2016, the Group paid a final dividend of £1,469k.
The proposed final dividend of 2.0 pence per share is subject to approval of shareholders at the Annual General Meeting and has not
been included as a liability as at 31st December 2017, in accordance with IAS 10 “Events After the Balance Sheet Date”.
Non-controlling interest
The non-controlling interest is £2k at 31st December 2017 (2016: £2k). This non-controlling interest represents 0.2% of the share capital
of Medini NV and 0.02% of Orthopaedics.be NV which are held by third parties.
22 Commitments and Contingent Liabilities
Operating lease commitments
The Group has operating lease commitments mainly related to buildings as follows:
Within one year
Between two and three years
Between four and five years
More than five years
Total
2017
£’000
767
1,467
576
492
3,302
2016
£’000
510
884
678
687
2,759
The total operating lease payments recognised in the consolidated income statement in 2017 are £1,899k (2016: £1,365k).
85
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
Finance lease commitments
The Group has finance leases for building and various other items of plant and equipment. Future minimum lease payments under
finance leases with the present value of the net minimum lease payments are, as follows:
Within one year
Between two and three years
Between four and five years
More than five years
Total
Less finance charges
Present value of minimum lease payments
31st December 2017
31st December 2016
Minimum
lease
payments
£’000
Present
value of
payments
£’000
Minimum
lease
payments
£’000
Present
value of
payments
£’000
27
23
−
−
50
2
52
28
24
−
−
52
−
52
25
40
8
−
73
2
75
26
41
8
−
75
−
75
23 Risks
In the exercise of its business activity, the Group is exposed to credit, liquidity and market risks.
Credit risk
As at 31st December 2017, the Group’s maximum exposure to credit risk is £16,680k, which is the amount of the trade receivables in the
consolidated accounts (2016: £10,781k).
To control this risk, the Group has set up a strict credit collection process. Historically, no major bad debts have been recorded. The Group
has no individual customers who represent a significant part of the consolidated turnover, nor of the trade receivables at year-end.
The following is an ageing schedule of trade receivables:
31st December 2017
31st December 2016
Total
£’000
16,680
10,781
Non-due
£’000
11,994
9,966
< 30 days
£’000
31–60 days
£’000
61–90 days
£’000
91–180 days
£’000
> 181 days
£’000
3,241
710
516
25
418
44
196
10
315
26
Liquidity risk
Liquidity risk is the risk that the Company may not be able to meet its financial obligations as they fall due. The Group expects to meet
its obligations related to the financing agreements through operating cash flows. Additionally, the Group ensures there is sufficient
headroom on the existing credit lines to have an additional working capital buffer. As at 31st December 2017, the Group had the following
sources of liquidity available:
{ Cash and cash equivalents: £7,579k
{ Undrawn credit facilities with several banks: £10,052k
{ Undrawn acquisition financing: £4,880k
86
26011 18/05/2018 Proof 4 The table below provides an analysis of the maturity dates of the financial liabilities:
At 31st December 2017
Borrowings
Trade payables
Other current liabilities
Total
At 31st December 2016
Borrowings
Trade payables
Other current liabilities
Total
< 1 year
£’000
1 – 3 years
£’000
4–5 years
£’000
> 5 years
£’000
Total
£’000
(633)
(1,307)
(31,547)
(14,128)
(1,980)
(16,741)
−
−
−
−
(1,307)
(31,547)
−
−
−
−
(33,487)
(14,128)
(1,980)
(49,595)
< 1 year
£’000
1 – 3 years
£’000
4–5 years
£’000
> 5 years
£’000
Total
£’000
(631)
(1,259)
(1,210)
(21,633)
(10,012)
(2,237)
(12,880)
−
−
−
−
−
−
(1,259)
(1,210)
(21,633)
(24,733)
(10,012)
(2,237)
(36,982)
The Group’s indebtedness and its restrictions and covenants agreed upon in the financing agreements may adversely affect the Group’s
liquidity position. Any breach of covenants can lead to loans being immediately due and payable.
The Company has an international cash pool with different banks to limit excess cash. The Company closely monitors cash balances
within the Group and uses short-term withdrawals on the credit lines to minimise the cash balances.
Foreign exchange risk
The Group undertakes transactions denominated in foreign currencies which give rise to the risks associated with currency exchange
rate fluctuations. Exposures are managed by a combination of matching foreign currency income and expenditure, maintaining foreign
currency deposits and the use of forward contracts. The carrying values of the Group’s foreign currency assets and liabilities including
intercompany balances at the reporting date were:
EUR/GBP
EUR/USD
GBP/USD
Assets
2017
£’000
670
−
205
Assets
2016
£’000
68
−
−
Liabilities
2017
£’000
Liabilities
2016
£’000
658
155
87
13
72
−
The cumulative effect of the foreign currency translation effects is reported under other comprehensive income in the statement of
financial position and amounts to £3,183k (2016: £2,003k).
At the end of the reporting period, the Group is mainly exposed to the EUR and the USD. The following table details the effect of a
10% increase and decrease in the exchange rate of these currencies against sterling when applied to outstanding monetary items
denominated in foreign currency as at 31th December 2017. A positive number indicates that an increase in profit would arise from a
10% change in value of sterling against these currencies, and a negative number indicates that a decrease would arise.
EUR
USD
Strengthening
£’000
Weakening
£’000
9
3
(11)
(4)
87
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
Interest rate risk
The maturity dates and interest rates of the financial debts and liabilities are detailed in note 12. The exposure to interest rate risks is
mainly related to existing borrowing facilities. The current loans of credit institutions have variable interest rates. There are no significant
differences between the nominal interest rates as listed in note 12 and the effective interest rates of the loans.
If the interest rates would have been 100 bp higher/lower, the financial result would have been £330k lower/higher in 2017 and £ 287k
lower/higher in 2016.
Forward foreign exchange contracts
The Group had two (2016: none) open foreign exchange contracts at the end of the year. The values are shown below:
Principal value
Fair value
2017
£’000
−
4
2016
£’000
−
−
Capital management
The primary objective of the Group’s shareholders’ capital management strategy is to ensure it maintains healthy capital ratios
to support its business and maximize shareholder value. Additionally, minimum solvency ratios are agreed upon in the financing
agreements. Capital is defined as the Group shareholder’s equity which amounts to £89,644k as at 31st December 2017 (2016:
£19,853k).
The Group consistently reviews its capital structure and makes adjustments in light of changing economic conditions and performances
of the Group. The Group made no changes to its capital management objectives, policies or processes during the years ended
31st December 2017 and 2016.
24 Remuneration paid to the Company’s Auditors
Fees payable to the Company’s auditors for the audit of the Company’s annual accounts
The audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
Tax services
Other services
Total non-audit fees
Total auditors’ remuneration
2017
£’000
19
99
118
16
144
160
278
2016
£’000
18
35
53
31
68
99
152
88
26011 18/05/2018 Proof 4 25 Share-based Payments
During the year the Company operated two share option schemes and one Long Term Incentive Plan as described below:
Animalcare Group plc Executive Share Option Scheme
Under this scheme, options may be granted to certain executives and senior employees of the Group to subscribe for new shares in
the Company at a fixed price equal to the market value at the time of grant. The options are exercisable three years after the date of
grant. Once vested, options must be exercised within six years of the date of grant. The exercise of these options is not subject to any
performance criteria.
SAYE Option Scheme
This scheme is open to all UK employees to encourage share ownership. Share options are granted at an option price fixed at a 20%
discount to the market value at the start of the savings period. The SAYE options vest and are exercisable three years after the date of
grant and must ordinarily be exercised within six months of the completion of the relevant savings period.
Details of the movement in these share option schemes during the year are as follows:
Share options acquired during the year
Lapsed during the year
Exercised during the period
Open at 31st December 2017
Exercisable at the end of the year
Options
£
460,000
(47,500)
(270,000)
142,500
57,500
EMI
Price
£
1.578
1.860
1.408
1.916
1.555
Options
£
SAYE
Price
£
Options
£
199,864
1.567
180,000
Unapproved
Price
£
1.408
−
−
−
−
199,864
−
−
−
1.567
−
(180,000)
1.408
−
−
−
−
The weighted average inputs into the Black–Scholes model at the time of grant were as follows:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk-free rate
EMI
Scheme
SAYE
Scheme
Unapproved
Scheme
152p
152p
53%
195p
157p
42%
141p
141p
56%
3.1 years
3.1 years
3.0 years
0.5%
0.5%
0.5%
Expected volatility was determined by calculating the historical volatility of the Company’s share price over the previous three years. The
expected lives used in the model were estimated based on management’s best estimate for the effects of non-transferability, exercise
restrictions, and behavioural considerations.
The Company recognised a total charge in respect of share-based payments of £27k (2016: £nil).
Long Term Incentive Plan (LTIP)
Information relating to the LTIP, which was exercised during the year, is set out in note 7.7.
The charge for the year to the income statement in respect of the LTIP is £nil (2016: £nil).
89
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Y E A R E N D E D 31 S T D E C E M B E R 2017
26 Related Party Transactions
This disclosure provides an overview of all transactions with related parties.
Transactions between the Company and its subsidiaries, which are related parties, are eliminated in the consolidated accounts and no
information is provided hereon in this section.
Remuneration of the Directors, who are the key management personnel of the Group, is included in the Annual Remuneration Report on
page 36 and in note 37.
Transactions with shareholders accounted for a total amount of £nil in 2017 (2016: £60k). These amounts were recognised as an
expense during the reporting period.
27 Overview of Consolidated Entities
Name
Ecuphar NV
Medini NV
Country of
incorporation Registered address
Belgium Legeweg 157i, 8020 Oostkamp
Belgium Legeweg 157i, 8020 Oostkamp
% equity interest
2017
£’000
100%
99.8%
2016
£’000
100%
99.8%
Orthopaedics.be NV
Belgium Legeweg 157i, 8020 Oostkamp
99.98%
99.98%
Ecuphar BV
The Netherlands Verlengde Poolseweg 16, 4818 CL Breda
Ecuphar Veterinary
Products BV
Ornis SA
Ecuphar GmbH
Euracon Pharma Consulting
und Trading GmbH
The Netherlands Verlengde Poolseweg 16, 4818 CL Breda
France Rue de Roubaix 33, 59200 Tourcoing
Germany Brandteichstraße 20, 17489 Greifswald
Germany Max-Planck Str. 11, 85716 Unterschleißheim
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Ecuphar Veterinaria SA
Spain Avenida Río de Janeiro, 60 – 66, planta 13, 08016
100%
100%
Barcelona
Ecuph Italia
Belphar
Italy Viale Francesco Restelli, 3/7, piano 1, 20124 Milan
Portugal R. Carlos Alberto da Mota Pinto, Nº 17 - 3ºA, 1070-313
Lisbon
Animalcare Ltd
United Kingdom Unit 7, 10 Great North Way, York Business Park, Nether
Poppleton, York, YO26 6RB
100%
100%
100%
100%
100%
0%
90
26011 18/05/2018 Proof 4
COMPANY BALANCE SHEETS
P E R I O D E N D E D 31 S T D E C E M B E R 2017
Non-current assets
Other intangible assets
Investments in subsidiary companies
Deferred tax asset
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Net current assets/(liabilities)
Total liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Retained earnings
Equity attributable to equity holders of the parent
Included within retained earnings is profit after tax of £6,028,000 (2016: loss £399,000).
As at 31 Dec
2017
£’000
As at 30 June
2016
£’000
Notes
6
7
11
8
9
10
12
12
–
147,743
12
147,755
635
2,109
2,744
150,499
(3,684)
(3,684)
(940)
(3,684)
146,815
11,983
132,588
2,244
146,815
4
14,361
105
14,470
332
1,576
1,908
16,378
(5,217)
(5,217)
(3,309)
(5,217)
11,161
4,212
6,506
443
11,161
91
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS COMPANY STATEMENT OF CHANGES
IN SHAREHOLDERS’ EQUITY
P E R I O D E N D E D 31 S T D E C E M B E R 2017
Balance at 30th June 2015
Total comprehensive loss for the year
Transactions with owners of the Company, recognised in
equity:
Dividends paid
Issue of share capital
Share-based payments
Balance at 1st July 2016
Total comprehensive profit for the period
Transactions with owners of the Company, recognised in
equity:
Dividends paid
Issue of share capital net costs of issue
Consideration shares
Exercise of share options
Share-based payments
Balance at 31st December 2017
Notes
3
5
12
12
12
13
Share
capital
£’000
4,204
–
–
8
–
Share
premium
account
£’000
6,461
–
–
45
–
4,212
6,506
–
–
1,714
5,750
307
–
–
–
27,068
94,880
4,134
–
Retained
earnings
£’000
2,078
(399)
Total
£’000
12,743
(399)
(1,283)
(1,283)
–
47
443
6,028
(4,237)
–
–
–
10
53
47
11,161
6,028
(4,237)
28,782
100,630
4,441
10
11,983
132,588
2,244
146,815
92
26011 18/05/2018 Proof 4 COMPANY CASH FLOW STATEMENTS
P E R I O D E N D E D 31 S T D E C E M B E R 2017
Comprehensive income/(loss) for the year before tax
Adjustments for:
Amortisation of intangible assets
Finance income
Share-based payment expense
Operating cash flows before movements in working capital
Decrease/(increase) in receivables
(Decrease)/increase in payables
Cash generated by operations
Income taxes (paid)/received
Net cash flow from operating activities
Investing activities:
Payments to acquire subsidiaries
Disposal of subsidiaries
Interest received
Net cash (used in)/generated by investing activities
Financing:
Receipts from issue of share capital
Equity dividends paid
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
Comprising:
Cash and cash equivalents
Note
3
13
8
10
7
7
12
5
18 month
period to
31st Dec
2017
£’000
5,608
12 month
period to
30th June
2016
£’000
(507)
4
(4)
10
5,618
(8)
(1,315)
4,295
–
4,295
(33,145)
4,000
4
(29,141)
29,616
(4,237)
25,379
533
1,576
2,109
2
(11)
47
(469)
(3)
1,691
1,219
–
1,219
–
–
11
11
53
(1,283)
(1,230)
–
1,576
1,576
9
2,109
1,576
93
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS Investments in subsidiaries
Investments in Group companies are stated at cost less provisions
for impairment losses.
Dividends
Dividends paid are recognised within the statement of changes in
equity only when an obligation to pay the dividend arises prior to
the year end.
Share-based payments
The Company issues equity-settled share-based payments to
certain employees. Equity-settled share-based payments 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-based payments is
expensed on a straight-line basis over the vesting period, based
on the Company’s estimate of shares that will eventually vest and
adjusted for the effect of non-market based vesting conditions
(with a corresponding movement in equity).
Fair value is measured by use of the Black–Scholes model. The
expected life used in the model has been adjusted, based on
management’s best estimate, for the effects of non-transferability,
exercise restrictions, and behavioural considerations.
The fair value of the shares issued under the Long Term Incentive
Plan were valued on a discounted cash flow basis in conjunction
with a third party valuation specialist.
Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax.
The tax currently payable is based on taxable profit for the year.
Taxable profit differs from net profit as reported in the statement
of comprehensive income because it excludes items of income or
expense that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The Company’s
liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date.
NOTES TO THE ACCOUNTS
P E R I O D E N D E D 31 S T D E C E M B E R 2017
1 Significant Accounting Policies
The following accounting policies have been applied consistently in
dealing with items which are considered material in relation to the
financial statements of the Company.
Basis of preparation
The Company financial statements cover the period of 18 months
from 1st July 2016 to 31st December 2017.
The financial statements have been prepared and approved by
the Directors under the historical cost convention, except for the
revaluation of certain financial instruments, in accordance with
International Financial Reporting Standards (“IFRS”) as adopted
by the European Union (“adopted IFRSs”) and the Companies Act
2006 as applicable to companies reporting under IFRS. They have
also been prepared in accordance with the requirements of the
AIM Rules.
Under section 408 of the Companies Act 2006 the Company is
exempt from the requirement to present a separate Profit and
Loss account in these separate financial statements. The profit
dealt with in the accounts of the Company was £6,028,000 (2016:
loss £399,000).
The accounting policies of the Company are the same as for the
Group where applicable.
Going concern
The Directors have assessed the Company’s ability to continue in
operational existence for the foreseeable future in accordance
with FRC Going Concern and Liquidity Risk guidance (October
2009). It is considered appropriate to continue to prepare the
financial statements on a going concern basis.
Intangible assets
The Company recognises intangible assets at cost less accumulated
amortisation and impairment losses. Intangible assets arise
both as a result of applying IFRS 3 which requires the separate
recognition of intangible assets from goodwill on all business
combinations from 1st January 2004, and from the purchase of
software (that is separable from any associated hardware).
Intangible assets are amortised on a straight-line basis over their
useful economic lives as follows:
Software
Estimated useful life – 4 years
Operating leases
Rentals payable under operating leases are charged to income on
a straight-line basis over the term of the relevant lease.
Employee benefits – Pensions
The Company operates a stakeholder pension scheme available to
all eligible employees. Payments to this scheme are charged as an
expense as they fall due.
94
26011 18/05/2018 Proof 4 1 Significant Accounting Policies (continued)
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used
in the computation of taxable profit and is accounted for using
the balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable
that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities
are not recognised if the temporary difference arises from the
initial recognition of goodwill or from the initial recognition (other
than in a business combination) of other assets and liabilities in a
transaction that affects neither the tax profit nor the accounting
profit.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all
or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited in the statement of
comprehensive income, except when it relates to items charged
or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
2 Exceptional and Other Items
Professional and other fees relating to the reverse acquisition
Legal fees relating to Director resignation
Reorganisation and integration costs
Total exceptional and other items
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same
taxation authority and the Company intends to settle its current
tax assets and liabilities on a net basis.
Financial instruments
Financial assets and financial liabilities are recognised in the
Company’s balance sheet when the Company becomes a party to
the contractual provisions of the instrument.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits
repayable on demand, and other short-term highly liquid
investments that are readily convertible to a known amount of
cash and are subject to an insignificant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according
to the substance of the contractual arrangements entered into. An
equity instrument is any contract that evidences a residual interest
in the assets of the Company after deducting all of its liabilities.
Finance income and expense
Finance income comprises interest receivable on funds invested
that are recognised in the income statement.
Notes
7
4
2017
£’000
2,791
17
105
2,913
2016
£’000
–
–
–
–
The Company presents certain items as exceptional income or expense that, in the judgement of the Directors, merit separate disclosure
by virtue of their nature, size and incidence.
The majority of the £2,913,000 exceptional costs included in the Company’s result for the period relate to the reverse acquisition
of Ecuphar NV which completed on 13th July 2017 (see note 7 for further details). The transaction costs totalling £2,791,000 largely
comprise professional fees including corporate finance, legal, accounting and taxation advice.
Reorganisation and integration costs totalling £105,000 relate to professional fees associated with the reorganisation of the Group
structure (see note 7) and initial costs in respect of the set-up of a new Long Term Incentive Plan which is expected to be implemented
during 2018.
95
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS NOTES TO THE ACCOUNTS CONTINUED
P E R I O D E N D E D 31 S T D E C E M B E R 2017
3 Total Comprehensive Income/(Loss) for the Period
Total comprehensive income/(loss) for the period/year has been arrived at after charging/(crediting):
Amortisation of intangible assets
Finance income
Dividend income received from subsidiary – Animalcare Ltd
Dividend income received from subsidiary – Ecuphar NV
2017
£’000
4
(4)
7,789
1,789
2016
£’000
2
(11)
–
–
The above items are those charged/credited to total comprehensive income/(loss) only. Full details on items charged/(credited) to
exceptional and other items are contained in note 2.
The analysis of remuneration paid to the Company’s auditors for the audit of the Company’s financial statements is as follows:
Fees payable to the Company’s auditors for the audit of the Company’s annual accounts
Total audit fees
4 Directors’ Remuneration and Interests
Emoluments
The various elements of remuneration received by each Director were as follows:
2017
£’000
19
19
Period ended 31st December 2017
W Beyers1
J Boone* (Appointed 13th July 2017)
C Brewster2
C Cardon (Appointed 13th July 2017)
M Coucke* (Appointed 13th July 2017)
Lord Downshire*
R B Harding* (Resigned 13th July 2017)
J S Lambert*
Dr I D Menneer
E Torr* (Appointed 13th July 2017)
Total
* Indicates Non-Executive Directors.
Salary
£’000
11
35
184
16
19
43
24
55
282
19
688
Company
pension
contributions
£’000
Bonus
£’000
Compensation
for loss
of office
£’000
Benefits
£’000
–
–
46
–
–
–
–
–
63
–
109
–
–
22
–
–
–
–
–
34
–
56
–
–
12
–
–
5
–
–
15
–
32
–
–
–
–
–
–
12
–
–
–
12
1. W Beyers was appointed 13th July 2017 and resigned 26th September 2017.
2. C Brewster resigned 12th July 2017 and then appointed 26th September 2017.
2016
£’000
13
13
Total
£’000
11
35
264
16
19
48
36
55
394
19
897
96
26011 18/05/2018 Proof 4 4 Directors’ Remuneration and Interests (continued)
Year ended 30th June 2016
J S Lambert*
Lord Downshire*
R B Harding*
Dr I D Menneer
C J Brewster
Total
* Indicates Non-Executive Directors.
Salary
£’000
35
23
23
143
102
326
Company
pension
contributions
£’000
Bonus
£’000
Benefits
£’000
–
–
–
18
17
35
–
–
–
17
12
29
–
3
–
7
6
16
Total
£’000
35
26
23
186
137
406
All Company pension contributions relate to defined contribution pension schemes. Benefits consist of company car and private medical
insurance.
Share options
The Directors had the following beneficial options granted by the Company:
EMI
Unapproved
SAYE
Unapproved
I D Menneer
Scheme
Exercise Price
Date of Grant
Outstanding at 1st July 2016
EMI
£1.30
2nd
August
2012
60,000
£1.325
£1.40
20th
November
2012
21st
February
2013
50,000
90,000
Exercised during the period
(60,000)
(50,000)
(90,000)
Open at 31st December 2017
–
–
–
£1.03
22nd
May
2013
4,377
(4,377)
–
£1.415
20th
June
2013
90,000
(90,000)
Total
SAYE
£1.05
28th
November
2014
5,142
299,519
–
(294,377)
–
5,142
5,142
EMI
Unapproved
SAYE
Unapproved
SAYE
Total
C J Brewster
Scheme
Exercise Price
Date of Grant
EMI
£1.30
22nd
June
2012
Outstanding at 1st July 2016
30,000
£1.30
2nd
August
2012
30,000
Exercised during the period
(30,000)
(30,000)
Open at 31st December 2017
–
–
£1.03
22nd
May
2013
8,754
(8,754)
–
£1.415
£1.05
20th
June
2013
40,000
(40,000)
28th
November
2014
8,571
117,325
–
(108,754)
–
8,571
8,571
In connection with the reverse acquisition of Ecuphar NV, all vested options were exercised following completion on 13th July 2017.
For the Directors’ interests in the shares of the Company as at 31st December 2017 please refer to the table on page 37 in the Annual
Remuneration Report.
97
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS NOTES TO THE ACCOUNTS CONTINUED
P E R I O D E N D E D 31 S T D E C E M B E R 2017
4 Directors’ Remuneration and Interests (continued)
Long Term Incentive Plan (LTIP)
Under the Animalcare Group plc LTIP, which was introduced in June 2014, the Directors’ interests in the LTIP, which was implemented via
a subscription for growth shares in the capital of Animalcare Ltd, a subsidiary of the Company, are as follows:
{ Iain Menneer – 31,955 A Ordinary Shares of £1.00 each (“A Shares”) for a total cash subscription of £31,955, representing 5.2% of
Animalcare Ltd’s issued share capital; and
{ Chris Brewster – 19,173 A Shares, representing 3% of Animalcare Ltd’s issued share capital and 11,800 B Ordinary Shares of £1.00
each (“B Shares”), representing a further 2% of Animalcare Ltd’s issued share capital, for a total cash subscription of £30,973.
The total cash subscriptions were, based on independent valuation, considered to be equal to fair value at the time of acquisition.
Dr Menneer and Mr Brewster had the right to sell their A Shares to the Company at any time after 27th June 2017 in exchange for
Ordinary Shares of 20 pence each in the Company (“Ordinary Shares”). Their rights to sell the A Shares are subject to, amongst
other provisions, the Company having a market capitalisation in excess of £39.0m (“the Hurdle”) at the time of sale. The Hurdle was
determined by Animalcare’s Remuneration Committee and broadly represented a 20% premium to the Company’s market capitalisation
on 27th June 2014. Each holder of A Shares would, on a sale of his entire holding to the Company, be entitled to receive Ordinary Shares
representing a percentage of the increase in the Company’s market capitalisation above the Hurdle; being 5% for Dr Menneer and 3%
for Mr Brewster. The A Shares do not have a right to receive a dividend, except for any amounts distributed on the winding up of the
Company or on an asset sale.
The B Shares are not entitled to participate in any increase in the value of the Company above the Hurdle but can be exchanged for
Ordinary Shares of an equal value at any time after 27th June 2017. The B Shares have a right to an annual dividend (on a non-fixed
coupon basis), calculated by applying a rate of LIBOR + 2% to the nominal value of the B Shares.
Further details of the Plan, including the Hurdle, anti-dilution and other provisions, are set out in Animalcare Ltd’s articles
of association, which is available within the Investors section (constitutional documents) of the Company’s website at
http://www.animalcaregroup.co.uk.
It was agreed between the Company, Dr Menneer and Mr Brewster, that the put options did not become exercisable as a result of
the reverse acquisition of Ecuphar NV. The Company, however, determined that it was appropriate to offer the right to exchange their
shares in Animalcare Limited for Ordinary Shares shortly before completion of the reverse acquisition, and each took up that right. As a
consequence, 918,896 new Ordinary Shares were issued to Dr Menneer and Mr Brewster. The number of new Ordinary Shares issued
pursuant to the exercise of these rights was determined using the lower of the closing middle market price for an Ordinary Share on
22 June 2017, being the dealing day before the date the offer to exchange was made and the average of the closing middle market prices
for an Ordinary Share over the dealing days in the 30 day period before that date, being 392.5 pence.
5 Dividends
Ordinary final dividend paid for the year ended 30th June 2015 of 4.3p per share
Ordinary interim dividend paid for the year ended 30th June 2016 of 1.8p per share
Ordinary final dividend paid for the year ended 30th June 2016 of 4.7p per share
Ordinary interim dividend paid for the year ended 30th June 2017 of 2.0p per share
Second ordinary interim dividend for the year ended 30th June 2017 of 4.7p per share
2017
£’000
–
–
997
425
2,815
4,237
2016
£’000
904
379
–
–
1,283
The proposed final dividend of [2.0] pence per share is subject to approval of shareholders at the Annual General Meeting and has not
been included as a liability as at 31st December 2017, in accordance with IAS 10 “Events After the Balance Sheet Date”.
98
26011 18/05/2018 Proof 4 6 Other Intangible Assets
Cost
At 1st July 2016 and 31st December 2017
Amortisation
At 1st July 2015
Charge for the year
At 30th June 2016
Charge for the period
At 31st December 2017
Carrying value
At 31st December 2017
At 30th June 2016
7 Investments in Subsidiaries
Subsidiary undertakings
Cost
At 1st July 2015 and 1st July 2016
Acquisition of Ecuphar NV
Investment in Animalcare Ltd following exercise of LTIP
Transfer of Animalcare Ltd to Ecuphar NV
At 31st December 2017
Capitalised
software
£’000
Total
£’000
7
1
2
3
4
7
–
4
7
1
2
3
4
7
–
4
2017
£’000
14,361
133,775
3,607
(4,000)
147,743
Details in respect of the reverse acquisition of Ecuphar NV, which was completed on 13th July 2017, are shown in note 4 to the
Consolidated Financial Statements.
On 13th July 2017, following exercise of the LTIP as detailed in note 4, the Company acquired the remaining 10% of Animalcare Ltd that it
did not own for a consideration of £3,607,000. This was satisfied by the issue of 918,896 new Ordinary Shares at a price of 392.5 pence
per share.
On 19th July 2017, Animalcare Ltd was transferred to Ecuphar NV as part of a post-completion restructuring of the Group. The
consideration was £4,000,000 in cash. This intra-group transaction was accounted for at book value hence the £4,000,000 cash
consideration was deducted from the overall investment carrying value so to result in a £nil effect on net assets.
99
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS NOTES TO THE ACCOUNTS CONTINUED
P E R I O D E N D E D 31 S T D E C E M B E R 2017
7 Investments in Subsidiaries (continued)
The Company has the following interests in subsidiaries:
Name
Ecuphar NV
Medini NV
Country of
incorporation Registered address
Belgium Legeweg 157i, 8020 Oostkamp
Belgium Legeweg 157i, 8020 Oostkamp
Orthopaedics.be NV
Belgium Legeweg 157i, 8020 Oostkamp
Ecuphar BV
The Netherlands Verlengde Poolseweg 16, 4818 CL Breda
Ecuphar Veterinary
Products BV
Ornis SA
Ecuphar GmbH
Euracon Pharma Consulting
und Trading GmbH
The Netherlands Verlengde Poolseweg 16, 4818 CL Breda
France Rue de Roubaix 33, 59200 Tourcoing
Germany Brandteichstraße 20, 17489 Greifswald
Germany Max-Planck Str. 11, 85716 Unterschleißheim
Ecuphar Veterinaria SA
Spain Avenida Río de Janeiro, 60 – 66, planta 13, 08016
Barcelona
Ecuph Italia
Belphar
Italy Viale Francesco Restelli, 3/7, piano 1, 20124 Milan
Portugal R. Carlos Alberto da Mota Pinto, Nº 17 - 3ºA, 1070-313
Lisbon
2017
£’000
100%
99.8%
99.98%
100%
100%
100%
100%
100%
100%
100%
100%
% equity interest
2016
£’000
–
–
–
–
–
–
–
–
–
–
–
Animalcare Ltd
United Kingdom Unit 7, 10 Great North Way, York Business Park, Nether
100%
100%
Poppleton, York, YO26 6RB
8 Other Financial Assets
Trade and other receivables
Corporation tax – Group relief
Other receivables
Prepayments and accrued income
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
9 Cash and Cash Equivalents
Cash and cash equivalents
2017
£’000
604
7
24
635
2017
£’000
2,109
2016
£’000
308
7
17
332
2016
£’000
1,576
Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less.
100
26011 18/05/2018 Proof 4 10 Other Financial Liabilities
Trade payables
Amounts payable to subsidiaries
Other taxes and social security costs
Other creditors
Accruals
2017
£’000
277
2,793
295
27
292
3,684
2016
£’000
97
4,991
56
20
53
5,217
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
11 Deferred Tax
The following are the major components of the deferred tax assets recognised by the Company, and the movements thereon, during the
current and prior reporting period:
Balance at 1st July 2015
Charge/(credit) to income
Balance at 30th June 2016
Charge to income
At 31 December 2017
Accelerated
tax depreciation
£’000
Share-based
payments
£’000
(9)
2
(7)
2
(5)
(77)
(19)
(96)
91
(5)
Other
£’000
(2)
–
(2)
–
(2)
Total
£’000
(88)
(17)
(105)
93
(12)
Deferred tax balances have been calculated at an effective rate of 17%, being the substantively enacted rate at 31 December 2017.
12 Share Capital
Allotted, called up and fully paid Ordinary Shares of 20p each
Allotted, called up and fully paid Ordinary Shares of 20p each
The following share transactions have taken place during the period ended 31st December 2017:
At 1st July 2016
Issued as consideration for business combinations
Exercise of share options
At 31st December 2017
2017
No.
2016
No.
59,913,900
21,059,636
2017
£’000
11,983
2017
No.
21,059,636
37,322,894
1,531,370
59,913,900
2016
£’000
4,212
2016
No.
4,212
7,465
306
11,983
101
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS NOTES TO THE ACCOUNTS CONTINUED
P E R I O D E N D E D 31 S T D E C E M B E R 2017
12 Share Capital (continued)
On 13th July 2017 the Company announced that it completed the reverse acquisition of Ecuphar NV. In aggregate, 37,322,894 new
Ordinary Shares were allotted and issued comprising 8,571,428 new placing shares and 28,751,466 consideration shares.
During the period a total of 1,531,370 shares were issued in respect of the exercise of share options. This comprised a total of 1,322,027
shares issued to certain Directors as described in note 4, with the balance of 209,333 shares issued in relation to the grant of options
over the Company’s share by Animalcare Ltd under the Animalcare Group plc Executive Share Option Scheme and the Save As You Earn
(SAYE) Share Option Scheme referred to in note 13.
13 Share-based Payments
During the year the Company operated two share option schemes and one Long Term Incentive Plan as described below:
Animalcare Group plc Executive Share Option Scheme
Under this scheme, options may be granted to certain executives and senior employees of the Group to subscribe for new shares in
the Company at a fixed price equal to the market value at the time of grant. The options are exercisable three years after the date of
grant. Once vested, options must be exercised within six years of the date of grant. The exercise of these options is not subject to any
performance criteria.
SAYE Option Scheme
This scheme is open to all UK employees to encourage share ownership. Share options are granted at an option price fixed at a 20%
discount to the market value at the start of the savings period. The SAYE options vest and are exercisable three years after the date of
grant and must ordinarily be exercised within six months of the completion of the relevant savings period.
Details of the movement in these share option schemes during the period are as follows:
Outstanding at 1st July 2016
Granted during the period
Lapsed during the year
Exercised during the period
Open at 31st December 2017
Exercisable at the end of the year
EMI
SAYE
Unapproved
Options
550,000
–
(47,500)
(360,000)
142,500
57,500
Price
£
1.578
–
1.860
1.408
1.916
1.555
Options
192,462
87,531
(7,835)
(72,474)
199,684
–
Price
£
1.041
2.280
1.607
1.028
1.567
–
Options
180,000
–
–
(180,000)
180,000
–
Price
£
1.408
–
–
1.408
1.408
–
102
26011 18/05/2018 Proof 4 13 Share-based Payments (continued)
The weighted average inputs into the Black–Scholes model at the time of grant were as follows:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk-free rate
EMI
Scheme
152p
152p
53%
SAYE
Scheme
Unapproved
Scheme
195p
157p
42%
141p
141p
56%
3.1 years
3.1 years
3.0 years
0.5%
0.5%
0.5%
Expected volatility was determined by calculating the historical volatility of the Company’s share price over the previous three years. The
expected lives used in the model were estimated based on management’s best estimate for the effects of non-transferability, exercise
restrictions, and behavioural considerations.
The Company recognised a total charge in respect of share-based payments of £10,200 (2016: £47,000).
Long Term Incentive Plan (LTIP)
Information relating to the LTIP, which was exercised during the period, is set out in note 4.
The charge for the period to the income statement in respect of the LTIP is £nil (2016: £nil).
14 Related Party Transactions
Trading transactions
During the period ended 31st December 2017, the following trading transactions took place between the Company and its UK subsidiary,
Animalcare Ltd.
2017
Management charges levied
2016
Management charges levied
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel, is provided in note 4.
Animalcare Ltd
£’000
120
Animalcare Ltd
£’000
240
Total
£’000
120
Total
£’000
240
103
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS SHAREHOLDERS NOTES
104
26011 18/05/2018 Proof 4 ADVISERS
Directors
C Cardon
C J Brewster
E Torr
J Boone
J S Lambert
Lord Downshire
M Coucke
Secretary
C J Brewster
Company Number
1058015
Registered Office
Auditor
Unit 7, 10 Great North Way
York Business Park
Nether Poppleton
York
YO26 6RB
PricewaterhouseCoopers
LLP
Central Square
29 Wellingotn Street
Leeds
LS1 4DL
Bankers
Barclays Bank PLC
Solicitors
Nominated Advisor and Broker
Registrars
PO Box 190
1 Park Row
Leeds
LS1 5WU
Squire Pattern Boggs (UK) LLP
6 Wellington Place
Leeds
LS1 4AP
Panmure Gordon & Co
One New Change
London
EC4M 9AF
Capita Asset Services
34 Beckenham Road
Beckenham
Kent
BR3 4TU
IBC
26011 18/05/2018 Proof 4Animalcare Group plc Annual Report 2017www.animalcaregroup.co.ukStock Code: ANCROUR FINANCIALS
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ADDRESS
10 Great North Way
York Business Park, York
YO26 6RB
CONTACT
T: +44 (0) 1904 487687
F: +44 (0) 1904 487611
E: Investors@animalcare.co.uk
W: www.animalcaregroup.co.uk
24942.04 13/10/2016 Proof 4