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10 Great North Way, York Business Park, York YO26 6RB
10 Great North Way, York Business Park, York YO26 6RB
T: +44 (0) 1904 487687 F: +44 (0) 1904 487611
T: +44 (0) 1904 487687 F: +44 (0) 1904 487611
investors@animalcare.co.uk www.animalcaregroup.co.uk
investors@animalcare.co.uk www.animalcaregroup.co.uk
ANNUAL REPORT
for the year ended 31st December 2018
Animalcare 2018 AR.indd 3
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26240 13 May 2019 6:46 pm Proof 7WELCOME TO ANIMALCARE GROUP PLC Strategic ReportOur BusinessHighlights 1Chairman’s Statement 2Why Animalcare? 3Our Products 4Our Group at a Glance 5Our Marketplace 6Our Business Model 8Q&A with the Chief Executive 10Our Strategy 12Our PerformanceOur Key Performance Indicators 14Chief Executive Officer’s Review 16Chief Financial Officer’s Review 20Our Principal Risks 26 Our GovernanceBoard of Directors 30Corporate Governance Statement 34Audit Committee Report 40Remuneration and Nomination Committee Report 42Directors’ Remuneration Report 43Annual Remuneration Report 45Directors’ Report 47Statement of Directors’ Responsibilities 50 Our FinancialsIndependent Auditors’ Report 51Consolidated Income Statement 58Consolidated Statement of Comprehensive Income 59Consolidated Statement of Financial Position 60Consolidated Statement of Changes in Equity 61Consolidated Cash Flow Statements 62Notes to the Consolidated Financial Statements 64Company Statement of Financial Position 102Company Statements of Changes in Shareholders’ Equity 103Company Cash Flow Statement 104Notes to the Accounts 105Advisers IBCLOOK OUT FOR THESE ICONS WHEN NAVIGATING THIS REPORTSee further content online at www.animalcaregroup.co.ukView more content within this reportOur PurposeAnimalcare is a sustainable and passionate organisation committed to leading in animal health through innovative and trusted products and services to support the veterinary profession. We care about the well-being of animals and the positive impact that healthy animals have on their owners and society. Read more online at: www.animalcaregroup.co.uk Read about our business on page 8Animalcare 2018 AR.indd 413-May-19 6:47:55 PM 26240 13 May 2019 6:46 pm Proof 7Revenue (£m)£72.5mRevenue up16.3%(+2.7% on a proforma basis)Underlying* EBITDA (£m)£11.8mEBITDA increased by21.7%(+2.8% on a proforma basis)Underlying* Basic EPS (p)11.7pUnderlying Basic EPS decreased by4.9%(+8.3% on a proforma basis)Net debt (£m)£23.6mNet debt reduced by £2.3m with net debt: Underlying EBITDA leverage at 2.0 times17£62.3m£72.5m1817£9.7m£11.8m181712.3p11.7p1817£25.9m£23.6m18NOTES-HEADING-LEVEL-ONE CONTINUEDnotes-heading-level-two (continued)notes-heading-level-threenotes-heading-level-fourNOTES-STRAPLINEnotes-text-body• notes-list-bullet• notes-list-bespoke −notes-list-dashd. notes-list-alpha5. notes-list-numbervi. notes-list-romanNote20182017Background123Border123Border123We have delivered revenue and underlying EBITDA growth and reduced net debt.* A reconciliation of underlying to reported results can be found on page 23STRATEGIC REPORT: OUR BUSINESS1www.animalcaregroup.co.ukAnnual Report 2018 Animalcare Group plcFINANCIAL HIGHLIGHTSAnimalcare 2018 AR.indd 113-May-19 6:47:58 PM 26240 13 May 2019 6:46 pm Proof 7Animalcare continued to make steady progress in 2018 as we focus on creating a competitive platform for future growth in the international animal health sector. Group revenues from continuing operations were up 16.3% to £72.5m from £62.3m with underlying EBITDA increasing by 21.7% to £11.8m (2017: £9.7m). On a proforma basis, which is used by the Board for comparison of financial performance, as set out in the unaudited income statement on page 23, revenue and underlying EBITDA growth versus 2017 was 2.7% and 2.8% respectively. After underlying adjustments totalling £9.4m, the loss before tax for the year on a reported basis was £0.4m (2017: £0.4m profit).Sales growth was affected towards the end of the year by supply challenges related to third-party manufacturers, some of which impacted the wider market. We also experienced some delays to new product launches and lower demand in the large animal portfolio, particularly for antibiotics which was reflective of an overall market decline in demand. Strategically, we decided to dispose of the Wholesale Division in order to focus resources on the higher-margin veterinary pharmaceuticals business. We also continued to focus on integration, supply chain efficiency and optimising portfolios and product launches across our expanded network.The Board is confident of the long-term prospects of the animal health market and is actively preparing the business to make the most of the opportunities. Our key competitive advantages include a significant presence across Europe, with products sold in 32 markets directly and through partners. We also benefit from specialisation in key therapeutic areas for the companion animal and equine markets, and believe we can capitalise on a growing reputation as a chosen partner for non-European companies and researchers wanting to commercialise innovative products in Europe. In order to maximise the potential of the business, the Board appointed Jenny Winter as CEO in October 2018. Jenny has an excellent track record in the pharmaceutical industry, most recently with AstraZeneca, with particular expertise in supply chain effectiveness, which we believe is fundamental to improving our overall performance. We are grateful to Chris Cardon for his contribution as CEO and for taking on the role of Chief Strategy Officer.Jenny has initiated a full review and identified a clear path for Animalcare as a business focused around core therapy areas and higher margin products with the vet as our primary customer. We are also setting out financial goals, including growing faster than the markets in which we operate and improving cash generation to enable us to invest in future growth and innovation. Further details of the new strategy are set out in the Chief Executive Officer’s Review and are linked to our Key Performance Indicators.I would like to thank our employees for their support and dedication during 2018. We look forward to 2019 and beyond with confidence. We believe Animalcare is excellently placed to leverage its geographic, structural and therapeutic strengths, and has the opportunity to become a significant and recognised brand across Europe, with global potential for innovative products through best-in-class partnerships.We look forward to keeping you updated on our progress during the year.Jan Boone Non-Executive Chairman Read about our group at a glance on page 5 Read about our corporate governance on page 34Animalcare Group plc Annual Report 20182Stock Code: ANCRCHAIRMAN’S STATEMENT“ Animalcare has made good progress in 2018 and early 2019 as we focus on creating a competitive platform for future growth. We look forward to 2019 and beyond with confidence”Jan Boone Non Executive ChairmanAnimalcare 2018 AR.indd 213-May-19 6:48:10 PM 26240 13 May 2019 6:46 pm Proof 7Since 2017 we have demonstrated growth ahead of the market within our Companion Animals product category. European animal healthcare company operating in companion, equine and production animal marketsProduct sales in 32 European markets through direct commercial presence and partnershipsMeeting the needs of vets in pain management, surgery, dermatology, vaccines, dental care and microchipping Late-stage pipeline from internal R&D and external collaborationsWHY ANIMALCARE?Animalcare and key stakeholders1Shareholders Animalcare is a profitable, cash-generative business building a robust platform for growth principally in the European companion animal and equine markets, with a focus on higher margin, innovative products developed through in-house R&D and acquired or in-licensed from third parties.2Customers With an agile business model and close customer relationships, Animalcare seeks to provide vets across Europe with trusted, valuable and cost-effective products. 3Partners Animalcare offers access for companies and researchers seeking to commercialise novel and high quality pharmaceutical and OTC products to vets across Europe via our specialist sales organisations and strong third-party relationships; at the same time we seek to commercialise our own innovation in markets outside Europe through best-in-class collaborations.4Employees As an emerging player in the European animal health business, Animalcare has a strong, inclusive and dynamic culture and seeks to attract and retain people with the skills and expertise to grow our business by offering excellent career development opportunities and appropriate rewards.www.animalcaregroup.co.uk3STRATEGIC REPORT: OUR BUSINESSAnimalcare 2018 AR.indd 313-May-19 6:48:12 PM OUR PRODUCTS
Our products can be divided into three categories: Companion Animals,
Production Animals and Equine. We have a broad portfolio of products targeted
primarily at the veterinary profession and our Top 20 brands account for 47%
of total revenue which we aim to increase over the next 3 to 5 years.
Danilon
Orozyme
Dinalgen
Conofite
Aqupharm
A non-steroidal anti-
inflammatory oral
granule product for
horses used in the
treatment of pain
and inflammation
associated with
musculoskeletal
conditions.
Dental range consisting
of palatable rawhide
chews and a hygiene
gel for dogs formulated
with enzymes selected
to remove plaque from
teeth and gums.
A non-steroidal anti-
inflammatory injectable
product for cows, pigs
and horses used in the
treatment of pain and
inflammation.
A topical suspension
for cats and dogs with
antifungal, antibiotic
and anti-inflammatory
properties used for
the treatment of ear
infections, ear mites
and dermatitis.
Intravenous fluid range,
for companion and
production animals
used during routine
operations and for
the treatment of
dehydration and shock.
Cosequin
Filavac
Leisguard
Seponver
Buprecare
A chewable range of
joint supplements for
cats, dogs and horses.
A rabbit vaccine to
prevent against Rabbit
Haemorrhagic Disease
Types 1 and 2.
An oral suspension
product to protect dogs
against leishmaniasis
disease (parasitic
disease).
Antiparasitic oral
suspension for sheep.
An injectable product
used during surgery
for post-operative
analgesia (pain relief)
in dogs and cats.
4
Animalcare Group plc Annual Report 2018
Stock Code: ANCR
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26240 13 May 2019 6:46 pm Proof 7STRATEGIC REPORT: OUR BUSINESS5www.animalcaregroup.co.ukAnnual Report 2018 Animalcare Group plcWe have direct commercial presence in seven European countries, with product sales in 32 markets. Animalcare is a partner for companies selling into and across Europe. OUR GROUP AT A GLANCERevenue % by countryOur opera�onsOur network partnersSpain3%1%11%29%20%13%2%UKNetherlands8%Rest of the worldOur opera�ons 88%Our network partners 12%GermanyBelgiumItalyPortugal7%6% Read about our Business Model on page 8Our CompaniesWe operate in seven countries, each responsible for their respective sales and marketing activities. Our principal operating subsidiaries are as follows:• Ecuphar NV• Ecuphar BV• Ecuphar GmbH• Ecuphar Veterinaria SLU• Ecuphar Italia Srl• Belphar Lda• Animalcare LtdSpain3%1%11%29%20%13%2%UKNetherlands8%Rest of the worldOur opera�ons 88%Our network partners 12%GermanyBelgiumItalyPortugal7%6%Spain3%1%11%29%20%13%2%UKNetherlands8%Rest of the worldOur opera�ons 88%Our network partners 12%GermanyBelgiumItalyPortugal7%6%Animalcare 2018 AR.indd 513-May-19 6:48:13 PM 26240 13 May 2019 6:46 pm Proof 7Spend on companion animal medicines continues to outpace farm animals with forecast companion growth almost twice as high as farm animals until 2024.1 Pet numbers are rising while the number of farm animals decreases further shifting the balance towards companion animals in the EU.80 million households in the EU are estimated to own at least one pet with 26% of households owning a cat and 24% owning a dog. There are more pet cats than dogs (74.4m vs 66.4m) and the number of cats is stable while pet dogs increased 4.2% year on year2.Europe is the second largest animal medicines market in the world and represents around one-third of the global market. The market value of the European animal medicines industry in approx. 3% of the human health industry, with total sales estimated at just over €6bn with Companions animals accounting for 53% of spend. Including food and other related products and services, the total amount spent on pets by European households is over €38bn a year3. Vaccines and parasiticides dominate the market and account for 60% of sales. The market share of antimicrobials dropped 3% as governments and consumers continued pressure to cut their use and find alternative solutions4.Changes in landscapeThe veterinary market in Europe continues to see rapid change. The corporatisation of veterinary clinics across Europe and especially the UK, Netherlands and Nordics shows no sign of slowing down and one of main veterinary groups from the USA has entered the European veterinary market with a couple of medium and large sized acquisitions. Wholesalers are changing their business models with some repositioning themselves as technology companies whilst others are introducing larger ranges of own label products and competing with their historical customer base. Increased pet ownership and treatment of pets as “family” is leading to greater demand for preventative medicines and a focus on well-being. The growth of social media is increasing the awareness of the consumer and they are demanding better care for their pets and improved service from veterinarians. More innovative and sophisticated treatment options are becoming available to prolong and improve quality of life including complex surgical procedures and chronic therapies. Diagnostics and Digital technology are the fast-growing sectors of the market. Recent acquisitions of diagnostics companies by multi-national pharmaceutical companies highlights the strategic importance of this sector. Digital technology is currently focused on pet wearables and livestock monitoring and is forecast to have sales of $2.36bn by 2022, growth of 180% compared to 20145. The changes in legislation relating to the use of antibiotics in farm animals are creating opportunities for alternative preventative options and the use of animal vaccines has increased by 50% over the last six years6.1. Animalpharm Top 50 report 20182. FEDIAF 2017 annual report3. Animalhealth Europe4. Animalhealth Europe5. Grand View Research6. Animalhealth Europe6Stock Code: ANCROUR MARKETPLACEAnimalcare 2018 AR.indd 613-May-19 6:48:19 PM 26240 13 May 2019 6:46 pm Proof 7Market segments1 The market for Animal Health is growing rapidly. What this means for Animalcare:Currently 97% of our revenue comes from Europe, either through our own infrastructure or through our network partners. We will continue to expand our sales into higher growth markets through partners where we do not have infrastructure and build infrastructure only where the market is best served by establishing our presence. 2Veterinary practice is changing and new stakeholders are becoming increasingly important. What this means for Animalcare:We will work closely with our key customer, the vet, to understand their environment and be responsive to the changes. This includes using our strong European presence to share best practice and learn. We have in-house experts such as specialist Equine vets, and we are continuing to build capabilities that are aligned with the changing environment including Key Account Management to align with the Corporate structures. 3Pet ownership is increasingly focussed on pet health and wellbeing and new technologies are becoming available that prolong and increase quality of life. What this means for Animalcare:We continue to build on our heritage in the growing areas of surgery, prevention, dermatology and pain.Our development pipeline is aligned to the future needs of the veterinarians whilst continuing to support our established businesses in Production animals. 4Diagnostics and Digital technology are increasing. What this means for Animalcare:We are experienced in the use of technology for pet reunification through our Microchip and Identibase business in the UK and are continuing to develop this in line with the new technologies and to look for opportunities to expand in other countries. 5 Changes in the use of antibiotics. What this means for Animalcare:We have reduced our focus on antibiotics. STRATEGIC REPORT: OUR BUSINESS7www.animalcaregroup.co.ukAnnual Report 2018 Animalcare Group plcAnimalcare 2018 AR.indd 713-May-19 6:48:22 PM 26240 13 May 2019 6:46 pm Proof 7 Innova�on and differen�a�onthrough R&D and partnershipsManufacturing throughthird par�esLogis�cs and supply chain deliveryto wholesalers and directcustomers and stakeholers Rela�onships with Sales and marke�ng excellenceReinvest in future pipelineKey resourcesOur most important resources are the skills, expertise and dedication of our employees in the fields of Sales & Marketing, Research & Development, Supply Chain, Regulatory and Business Development. We combine these skills with an intimate knowledge of the international and national markets in which we operate and the regulations that govern them.We have strong knowledge of the Companion Animal, Equine and Farm Animal markets in which we operate and with the individual vets and veterinary groups that are our core customers.We seek to improve animal health and well-being by offering a high quality and trusted portfolio of products, with particular strengths in pain management, dermatology, dental, disease prevention, surgery and microchipping.We use our operating cash to invest in new products, extend our product offering and support commercialisation, and to reward the support of shareholders by paying a dividend.1We develop, supply and market a range of products and services to the veterinary profession through our own operations in seven European markets and via network partners in other territoriesAnimalcare Group plc Annual Report 20188Stock Code: ANCROUR BUSINESS MODELAnimalcare 2018 AR.indd 813-May-19 6:48:24 PM 26240 13 May 2019 6:46 pm Proof 7Creating value for stakeholdersWe create value for our employees by offering career development for highly skilled individuals as part of an expanding organisation. We create value for customers by being highly responsive to the medical and business needs of vets and by providing trusted and innovative therapies and services for the animals in their care. We will create long-term value for shareholders by being a cash generative, dividend paying, growth company with a solid portfolio of existing products and an innovative pipeline. Read about our strategy on page 12Competitive advantagesWe have the skills agility and local knowledge to respond to changing markets, complemented by close relationships with individual veterinary practice and larger veterinary groups. Our sales force has experience and knowledge of their markets and the products and the needs of their customers and many have a professional veterinary background or training. We are increasingly focused on therapies with high unmet need and scope for innovation and growth. We are positioning ourselves as a preferred partner for companies and those seeking to commercialise their innovative products into Europe. Read a case study onpage 18Key activitiesWe develop and commercialise trusted pharmaceutical and OTC products that improve animal health and well-being. These products are developed in-house, acquired from other companies or in-licensed from our partners. We source all products from third parties. We manage a complex international supply chain, including specialist veterinary wholesalers and distributors. We are increasingly a preferred partner for non-EU companies seeking to commercialise products across Europe. We also seek to commercialise our own products in international markets through best-in-class collaborations. We sell products to veterinary practices and veterinary groups through our own highly skilled sales forces in seven European markets: Belgium, Germany, Italy, the Netherlands, Portugal, Spain and the UK. 234STRATEGIC REPORT: OUR BUSINESS9www.animalcaregroup.co.ukAnnual Report 2018 Animalcare Group plcAnimalcare 2018 AR.indd 913-May-19 6:48:26 PM 26240 13 May 2019 6:46 pm Proof 7Q What attracted you to join Animalcare?AWhen I was first introduced to Animalcare through the web site, the Annual Report and talking to the recruitment team, I was surprised by the many similarities between Animal and Human Healthcare businesses. I was intrigued and I saw where my own broad experience across functional areas and countries could add value, plus the opportunity to continue my personal development – with lots to learn. When I met the Senior Team at Animalcare I recognised the energy and commitment, and the challenge that we faced. I have always been passionate about leadership and have a strong belief the difference between success and failure is the people. I saw a huge opportunity to bring the team together into the new post deal company and really drive future success. From a very personal perspective – I have always been interested in animal health with aspirations as a teenager to be a vet! Q What skills and experience will you bring to Animalcare from big pharma?AI worked in a broad range of functions and countries in the human pharmaceutical sector and this has given me an insight into the critical functions. The areas that I am already experiencing that are directly transferable include Research and Development, Sales and Marketing and Supply Chain as well as Corporate Affairs. Throughout all my previous roles, Financial management was a corner stone. From the perspective of knowledge and understanding – all these areas are transferable. As I said previously, I have been passionate about leadership throughout my career and have had an opportunity to learn from some of the “best in business” In in the last 12 years I have spent most of my time leading large diverse teams across the world. I’ve lived in different countries including Hungary, Australia, Ireland and the US and I have found the experience of working with different cultures is very helpful during my first six months at Animalcare.Q What are some of the differences and similarities between the human pharmaceutical industry and the animal health industry?AIn most countries, the Government is a critical stakeholder in human health as a payer or structurally and over the last 20 years countries have adopted a more centralised approach to healthcare delivery. In animal care the government is less central to the provision of care to the pet, farm animal or horse – yet they still have a critical role in the regulatory process and legislative framework. The structure of the markets in animal health is more diverse – but is starting to consolidate with the increasing importance of buying groups, corporate ownership of practices and the development of primary and secondary treatment centres and specialist hospitals. Whilst the therapies used in animal health are similar to human health, and I find myself working on many familiar products – having an indication by species is a significant difference and the regulatory requirements for each species create more complexity than a clinical program for humans. “ On joining Animalcare I saw opportunity to bring the team together and build the pipeline to drive future success”Jenny Winter Chief Executive OfficerAnimalcare Group plc Annual Report 201810Stock Code: ANCRQ&A WITH THE CHIEF EXECUTIVEAnimalcare 2018 AR.indd 1013-May-19 6:48:32 PM 26240 13 May 2019 6:46 pm Proof 7Pricing of products in human health is driven by regulations and payer organisations in most countries with the “out of pocket” market moving gradually to an insurance or government-based funding model. In animal care the increase in buying groups and corporates is starting to drive the need for good economic arguments for new products however these changes are happening more gradually and at a different pace in different countries. This means that our organisation needs to be agile and flexible, and close to our customers, so that we can build the right business model, adapt our organisation and respond to the pace of change. Q What do you think are biggest opportunities in sector?AThe biggest opportunity from a financial perspective is that the market is growing, pet ownership is increasing and there are positive developments in the market place, both in terms of new treatments and in terms of new customers. Q What do you see as Animalcare’s greatest challenges?AAnimalcare is the combination of three successful businesses that came together in 2017. Esteve, Animalcare UK and Ecuphar. Each business had different products, portfolio and culture which created a complex and fragmented organisation. The delay in integration has led to a difficult 18 months and has had significant financial consequences. Integration has now been give high priority and actions are in place to simplify the organisation, reduce duplication and prioritise the critical activities. Whilst late, these actions will create an organisation that is more cost effective, efficient and equipped to drive sustainable growth over the next 3 to 5 years. Q What is Animalcare’s greatest strength?AWithout wanting to sound cliched – the people are our biggest strength. The team is passionate and committed with many of the right skills and capabilities. We have people with experience in innovative new products, we have great relationships between our sales people and their customers, and we are developing a strong leadership team. We will focus on attracting, developing and retaining the right people. Animalcare Group has a history of growth and financial success, we have a competitive portfolio of products, we have a good network and we are developing a pipeline of future products that will help us to be the partner for better animal health and create sustainable growth. Jenny Winter Chief Executive OfficerSTRATEGIC REPORT: OUR BUSINESS11www.animalcaregroup.co.ukAnimalcare 2018 AR.indd 1113-May-19 6:48:33 PM 26240 13 May 2019 6:46 pm Proof 7The Group’s core areas of strategic focus will be on:Five PillarsKey GoalsKey initiativesStrong finances• Revenue Growth• Focus on therapeutic areas with highest potential• Focus on higher margin products• Leverage strengths across all markets in which we operate• Maximise opportunities in high growth markets through partnerships or selective acquisition• Cash generation• Supply chain efficiency • Optimise inventory management • Relationships with preferred third-party suppliers • Commercial and cost synergies through integration• Underlying EPS and stakeholder return• EBITDA margin increase• Effective cost managementGrowth portfolio• Focus on existing core brands that generate sustainable growth and margin. • Establish in-house sustainable pipeline • Build on capabilities in pain, dermatology, dental, disease prevention, surgery and microchipping.• Prioritise and accelerate in-house R&DCustomer relationships• Chosen partner for vets and veterinary groups• Strengthen commercial teams and specialist expertise• Provide extensive range of trusted, high quality products in target therapeutic areas • Flexibility to respond to evolution of different marketsBusiness Development• In license products and develop network partnerships • In-license and acquire innovative products• Be selected partner for companies selling into Europe• Build ongoing partnerships in growing markets globallyOrganisation for success• Increase employee engagement • Build leadership capabilities.• Align reward to performance• Drive communications and collaboration.• Improve diversity• Attract, retain and develop talented people • Develop unified cultureAnimalcare Group plc Annual Report 201812Stock Code: ANCROUR STRATEGYOur vision is to become a leading European veterinary pharmaceutical business. 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.Animalcare 2018 AR.indd 1213-May-19 6:48:37 PM 26240 13 May 2019 6:46 pm Proof 7Animalcare’s most important assets: our people and cultureThe Animalcare Group has been created from three distinctive companies across Europe, giving us a strong international presence and creating new opportunities for our business and employees.Aligning and uniting employees in different countries with varied backgrounds is key to delivering Animalcare’s growth strategy and achieving our full potential.The Group has initiated an extensive programme to motivate employees, attract the best industry talent, develop a diverse and unified culture and drive understanding of the Group’s goals.Key elements of the programme include:• Enhanced communications across all parts of the business through a newly-launched “People Portal”• Local and international teams to generate new ideas and reinforce the sense of “One Animalcare”.• A Talent Management Programme focused on career development, performance management and communication of our strategy and values.• Leadership Development Programmes to ensure managers are equipped with the right skills to drive change, add value and deliver profitable growth.• Regular anonymised employee surveys to help management gather new ideas, understand employee concerns and address practical issues as they arise.Animalcare recognises the need to retain and attract individuals with the skills and expertise that will drive growth. We are developing a Group-wide Reward and Recognition programme based around our values to recognise excellence and address under performance, and preparing the introduction of an LTIP for senior management that will align their interests with the long-term success of the business.Diversity at all levels is a core component of a successful international business and a key value for Animalcare. During the past year, the Senior Leadership Team has been expanded with a growing breadth of expertise, approaches, cultures and gender balance, with women in leading positions including the Chief Executive Officer, Group Head of Technical and Commercial Development and Group Head of HR. Women have also recently been appointed as Country Managers in Spain (Maria Lasagabaster Castillo), Benelux (Sara Maddens) and the UK (Sam Williamson). Read about our key performance indicators on page 14STRATEGIC REPORT: OUR BUSINESS13www.animalcaregroup.co.ukAnnual Report 2018 Animalcare Group plcClockwise from top:Maria Lasagabaster Castillo,Sam Williamson and Sara MaddensAnimalcare 2018 AR.indd 1313-May-19 6:48:38 PM OUR KEY PERFORMANCE
INDICATORS (KPIs)
The Group utilises the following Key Performance Indicators (KPIs) aligned
to our purpose and strategy of delivering sustainable growth.
Strategic Driver
KPI and definition
Why we measure this
Commentary on performance
Strong
finances
Revenue Growth
Organic revenue growth
including new products
versus prior year proforma
revenue, which excludes the
impact of disposals.
Revenue growth is an
important barometer of
the Group’s success in
delivering its strategy and
is a key component of
growing our profits and
cash flow.
Underlying cash
conversion
Cash generated from
operations as a percentage
of underlying EBITDA from
continuing operations.
Basic Underlying
Earnings per share
(“EPS”)
Underlying profit after tax
divided by the weighted
average number of shares.
Underlying EBITDA
margin
Underlying EBITDA as a
percentage of sales.
Our quality of earnings is
reflected in our ability to
turn underlying EBITDA
in to cash, important to
generate the funds we
need to invest in new
products and to maintain
dividend payments.
Underlying EPS is a
key indicator of our
performance and the
return we generate for
our stakeholders.
This is a measure of the
operating efficiency of
the Group with focus
on translation of sales
growth to profit.
2017
2018
£70.6m
£72.5m
The Group delivered proforma revenue growth
from continuing pharma operations of 2.7%.
Revenue from new products launched in the
last two years was £3.2m (2017: £3.0m)
2017
2018
65.9%
78.7%
Underlying cash conversion improved to 79.9%
in the year due to focus on working capital
offset by higher cash taxes
2017
2018
10.8p
11.7p
Underlying proforma basic EPS generated by
the continuing pharma business increased by
8.3% in the year.
2017
2018
16.3%
16.3%
Underlying proforma EBITDA margins
have remained comparable to 2017 as we
continue to invest carefully in the business
whilst progressing with the integration of our
operations.
14
Animalcare Group plc Annual Report 2018
Stock Code: ANCR
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26240 13 May 2019 6:46 pm Proof 7Strategic DriverKPI and definitionWhy we measure thisCommentary on performanceGrowth PortfolioCreate and deliver in-house R&DTo maintain its competitive position, Animalcare must invest to provide a sustainable flow of products from our pipeline aligned with our strategy.Six projects were submitted to the regulatory authorities in 2018 including extensions to our “care” range across multiple countries. Launches are planned for these products throughout 2019.Business DevelopmentNew products launched outside of our own development pipelineThis measure shows our success in launching new products via in-licensing, acquisition and partnerships.We brought in four new products that are in our core therapy areas, the most significant being the new commercial supply agreement for Cosequin.Organisation for successEmployee engagementA measure of employee engagement based on the well-established Gallup Q12 index.Employee engagement surveys enables comparison between the Group and other companies. The primary purpose of the survey is to provide guidance to the Leadership Team about how they can improve employee engagement.During 2018, we conducted our first employee engagement survey, establishing a baseline for future measurement. The score reflects a period of significant change for many employees while we integrate the Group. Read about our strategy on page 1215STRATEGIC REPORT: OUR PERFORMANCEAnimalcare 2018 AR.indd 1513-May-19 6:48:40 PM 26240 13 May 2019 6:46 pm Proof 7Since joining Animalcare in October 2018, I have been impressed by the competitive strengths of the business and the quality of the growth opportunity. Since joining and following the disposal of our wholesale business in September 2018, a thorough review has been undertaken. Following this review and detailed discussions with the Board, I have set out a strategy to enable us to build on the existing portfolio, experience and capabilities to become an important player in the European animal health market and beyond. I have also reviewed our pipeline and established the principles we will use to build a sustainable future.The strategy is built around five pillars:• Strong finances• Growth portfolio • Customer relationships• Focused business development• The organisation for successIn the seven European markets where we have commercial operations we market and sell our own products. We also market and sell products from other companies through our established sales teams. In countries where we do not have sales teams, we work with our network partners to commercialise our own products. With this footprint we are active in 32 countries in Europe and a further 16 in the rest of the world. We employ over 110 fully trained sales representative and technical experts who are working closely with our customers including dedicated Key Account Managers who work with our larger Corporate Partners We have a broad portfolio of licensed drugs, vaccines and care products including nutraceuticals in the companion animal, equine and production animal segments of the market. In the UK we are also one of the leading providers of pet microchips and have a successful pet reunification service. 2018 Operational performance:FinancialsOn a proforma basis, sales in 2018 increased by 2.7% to £72.5m versus the prior year and were in line with the market growth for the countries and segments in which we operate. This increase is driven by organic growth in companion animals (+6.0%) offset by a decline in production animal sales of 3.6%.Growth in Companion Animals was driven by the launch of new products including Cosequin (Spain) and the annualised impact of products launched in 2017. Equine sales were flat and the decline in sales in production animals is driven by the reduction in the use of antibiotics and our antibiotics sales versus 2017 declined at 15%. Belgium and Italy saw the largest decline.Our top three selling products in 2018 were Dinalgen Injection for the treatment of pain, Conofite, an antifungal treatment and Orozyme, an established oro-dental product and accounted for 12% of sales. The top 20 products accounted for 47% of our total sales. Filavac (+38%), Aqupharm fluids (+27%) and Cosequin (joint supplement) (+230%) were the most significant growth drivers in the portfolio. Our microchip business in the UK continued to perform well with growth of 31%. Whilst overall sales in farm animal declined, Dinalgen Injection performed strongly with revenue up 31%. Our operating overheads increased by +0.7% with a mix of increases in employee costs and decreases in other operational expenses. Underlying EBITDA increased by 2.8% driven by growth in Germany and the UK, offset by a decline in Belgium and Spain. Overall growth was impacted by some out of stocks due to supply chain challenges, some delays in approvals for new products and the pace of the decline in antibiotic prescribing. Animalcare Group plc Annual Report 201816Stock Code: ANCRCHIEF EXECUTIVE OFFICER’S REVIEW“ 2018 was a major milestone in our journey to be one of the leading European veterinary pharmaceutical businesses. We have delivered growth versus 2017 and we have agreed our five year goals and the strategies to achieve them.”Jenny Winter Chief Executive OfficerAnimalcare 2018 AR.indd 1613-May-19 6:48:41 PM STRATEGIC REPORT: OUR PERFORMANCE
New product launches and
regulatory filings.
We have been building our product
portfolio and technical efficiencies in 2018.
We have made 17 submissions for products
that are either new to our portfolio, or new
in a specific country both within Europe
and Globally. We have made over 50
submissions including extensions to the life
cycle of existing products that will increase
efficiency and decrease costs.
We launched ten new products in 2018
and will see the full year impact of these
launches in 2019.
In 2018 we completed a strategic review
of our development pipeline and re
focused our activities to drive growth
in the next five years.
We have accelerated the development
programme for our novel pain treatment
by four months and we terminated the
development of two products, either due
to commercial or technical reasons.
Six projects were submitted to the
regulatory authorities in 2018 including
extensions to our “Care” range across
multiple countries that will strengthen
our portfolio in the key therapeutic areas.
Launches are planned for these products
throughout 2019 and into early 2020.
People
We have continued the work that was done
in 2017 to strengthen our Leadership Team
and have established a core team to drive
simplicity and avoid duplication. We have
appointed Martin Gore as our Group Head
of Commercial, to drive excellence within
our Sales and Marketing teams. Stephen
Pearson has been appointed Group Head
of Supply Chain and will be focussed on
improving customer service and on time
in full delivery to our customers as well
as managing inventory. Karolyn Tapper
continues to lead our Technical team
and Chris Cardon has taken the role of
Chief Strategy Officer with responsibility
for identifying new opportunities for
the Group.
The newly created Leadership Team
consists of the Group functions and
Country Managers to ensure that we
remain close to our customers through
the leaders in each country. Post year end,
we have further strengthened our Country
Manager team with the appointment of
Sara Maddens to lead the team in Benelux.
Having the right people in place is critical
to our long-term success. I am determined
that Animalcare will develop a positive
and unified culture, with a rewards system
and career development path to attract
and retain the best talent in our industry.
We plan to introduce a Long Term Incentive
Plan in May 2019 to reward senior
employees for sustained performance.
The Group has been strengthened by a focus on placing the right people in the right place.
THE BOARD
Consisting of 3 Executives and 5 Non Executive Directors
CEO
Jenny Winter
6 COUNTRY MANAGERS
CHIEF STRATEGY OFFICER
Chris Cardon
HUMAN RESOURCES
Carla de Schepper
GROUP HEAD OF SUPPLY CHAIN
Stephen Pearson
M&A
CHIEF FINANCIAL OFFICER
Chris Brewster
RESEARCH & DEVELOPMENT
Karolyn Tapper
HEAD OF COMMERCIAL
Martin Gore
IT and Finance
www.animalcaregroup.co.uk
Annual Report 2018 Animalcare Group plc
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26240 13 May 2019 6:46 pm Proof 7Aqupharm case study Fluid therapy forms a vital component of veterinary medicine and is increasingly recognised as a major contributing factor to successful outcomes in the treatment of many medical conditions and procedures. For almost 30 years, Animalcare has been working with veterinary professionals to deliver its best-in-class fluid therapy, Aqupharm, to animals both large and small. Following success in the UK, Animalcare is now taking the Aqupharm range into other markets and geographical expansion is a key component of the overall growth strategy for the brand. Animalcare has focused effort and resources to raise vets’ awareness and understanding of how fluid therapy can improve outcomes for animals, facilitating international growth for the Aqupharm brand.The high quality of Aqupharm is demonstrated by its leading position in the UK, where it accounts for 50% market share, and continues to grow. The range is expected to grow by 12.5% in 2019 and 25% by 2021.Aqupharm was the first veterinary-licensed intravenous fluid range, for use during routine operations and treatment of dehydration and shock. As well as fluid therapy, the Aqupharm brand also offers a full range of infusion accessories, from catheters to infusion sets. The Aqupharm fluid range is another example of Animalcare’s commitment to innovation and delivering high quality products that make a difference to our customers and support their needs.“ We are building an effective organisation that is fit for the future and that will drive growth over the next 3 – 5 years.”Jenny Winter Chief Executive OfficerAnimalcare Group plc Annual Report 201818Stock Code: ANCRCHIEF EXECUTIVE OFFICER’S REVIEWIntegrationAnimalcare has not yet seen the benefit of the combined organisation in the financial returns however great progress has been made on the 5 key areas outlined in plan in the past six months. Our highest priorities are:1. Drive maximum value from the combined portfolio. 2. Establish a robust supply chain. 3. Align our pipeline to the growth strategy4. Align our people strategy including our reward system. 5. Drive commercial excellenceWe have established a new Leadership Team and organisational structure to facilitate the implementation of the integration plan and to drive performance including through simplification, focus and cross functional working. Clear targets are in place to track our progress. Our growth strategyTo deliver sustainable and profitable growth we will focus on therapeutic areas where we have existing capabilities and with the greatest growth potential, through higher margin innovation, expansion of our geographic reach and careful control of our costs. By growing faster than the markets where we operate, controlling OPEX and improving operating cash conversion, we can focus resources where they will bring the best returns while continuing to reward shareholders. Our future PipelineOur pipeline will focus on five therapeutic areas in the companion animal and equine markets where we are already strong and have the potential to add value through innovation. These are pain management, dermatology, dental, disease prevention and surgery. Animalcare also owns identichip, the UK’s leading pet microchipping business and database, with significant scope for growth in the UK and internationally.Animalcare 2018 AR.indd 1813-May-19 6:48:48 PM 26240 13 May 2019 6:46 pm Proof 7Identichip®, identibase® and identifind®Identichip®, identibase® and identifind® are all part of the UK’s longest-established pet microchipping service. Animalcare has built an invaluable store of information and expertise over 30 years, with innovative products that lead the way in microchipping, animal identification and reuniting pets and their owners. Since its launch in 1989, over 5 million animals have been microchipped with identichip® and our dedicated team have helped bring thousands of lost pets back home.Today over 1,750 vets, charities, local authorities and animal welfare organisations use identichip® to provide safe and effective identification that they can rely on. Leading UK charities including the RSPCA, Cats Protection and PDSA have all chosen Animalcare as their trusted microchip and pet database provider. identibase® plays a key role in tracing lost pets. It has been shown that pets are twice as likely to be found when they have been fitted with an identibase® microchip. Today, over 12,000 contact points at vet practices, charities, local authorities and animal welfare organisations work together with Animalcare to help identify and bring lost pets home, with a team of representatives on call 24 hours a day to help pet owners.Building on the track record of success in the UK, Animalcare is looking at ways to expand the service in other markets across Europe. We believe identichip® and identibase have the potential to become major new international products and services for Animalcare, backed by continuing improvements in technology and innovation. 19www.animalcaregroup.co.ukAnnual Report 2018 Animalcare Group plcSTRATEGIC REPORT: OUR PERFORMANCEWe will continue to support our production animal business through targeted products with specific customer groups. Our customersWe will focus on vets and veterinary groups as our main customers, benefiting from our existing expertise and strong relationships. We want to become the chosen partner in Europe for innovative animal health products for companies around the world. We will seek to improve the quality and profitability of our portfolio by in-licensing and acquiring late- and commercial-stage products, and accelerating our own R&D through targeted investment.Our footprintWe have established networks in 25 countries in Europe and another 16 globally. We will continue to develop these networks to maximise the sales of our products and where it makes sense to establish a presence we will do so – either as a stand-alone business or in partnership. Summary and outlookWe are building an effective and focussed organisation that is fit for the future and we have a clear strategy to grow over the next 3 to 5 years. One of the critical things for our organisation is to track progress and we have established goals, objectives and measures so we can ensure we achieve our financial targets. We have established clear milestones and will report against those. To deliver on the expectations we set, we will focus on generating cash for investing, for rewarding our shareholders and for paying our debt. Success will be driven by the 5 pillars of our strategy - Strong finances, a portfolio for growth, our customer relationships, our business development and most importantly – our organisation of highly engaged and talented people. I look forward to sharing more details over the coming weeks, months and years as we implement our strategy for success. Jenny Winter Chief Executive OfficerAnimalcare 2018 AR.indd 1913-May-19 6:48:49 PM 26240 13 May 2019 6:46 pm Proof 720CHIEF FINANCIAL OFFICER’S REVIEWIntroduction and presentation of resultsOn 13th July 2017, Animalcare Group plc completed the reverse acquisition of Ecuphar NV. 2018 therefore reflects the first full year of trading as a combined Group. On a statutory basis, and in accordance with IFRS3, the results for the comparative year ended 31st December 2017 represent twelve months of Ecuphar NV and approximately five and a half months of Animalcare Group plc as previously constituted.In addition, following the divestment of our Wholesale business on 4th September 2018, both the 2018 and 2017 financial information have been presented to show the Pharmaceuticals segment as continuing operations separately from the Wholesale segment, which has been classified as discontinued. Accordingly, to help Shareholders to assess the Group, an unaudited Proforma Consolidated Income Statement has been provided, which reflects twelve months of trading from the continuing Pharmaceuticals segment for both entities for 2018 and 2017. The Board believes that this statement provides the most appropriate basis for comparison of current and future operating performance. On this basis, the Group has delivered proforma revenue growth of 2.7% to £72.5m (2017: £70.6m) and proforma underlying EBITDA growth of 2.8% to £11.8m (2017: £11.5m). On a statutory basis, including non-underlying items, the Group delivered a loss after tax of £0.8m (2017: £0.2m profit).Underlying and Statutory ResultsTo 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.Financial ReviewPro forma Consolidated Income Statement (unaudited)Compared to the statutory results for 2018, the unaudited Pro forma Consolidated Income Statement set out below represents the continuing pharmaceuticals segment for both 2018 and 2017, with the 2017 comparatives including an additional 28 weeks of Animalcare Group plc’s results prior to the reverse acquisition. This has the impact of increasing 2017 revenue and underlying EBITDA by £8.3m and £1.8m respectively as set out in the table (right):“ We have delivered growth at a time of much change within our business. We continue to focus on delivering sustainable profit growth and improved cash generation”Chris Brewster Chief Financial OfficerAnimalcare 2018 AR.indd 2013-May-19 6:48:58 PM STRATEGIC REPORT: OUR PERFORMANCE
Unaudited
Unaudited
Continuing
Operations
2018
£’000
72,470
37,339
(37,122)
217
9,588
1,993
11,798
(574)
(357)
135
(222)
7,016
11.7p
Continuing
Operations –
Post-acquisition
2017
£’000
62,291
32,325
(31,309)
1,016
6,480
2,202
9,698
(639)
377
(292)
85
5,175
–
Animalcare
pre-acquisition
2017
£’000
8,267
4,464
(5,753)
(1,289)
199
2,867
1,777
(1)
(1,290)
(82)
(1,372)
1,309
–
Total proforma
Continuing
Operations
2017
£’000
70,558
36,789
(37,062)
(273)
6,679
5,069
11,475
(640)
(913)
(374)
(1,287)
6,484
10.8p
Revenue
Gross Profit
Operating expenses
Operating profit/(loss)
Depreciation, amortisation & impairment
Non-underlying items
Underlying EBITDA
Net financial expenses
Profit/(loss) before tax
Taxation
Net (loss)/profit
Underlying net profit
Underlying basic EPS (p)
Revenue
On a proforma basis, the Group delivered revenue growth of 2.7% to £72.5m (2017: £70.6m), split by product category as shown in the
table below:
Companion Animals
Production Animals
Equine and other
Total
Unaudited
Unaudited
2018
£’000
44,465
22,824
5,181
72,470
2017
£’000
41,937
23,680
4,941
70,558
% Change at
AER
%
6.0%
(3.6%)
1.4%
2.7%
Companion Animals revenue continues to
be the largest proportion of the Group’s
business, representing 61.4% of total sales,
up from 59.4%. As our existing portfolio
continues to mature and be impacted
by pricing pressure and changes in the
competitor landscape, new products
remain the main driver for the overall
revenue growth of 6.0% to £44.5m
(2017: £41.9m). We launched seven
new products during the year including
the nutritional supplement Cosequin in
Spain, which contributed £2.4m sales in
total. This was supplemented by £0.8m
annualised growth of products launched in
2017 that were sourced from our partners,
principally in Germany. Overall growth was
impacted by supply challenges towards
the year end relating to certain third-party
manufacturers.
Production Animals revenue contracted
by 3.6% versus prior year largely driven
by lower demand for antibiotics offset in
part by higher export sales of in particular
Dinalgen (anti-inflammatory). Equine and
other sales were broadly flat at £5.2m.
Underlying proforma continuing EBITDA
increased by 2.8% to £11.8m with
corresponding margin consistent with prior
year at 16.3%. Gross margins at 51.5%
modestly declined compared to prior
year (2017: 52.1%) primarily reflecting
lower margin sales mix in Companion
Animals and the competitive environment.
SG&A costs as a percentage of revenue
reduced in the year from 35.9% to 35.2%
as the business has continued to focus on
costs efficiencies whilst investing in our
people to support the integration and
future growth.
Underlying proforma continuing basic EPS
increased by 8.3% for the year to 11.7p,
based on a weighted average number
of shares of 60.0m applied to both 2018
and 2017. The effective tax rate was
22.3% (2017: 23.0%) primarily reflecting
increased research and developments tax
credits and partial utilisation of tax losses.
www.animalcaregroup.co.uk
Annual Report 2018 Animalcare Group plc
21
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CHIEF FINANCIAL OFFICER’S REVIEW
Underlying and Statutory Results
As a result of the reverse acquisition of Ecuphar NV, both the
underlying and statutory basis for reporting results for the year
ended 31st December 2017 include approximately five and a
half months of Animalcare Group plc as previously constituted.
The 2018 results are those noted in the unaudited Proforma
Consolidated Income Statement on page 21.
Overview of Underlying financial results
– Continuing Operations
Revenue
Gross Profit
Gross Margin %
Underlying Operating Profit
Underlying EBITDA
Underlying EBITDA margin %
Basic Underlying EPS (p)
2018
£’000
72,470
37,339
51.5%
9,604
11,798
16.3%
11.7p
% Change
at AER
%
16.3%
15.5%
(0.4%)
27.8%
21.7%
0.8%
(4.9%)
2017
£’000
62,291
32,325
51.9%
7,560
9,698
15.6%
12.3p
We delivered revenue of £72.5m and underlying EBITDA of
£11.8m, representing growth of 16.3% and 21.7% respectively
compared to the previous year. This was achieved through
a combination of modest underlying growth as noted in the
proforma results review together with a full year trading impact
of the acquired Animalcare operations.
Underlying EBITDA margin improved to 16.3% largely reflecting
the higher margin Animalcare business together with overall
focus on costs to improve operating leverage. This focus includes
a restructuring of our UK commercial team to put more emphasis
on supporting larger corporate customers as well as continuing to
provide strong service levels to independent practices. We expect
this trend to continue and will closely monitor and adapt the
Group’s operations accordingly.
Basic underlying EPS decreased to 11.7 pence reflecting the
35.6% increase in underlying profit after tax to £7.0m offset by
the significant increase in the weighted average number of shares
resulting from the full year impact of the reverse acquisition
(see note 8).
Overview of reported financial results
Including the loss from the discontinued operations and non-
underlying items, the Group reported a loss after tax of £1.0m
(2017: £0.2m profit).
A reconciliation of underlying results to reported results for
the year to 31st December 2018 is shown in the table (right):
22
Animalcare Group plc Annual Report 2018
Stock Code: ANCR
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STRATEGIC REPORT: OUR PERFORMANCE
Amortisation
and
impairment of
intangibles
£’000
–
–
Acquisition,
restructuring,
integration and
other costs
£’000
–
–
Discontinued
operations
£’000
–
–
–
–
–
–
–
–
–
–
(776)
(776)
(4,789)
(1,296)
(1,309)
(7,394)
–
(7,394)
1,822
(5,573)
–
(5,573)
–
–
(1,993)
(1,993)
–
(1,993)
329
(1,664)
–
(1,664)
2018
Underlying
results
£’000
72,470
37,339
(24,312)
(3,466)
43
9,604
(574)
9,032
(2,016)
7,016
–
7,016
11.7p
2018
Reported
results
£’000
72,470
37,339
(29,101)
(4,762)
(3,259)
217
(574)
(357)
135
(222)
(776)
(998)
(1.7p)
2017
Reported
results
(restated)
£’000
62,291
31,924
(26,396)
(2,799)
(1,713)
1,016
(639)
377
(292)
85
99
184
0.2p
Revenue
Gross Profit
Selling, general & administrative
expenses
Research & development expenses
Net other operating income
(expenses)
Operating Profit
Net finance expenses
Profit/(loss) before tax
Taxation
Profit/(loss) after tax
Loss/(profit) from discontinued
operations
Profit/(loss) for the year
Basic EPS (p)
The sale of our wholesale division was completed on 4th September 2018 with financial effect from 1st July 2018. The loss from
discontinued operations was £0.8m which primarily represents the loss on disposal. Additional details are shown in note 4. Of the
total £3.0m consideration, £2.4m has been received with a further £0.4m payable to the Group on 30th June 2019 in relation to the
remaining intercompany balance owed. The balance of approximately £0.2m is subject to achieving specific revenue targets between
1st July 2019 and 30th June 2020 and payable in July 2020.
The amortisation and impairment of intangibles charge of
£7.4m (pre-tax) principally comprises £4.6m charge arising
on the acquired intangibles relating to the reverse acquisition
and £2.5m charge in respect of previous acquisitions made
by Ecuphar NV, namely Esteve SA which was acquired on
30th April 2015.
The remaining statutory items totalling £2.0m largely relate
to restructuring and integration costs as detailed in note 5.
Restructuring costs of £1.2m principally relate to executive
changes, senior management restructuring and the UK
commercial team reorganisation as noted earlier.
The reported basic loss per share, which incorporates non-
underlying items, decreased to 1.7 pence (2017: 0.2 pence
earnings per share).
Dividends
The Board is proposing a final dividend of 2.4 pence per share,
adding to the interim dividend of 2.0 pence per share paid in
November 2018, giving a total dividend of 4.4 pence per share for
the year ended 31st December 2018, the first full financial year as
a combined Group. The Board continues to monitor the dividend
policy, recognising the need for a balance between investment to
support future growth and dividend flow to deliver overall value
to our shareholders.
www.animalcaregroup.co.uk
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26240 13 May 2019 6:46 pm Proof 7Animalcare Group plc Annual Report 201824Stock Code: ANCRCHIEF FINANCIAL OFFICER’S REVIEWCash flow, net debt and borrowing facilitiesThe Group is committed to improving cash generation, important to generate the funds we need to invest for growth and to maintain dividend payments. We will monitor progress using cash conversion as a percentage of underlying EBITDA as set out in the table below:2018£’0002017£’000Underlying EBITDA11,7989,698Net cash flow from operations7,4302,425Non-underlying items 1,9933,968Underlying net cash flow from operations9,4236,393Cash conversion % 79.9%65.9%The Group’s underlying cash conversion significantly improved during the year to 79.9%, with net cash flow generated by our operations increasing to £7.4m (2017: £2.4m). Working capital increased by £0.9m, largely relating to further increased stocks. Our Group Head of Supply Chain has a clear target to reduce inventory levels over the next two years. Cash taxes of £2.2m were significantly higher than 2017 largely due to settlement of prior year taxes in Belgium and higher cash tax in Spain. £’000Net debt at 1st January 2018(25,908)Net cash generated from operations7,430Net capital expenditure(4,781)Proceeds from divestment of wholesale operations2,403Net finance expenses(626)Dividends paid(2,401)Receipts from issue of share capital170Other cash movements474Foreign exchange on cash and borrowings(349)Net debt at 31st December 2018(23,588)Net capital expenditure of £4.8m largely comprises investment in our product development pipeline of £4.2m from which six new products are expected to be launched during 2019 and into early 2020. The balance of expenditure largely relates to investment in our IT infrastructure which has made strong progress. This includes a new CRM system in Italy and SAP in the UK which went live on 1st January 2019. Both represent important steps in delivering our objective of common platforms across the Group which will help to drive integration and improve efficiencies.The net borrowing position at the end of the year was £23.6m, representing net debt to underlying EBITDA leverage of 2.0 times (maximum bank covenant ratio is 3.5 times). At 31st December 2018, total facilities were £46.4m, of which £29.8m, net of cash balances, was utilised, leaving headroom of £16.6m. 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 investment. Brexit Whilst the outcome of the Brexit negotiations remain unclear our contingency preparations are on track to maintain commercial supply. We expect to incur one-off costs of circa £0.3m in relation to transfer of product registrations during 2019.Summary and outlookThe Group delivered continued revenue growth in the year and translation through to both underlying profit and cash conversion is beginning to improve. We remain focused on our medium to long-term objective of delivering sustainable profit growth and improved cash generation, with cash flow expected to be supported by lower inventories. Strategically and operationally it continues to be a time of change for the Group with the pace of integration of our businesses accelerating given the greater focus by our Leadership Team. During 2019, the drive for improved efficiency and integration across the business will continue including the integration of our Product Development and Regulatory teams. We will also focus on portfolio optimisation, improving service and driving efficiencies in our supply chain, all of which will require investment. Whilst our performance was not as strong as originally expected, we have made steady progress across the business over the last 12 months and delivered growth at a time of much change within our business and the market. We will continue to seek opportunities to grow our business and I believe we are well placed to deliver medium to long-term shareholder value.Chris BrewsterChief Financial OfficerAnimalcare 2018 AR.indd 2413-May-19 6:49:04 PM 26240 13 May 2019 6:46 pm Proof 725www.animalcaregroup.co.ukAnnual Report 2018 Animalcare Group plcSTRATEGIC REPORT: OUR PERFORMANCEAnimalcare 2018 AR.indd 2513-May-19 6:49:06 PM OUR PRINCIPAL RISKS
Risk Management Framework
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THE BOARD
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. The Board also sets the
risk appetite of the Group.
AUDIT COMMITTEE
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.
MANAGERS
Managers are responsible for ensuring that the risks
identified by the Board and the Audit committee are
mitigated. The managers will implement strategies to
mitigate the principal risks and other risks outlined by
the Board.
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.
Alignment
to strategy
Risk
Market risk
In certain geographies the
veterinary market continues to
see the emergence and growth
of corporate customers and
buying groups who are looking
for value from the products
and services we provide.
Potential impact
Mitigation
Trend
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
Strong
finances
Business
Development
Competitive
portfolio
Clear customer
focus
Right organisational strategy,
structure and culture for success
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STRATEGIC REPORT: OUR PERFORMANCE
Risk
Competitor risk
Launch of competitor products
against our key brands, for
example other generic or
more innovative products.
Reliance on third
parties risk
As the Group does not
manufacture any of its own
products in-house, it relies
extensively on third parties
for supply of finished products,
whether our own brands or
those sold on behalf of our
partners via distribution
arrangements.
Integration risk
The integration of the Group
is wide-ranging and may fail
to deliver expected returns
due to integration challenges
Product development and
Launch risk
Failure to successfully launch
new products from either our
own development pipeline
or from our partner pipelines
could have a material impact
on the Group’s results and
damage our market position
and relationship with
our customers.
Alignment
to strategy
Potential impact
Mitigation
Trend
Revenues and gross margins
may be adversely affected
should competitors launch
competing generic or superior
(novel) products.
We monitor new product
registrations and competitor
launches and develop commercial
and marketing responses accordingly,
including life-cycle management.
Operating costs may increase
to protect market share.
Any disruption to the
relationship with our key
supply partners, whether
commercial, 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.
Diversification of our product portfolio
and geographies will lessen the impact
on our business.
The Group operates a broad portfolio
of products from a variety of supply
partners and aims not to be over-reliant
on any one particular supplier.
Given the increasing complexity and
diversity in our supply chain, we have
identified the need for increased specialist
resource in this area which will be led by
the Group Head of Supply Chain.
We monitor supplier performance and
aim to maintain adequate inventories,
including safety stock held by our
suppliers, based on risk assessments.
We are focused on delivering the most
impactful integration actions first to
reduce the complexity that was created
by the bringing together of a number of
different companies.
We have a dedicated integration manager
to lead and ensure delivery of the key
integration priorities.
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.
Failure to deliver the
integration to the expected
timetable together with
efficiencies will inhibit growth
and lead to higher costs and
lower than expected profits.
Significant delay in launching a
product from our own pipeline
or via our partners could
adversely affect our ability to
deliver revenue expectations.
Failure of a development
project would result in
impairment of intangible
assets.
Risk has
increased
Risk has
decreased
No
change
Read about our
strategy on
page 12
www.animalcaregroup.co.uk
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OUR PRINCIPAL RISKS
Risk
Regulatory risk
We operate in a highly
regulated animal health
environment.
Failure to meet or adhere to
regulatory standards could
affect our ability to register,
manufacture or promote
our products.
People risk
The right organisational
strategy, structure and culture
will be a critical part of our
success. Our ability to attract,
develop and retain high calibre
individuals in key roles is core
to this.
Foreign Exchange risk
The majority of the Group’s
revenues are denominated in
Euros. However, the Group’s
presentational currency
is sterling and therefore
the reported revenues will
depend on exchange rates
prevailing during the relevant
financial period.
Alignment
to strategy
Potential impact
Mitigation
Trend
Non-compliance with
regulatory requirements may
result in delays to production
or lost sales.
Brexit transition may result
in additional regulatory and
quality control requirements
and associated costs.
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.
Failure to retain and attract
the best people could impact
the successful implementation
of our strategy and adverse
impact on our results.
There may be variability in our
reported results caused by
significant fluctuations in the
sterling/Euro exchange rate.
Our goal is to create “One Animalcare”
by developing a unified culture and
through integration.
We aim to attract and retain best talent
by offering competitive rewards, career
development, investment in training
and skills.
2018 saw our first group-wide engagement
survey during a period of significant
change across the Group. We are
committed to acting on the feedback we
received in the survey during 2019.
The Group actively monitors the principal
foreign exchange rates and will adopt
hedging strategies when it is felt to
be appropriate. The Group presents
key financial measures on a constant
currency basis to enable shareholders to
compare the performance of the Group
between reporting periods with the
impact of strengthening or weakening
sterling eliminated.
Risk has
increased
Risk has
decreased
No
change
Strong
finances
Business
Development
Competitive
portfolio
Clear customer
focus
Right organisational strategy,
structure and culture for success
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26240 13 May 2019 6:46 pm Proof 729www.animalcaregroup.co.ukAnnual Report 2018 Animalcare Group plcSTRATEGIC REPORT: OUR PERFORMANCEAnimalcare 2018 AR.indd 2913-May-19 6:49:16 PM 26240 13 May 2019 6:46 pm Proof 7Jan was appointed Non-Executive Chairman of the Group on 13th July 2017 following the acquisition of Ecuphar NV. Committee membershipMember of the Audit Committee and the Remuneration and Nomination CommitteeRelevant skills and experienceJan 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.Jenny was appointed as Chief Executive Officer of the Group on 1st October 2018. Committee membershipBy invitationRelevant skills and experienceJenny has over 20 years’ experience in the pharmaceuticals sector including various senior commercial roles at AstraZeneca and GlaxoSmithKline. Before her appointment, she was Vice-President of Respiratory products – Global Supply Chain and Strategy at AstraZeneca, a position she held from 2015. Other roles at AstraZeneca included Vice-President Cardiology – Global Product and Portfolio Strategy, Commercial Director – Eastern Europe, Marketing Company President Hungary, where she led a major change programme to drive future success and Global Vice President, Group Public Affairs.Jenny has also been CEO of the charity Barretstown, transforming it into a successful leading children’s charity. Her work at the charity resulted in her being asked by Barretstown board member Dermot Gleeson, Chairman of Allied Irish Bank, to join the Board of the bank as a Non-Executive Director, a role she held from 2004 to 2010. Jenny has a BSc in Physiology and Pharmacology from the University of Southampton.Jan BooneNon-Executive ChairmanJenny Winter Chief Executive Officer30Animalcare Group plc Annual Report 2018Stock Code: ANCRBOARD OF DIRECTORSAnimalcare 2018 AR.indd 3013-May-19 6:49:28 PM 26240 13 May 2019 6:46 pm Proof 7Chris was appointed Chief Financial Officer in June 2012.Committee membershipBy invitationRelevant skills and experienceChris has a broad range of experience gained during his ten years of working across a number of functions at KPMG and through his role as Group Accounting Manager at Findus Group. Since joining Animalcare, he developed the systems, controls and management information needed to support the growth and strategy of the UK business. Post-merger, Chris has taken responsibility for the changes required within the Finance and IT functions to create a robust platform for growth and more recently supporting the integration of the Group. Chris was appointed to the role of Chief Strategy Officer on 1st October 2018 and is responsible for developing the Group’s acquisition strategy. Chris was previously Chief Executive Officer of Ecuphar NV and on its acquisition in July 2017 was appointed Chief Executive Officer of the Group.Committee membershipBy invitationRelevant skills and experienceChris 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 then 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 received the prestigious award “Export Lion of Flanders 2005” in the Young Exporters category.Chris Brewster Chief Financial Officer and Company SecretaryChris CardonChief Strategy Officerwww.animalcaregroup.co.ukAnnual Report 2018 Animalcare Group plcOUR GOVERNANCE31Animalcare 2018 AR.indd 3113-May-19 6:49:43 PM BOARD OF DIRECTORS
Marc Coucke
Non-Executive Director
Nick Downshire
Independent Non-Executive Director
Marc was appointed as a Non-Executive Director on
13th July 2017 following the acquisition of Ecuphar NV.
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
Member of the Remuneration and Nomination Committee
Committee membership
Chairman of the Audit Committee
Relevant skills and experience
Marc graduated as a pharmacist from the University of Ghent
after which he completed an MBA at the Vlerick Leuven-Gent
Management School.
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. As Chief Executive
Officer of Omega Pharma, he was awarded the EY Flemish
Entrepreneur of the Year in 2002.
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 and bringing objectivity and
analysis to the Audit Committee.
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OUR GOVERNANCE
James Lambert
Independent Non-Executive Director
Ed Torr
Independent Non-Executive Director
Senior Independent Director
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.
Ed was appointed as a Non-Executive Director and Senior
Independent Director on 13th July 2017 following the acquisition
of Ecuphar NV. On 16th February 2019, Ed was appointed
Chairman of the Remuneration and Nomination Committee.
Committee membership
Member of the Remuneration and Nomination Committee
Relevant skills and experience
James has spent his career helping to build, develop and manage
successful businesses, enabling them to reach their full potential
and give them strategic direction. 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 is currently Chairman of Burton’s Biscuits, Inspired Pet
Nutrition and Whitman Howard.
James won the EY UK Entrepreneur of the Year award in 2014
and represented the UK in the EY World finals.
Committee membership
Member of the Audit Committee and Chairman of the
Remuneration and Nomination Committee
Relevant skills and experience
Ed 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, Ed 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.
www.animalcaregroup.co.uk
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26240 13 May 2019 6:46 pm Proof 7“ 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 ChairmanAn Introduction from our ChairmanAs Chairman, I am responsible for leading the Board and upholding high standards of corporate governance throughout the Group and particularly at Board level. 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. I am therefore pleased to introduce our Corporate Governance Statement which summarises our approach to governance and provides information about how the Board and its committees operate. The Company is listed on AIM and from September 2018 has been required to provide a statement of its compliance with a recognised corporate governance code. After the Company’s admission to AIM in 2014, the Board continued to follow the principles of the UK Corporate Governance Code, as appropriate to the size and nature of the Company. Following a review during 2018, the Board adopted the QCA Corporate Governance Code, an updated version of which was published in April 2018 (the “QCA Code”). The Principles of Corporate GovernanceCompliance with the QCA Code:The Board believes that it applies the ten principles of the QCA Code. We recognise the need to continue to develop our governance practices and disclosures in some areas, in order to ensure we continue to apply the principles effectively going forwards. The policies, procedures and relevant systems we have implemented to date provide a firm foundation for our governance structure and the Board regularly reviews the structure to ensure that it develops in line with the growth and strategic plans of the Group. Deliver GrowthThe Board has collective responsibility for setting the strategic aims and objectives of the Group and our strategy is articulated on pages 12 to 13 and on our website, along with our business model on pages 8 to 9. In the course of implementing our strategic aims, the Board takes into account expectations of the Company’s shareholder base and also its wider stakeholder and social responsibilities.The Board also has responsibility for the Group’s internal control and risk management systems. The Board regularly considers and reviews the risks and opportunities for the business and ensures that the mitigation strategies in place are the most effective and appropriate to the Group’s operations. Dynamic Management FrameworkAs Chairman, I consider the operation of the Board as a whole and the performance of the Directors individually. The Directors attend seminars from time to time and have regular updates at Board meetings to assist with training and awareness of compliance issues facing boards of quoted companies. Following the reverse takeover of Ecuphar NV in 2017 and resulting changes to the composition of the Board, the Board has re-established its annual board evaluation process. This involves the completion of a detailed questionnaire completed by each Director, the responses to which have been analysed and fed back to the Board with planned implementation of actions and recommendations. Appointments to the Board are made on merit, but with due consideration to the need for diversity on the Board. All appointments are made to complement the existing balance of skills and experience on the Board.The Company operates an open and inclusive culture and this is reflected in the way that the Board conducts itself. The Non-Executive Directors attend the Company’s offices and other Company 34Animalcare Group plc Annual Report 2018Stock Code: ANCRCORPORATE GOVERNANCE STATEMENTAnimalcare 2018 AR.indd 3413-May-19 6:50:21 PM OUR GOVERNANCE
events. With a relatively small employee
base, such interactions mean it is relatively
straightforward for the Board to promote
and assess the desired corporate culture.
We do, however, recognise this is an area
for continuing development, and we
intend to further develop our assessment
of the recognition of our corporate culture
and ethical values going forwards.
Build Trust
During the year the Board has continued
to review governance and the Group’s
corporate governance framework.
The Board will continue to monitor its
application of the QCA Code and revise its
governance framework as appropriate as
the Group evolves.
The Board recognises the importance
of maintaining regular dialogue with
shareholders to ensure that the
Group’s strategy is communicated
and to understand the expectations
of our shareholders.
Board capabilities
The Board consists of eight experienced
Directors who between them have
considerable experience in the
following areas:
• Strong animal health and
pharmaceuticals sector experience
•
Leading international change
programmes
• Managing a global supply chain
• New product development
• Business planning and development
• Acquisitions
• Financial and audit
• Marketing
• Governance
Jan Boone
Non-Executive Chairman
Animalcare Group plc
30th April 2019
www.animalcaregroup.co.uk
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CORPORATE GOVERNANCE REPORT
Independence
The Non-Executive Chairman, Jan Boone,
and Senior Independent Director, Ed Torr,
are considered independent and therefore
the Board is compliant with the QCA
Code, having at least two independent
Non-Executive Directors. Although Nick
Downshire and James Lambert have been
directors of the Company for more than
ten years, the Board also considers them
independent in character and judgement.
Following the acquisition of Ecuphar NV,
23.1% of the issued share capital of the
Company is held by Ecuphar Invest NV in
July 2017, 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, all 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
Remuneration and Nomination 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
Remuneration and Nomination Committee
may be found in its report on page 42.
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”).
In accordance with corporate governance
best practice, all of the Directors will
retire and offer themselves for re-election
at the next Annual General Meeting.
The Board considers that each of the
Directors continue to make a valuable
contribution to the Board and to
demonstrate commitment to the Group.
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.
The Board currently comprises three
Executive Directors and five Non-Executive
Directors. The biographies of the current
Directors can be found on pages 30 to 33.
On 26th April 2018, Iain Menneer resigned
from the Board.
On 1st October 2018, Chris Cardon took on
the role of Chief Strategy Officer, remaining
on the Board as an Executive Director,
and Jenny Winter was appointed as Chief
Executive Officer.
Collectively, the Non-Executive Directors
bring an appropriate balance of functional
and sector skills and experience such
that they are able to provide constructive
support and challenge to the Executive
Directors.
The Non-Executive Directors attend
external events and seminars to receive
updates on matters such as financial
reporting requirements and corporate
governance. The Company Secretary also
ensures that the Board is updated as to
developments to corporate governance
practice and forthcoming changes to
legislation or regulation which may impact
on the Company.
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OUR GOVERNANCE
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.
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 a Leadership Team composed
of the CEO, the CFO 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.
The table below shows Directors’
attendance at formal scheduled Board and
Committee meetings during the year:
Jan Boone
Chris Brewster
Chris Cardon
Marc Coucke1
Nick Downshire
James Lambert
Ed Torr
Jenny Winter2
Board
5/5
5/5
5/5
4/5
5/5
5/5
5/5
1/1
Audit Committee
3/3
–
–
–
3/3
–
3/3
–
Remuneration
and Nomination
Committee
1/1
–
–
1/1
–
1/1
1/1
–
1. Marc Coucke was unable to attend one Board meeting due to a conflicting business meeting.
2. Jenny Winter was appointed to the Board on 1st October 2018.
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 and integration
• Review of AGM business
• Presentations from various parts
• Market Abuse Regulation compliance
• Share Dealing Code
•
Investor relations
of the business
• Consideration of management
structure
• Approval of annual and half year report
and financial statements
• Review of budget
• Going concern and cash flow
• Briefing and review of conflicts
of interest
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CORPORATE GOVERNANCE REPORT
Leadership Team
The newly created Leadership Team
consist of the Group Function Heads,
Country Managers and Executive Directors.
The team meets monthly and their
responsibilities include tracking financial
performance, progress versus integration
targets, improving employee engagement
and all aspects of the operational
leadership of the organisation.
The Board Committees
There are two Board Committees, the
Audit Committee and the Remuneration
and Nomination 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.
External Advisers
The Board seeks advice on various matters
from its nominated adviser, and broker and
corporate finance adviser, Panmure Gordon
& Co, its lawyers, Squire Patton Boggs and
its corporate governance and company
secretarial adviser, Prism Cosec.
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.
Board Evaluation
The Board carried out a formal
performance evaluation process during
the year which was conducted by way
of a detailed questionnaire completed
by each member of the Board. The aim
of the questionnaire was to obtain views
on the effectiveness of the Board, its
committees and on key governance areas.
The responses were collated and reviewed
by the Chairman and a summary of the
results presented to the Board before
its meeting in April.
Initial observations include more regular
interaction with the Leadership Team and
more opportunity for review of strategy
for the long-term success of the Group.
Further consideration will be given at
the Board meeting in June.
Conflicts of interest
At each meeting of the Board or its
Committees, the Directors are required to
declare any interests in the matters to be
discussed and are regularly reminded of
their duty to notify any actual or potential
conflicts of interest. The Company’s Articles
of Association provide for the Board to
authorise any actual or potential conflicts
of interest if deemed appropriate to do so.
Internal controls
The Board has ultimate responsibility
for the Group’s system of internal
controls and for the ongoing review
of their effectiveness.
Systems of internal control can only
identify and manage risks and not
eliminate them entirely. As a result, such
controls cannot provide an absolute
assurance against misstatement or loss.
The Board considers that the internal
controls which have been established and
implemented are appropriate for the size,
complexity and risk profile of the Group.
The main elements of the Group’s internal
control system include:
• Close management of the day-to-
day activities of the Group by the
Executive Directors
• An organisational structure with
defined levels of responsibility
• Specified investment approval levels
and financial authority limits
• An annual budgeting process
which is approved by the Board
• Financial controls to ensure that the
assets of the Group are safeguarded
and that appropriate accounting
records are maintained
The Board continues to review the
system of internal controls to ensure
it is fit for purpose and appropriate for
the size and nature of the Company’s
operations and resources.
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OUR GOVERNANCE
Annual General Meeting
The Company’s Annual General meeting
(“AGM”) will be held at 11.30 a.m.
on Tuesday 25th June 2019 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).
Shareholders will have an opportunity to
raise questions with the Board at the AGM.
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
and the Group’s corporate governance and
company secretarial adviser, Prism Cosec.
Directors’ and Officers’
Liability Insurance
The Company has purchased directors’ and
officers’ liability insurance during the year
as allowed by the Company’s articles.
Risk Management
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 26 to 28. 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.
Relations with shareholders
and stakeholders
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.
We encourage our shareholders to attend
our Annual General Meetings (“AGMs”)
and we give them the opportunity
to pose questions to our Directors.
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 regular
item on the Board’s agenda.
Due to the Company’s relatively small
employee base, the Non-Executive
Directors are able to engage directly with
employees and they attended meetings
and dinners with some of the team.
During 2018, we conducted our first
employee engagement survey, establishing
a baseline for future measurement.
The score reflects a period of significant
change for many employees while we
integrate the Group. We are committed
to acting on the feedback we received in
the survey in 2019.
www.animalcaregroup.co.uk
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AUDIT COMMITTEE REPORT
“ As Chairman
of the Audit
Committee,
I am pleased
to present the
Audit Committee
Report for the
year ended
31st December
2018.”
Nick Downshire
Chairman of the Audit Committee
The Audit Committee is responsible for
ensuring that the financial performance
of the Group is properly reported on and
monitored. Its role includes monitoring
the integrity of the Group’s financial
statements, reviewing significant
financial reporting issues, reviewing the
effectiveness of the Company’s internal
control and risk management systems
and overseeing the relationship with the
external auditors (including advising on
their appointment, agreeing the scope of
the audit and reviewing the audit findings).
It is also responsible for establishing,
monitoring and reviewing procedures
and controls for ensuring compliance
with the AIM Rules.
Members of the Audit
Committee
The Committee comprises three
independent Non-Executive Directors:
• Nick Downshire (Chairman)
•
Jan Boone
• Edwin Torr
The Board is satisfied that Nick Downshire,
as Chairman of the Committee, who
is a qualified Chartered Accountant
having worked in corporate finance and
venture capital and is an experienced
Non-Executive Director and Audit
Committee chair, has recent and
relevant financial experience.
The Committee met three times during
the year and on one occasion since the
year end and will continue to meet at
appropriate times in the reporting and
audit cycle and at such other times 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 part of the meeting.
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, including
its annual and half-yearly reports,
trading statements and any other
formal announcements relating to
its financial performance, reviewing
significant financial reporting issues
and judgements that they contain
• To review the adequacy and
effectiveness of the Company’s
internal financial controls and internal
control and risk management systems
to identify, assess, manage and
monitor financial risks, including the
appropriateness and effectiveness of
the risk management framework
• To review the arrangements for
whistleblowing enabling its employees
and contractors to raise concerns, in
confidence, about possible wrongdoing
in financial reporting or other matters
• To consider annually whether the
Company’s size and activities are such
that an internal audit function should
be established and, if so, determine its
remit and make a recommendation to
the Board
• To consider and make
recommendations to the Board, to be
put to shareholders for approval at the
AGM, in relation to the appointment,
re-appointment and removal of the
Company’s external auditor
• To monitor and review the external
auditor’s independence and
objectivity, taking into account relevant
statutory, professional and regulatory
requirements and the relationship with
the auditor as a whole, including the
provision of any non-audit services
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OUR GOVERNANCE
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.
Share dealing
The Group has adopted a share dealing
code in conformity with the requirements
of Rule 21 of the AIM Rules. All employees,
including new joiners, are required to
agree to comply with this code.
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
30th April 2019
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 24 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 recommended to the
Board that a resolution to re-appoint
PricewaterhouseCoopers LLP as the
Group’s auditors be proposed at the
forthcoming Annual General Meeting.
Audit Process
The external auditor 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.
Internal Audit
The Audit Committee has again considered
the need for an internal audit function
during the year and continues to be of the
view that, given the size and nature of the
Group’s operations and finance team, there
is no current requirement to establish a
separate internal audit function.
• To develop and implement a policy on
the supply of non-audit services by the
external auditor to avoid any threat to
auditor objectivity and independence,
taking into account any relevant
statutory, professional and regulatory
requirements on the matter; and
• To report formally to the Board on
its proceedings after each meeting
on all matters within its duties
and responsibilities.
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.
Principal Activities
during the Year
The items of business considered by the
Committee during the year included:
•
•
review of the 2017 financial statements
and Annual Report
consideration of the external
audit report and management
representation letter
• going concern review
•
•
•
review of the 2018 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.
www.animalcaregroup.co.uk
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REMUNERATION AND NOMINATION
COMMITTEE REPORT
As Chairman of the Remuneration and
Nomination Committee (“the Committee”),
I am pleased to present our report which
sets out details of the composition,
structure and operation of the Committee,
our remuneration policy and remuneration
paid to Directors during the year.
Members of the Remuneration
and Nomination Committee
The Committee comprises four Non-
Executive Directors, three of which
are independent:
• Ed Torr (Chairman)
•
Jan Boone
• Marc Coucke
•
James Lambert
James Lambert chaired the Committee
during the year under review. At its
meeting in February 2019, the Board
agreed that Ed Torr would chair the
Committee going forwards.
The Committee considers Group
strategy when recommending the
appointment of directors and setting
and reviewing remuneration.
The Committee meets at least once 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, other
individuals, such as the Chief Executive and
external advisers, may be invited to attend
for all or part of any meeting.
Duties
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. 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;
The Committee unanimously agreed
to recommend to the Board that Jenny
Winter be appointed as Chief Executive
Officer and she was appointed with effect
from 1st October 2018.
• Evaluating the balance of skills,
experience, independence and
knowledge on the Board; and
The Committee considered and agreed
Ms Winter’s remuneration package on
her appointment.
•
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.
Principal activities
during the year
The Committee led the process to identify
and appoint a new Chief Executive Officer.
The process consisted of:
•
•
Identifying and agreeing the key skills,
experience and attributes of the
desired candidate
Identifying and instructing an executive
search agency
• Reviewing the shortlist and arranging
first round interviews
• Second round interviews
• Recommending the preferred
candidate for appointment
The Committee engaged Odgers Berndtson
to conduct the search; they have no other
connection with the Company. Odgers
Berndtson produced a shortlist of potential
candidates. First round interviews with four
candidates were conducted by members
of the Committee and one candidate was
shortlisted for second round interview.
Jenny Winter was identified as the
preferred candidate and met separately
with the other members of the Board.
The Committee also considered:
• Executive Directors’ bonuses and
salaries
• Performance criteria for the Long
Term Incentive Plan (“LTIP”) and future
awards under the LTIP
• Succession planning
• Re-election of directors at the AGM
• Review of the Committee’s terms
of reference
The Committee considers Group strategy
when recommending the appointment
of directors and setting and reviewing
remuneration.
Diversity
The Company’s policy is that recruitment,
promotion and any other selection
exercises will be conducted on the basis
of merit against objective criteria that
avoid discrimination. No individual should
be discriminated against on the ground
of race, colour, ethnicity, religious belief,
political affiliation, gender, age or disability,
and this extends to Board appointments.
The Board recognises the benefits of
diversity, including gender diversity, on
the Board, although it believes that all
appointments should be made on merit,
while ensuring there is an appropriate
balance of skills and experience within
the Board.
The Board currently consists of 12.5%
(1) female and 87.5% (7) male board
members. The Leadership Team
consist of 54% (7) male and 46%
(6) female members.
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OUR GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
The following disclosures are made in
accordance with best practice governance
standards as an AIM company and to
provide transparency about how our
Directors are rewarded.
This report covers the financial year ended
31st December 2018.
The Remuneration and
Nomination Committee
The Board has delegated certain
responsibilities for executive remuneration
to the Remuneration and Nomination
Committee (“the Committee”). Details of
the Committee, its remit and its activities
are set out on page 42.
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
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.
In formulating remuneration policy for
the Executive Directors, the Committee
considers a number of factors designed to:
• have regard to the Director’s
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.
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.
•
•
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.
Long Term Incentive Plan
A Long Term Incentive Plan, the Animalcare
Group plc Long Term Incentive Plan
2017 (“the LTIP”) was approved by the
Board in June 2017. A summary of the
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 LTIP as
at the date of this report; however, the
Committee has considered appropriate
performance measures and intends to
grant options to Executive Directors and
members of the Leadership team under
the LTIP during the current financial year.
Non-Executive Directors are not eligible
to participate in the LTIP.
Other benefits
A range of benefits may be provided
including company car allowance,
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.
www.animalcaregroup.co.uk
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DIRECTORS’ REMUNERATION REPORT
Service agreements and termination payments
Details of the Executive Directors’ service agreements are set out below.
Director
Chris Brewster
Chris Cardon
Jenny Winter
Date of
contract
24th January 2012
23rd June 2017
2nd August 2018
Unexpired
term
Rolling contract
Rolling contract
Rolling contract
Notice
period by
Company
6 months
12 months
6 months
Notice
period by
Director
6 months
12 months
6 months
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.
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.
Iain Menneer resigned as a director of
the Company on 26th April 2018 and was
placed on gardening leave for his 12 month
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.
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OUR GOVERNANCE
ANNUAL REMUNERATION REPORT
THIS REPORT COVERS THE FINANCIAL YEAR ENDED 31ST DECEMBER 2018.
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)
£’000
Executive Directors
Jenny Winter1
Chris Brewster
Chris Cardon234
Iain Menneer5
Walter Beyers6
Non-Executive Directors
Jan Boone8
Marc Coucke8
Nick Downshire7
James Lambert7
Ed Torr8
Ray Harding9
Total
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Salary and
fees Annual bonus
Benefits
Pension
Compensation
for loss
of office
71
–
205
184
352
205
32
282
–
71
70
35
40
19
40
43
40
55
40
19
–
24
890
937
–
–
–
46
–
–
–
63
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
109
3
–
12
12
7
–
3
15
–
–
–
–
–
–
–
5
–
–
–
–
–
–
25
32
–
–
25
22
27
–
28
34
–
–
–
–
–
–
–
–
–
–
–
–
–
–
80
56
–
–
–
–
–
–
203
–
–
45
–
–
–
–
–
–
–
–
–
–
–
12
203
57
Total
74
–
242
264
386
205
266
394
–
116
70
35
40
19
40
48
40
55
40
19
–
36
1,198
1,191
1.
2.
Jenny Winter was appointed as a director on 1st October 2018. Her annual salary was £285,000.
Chris Cardon’s salary is paid in euros. From 1st January to 30th September, Mr Cardon’s annual salary was €335,000. On his change of role from 1st October 2018,
his annual salary was €250,000. Pro rated salary is converted to GBP at the Group 2018 average rate of £1:€1.1304. The 2017 comparative figure includes Mr Cardon’s
remuneration as a director of the newly formed Group from 13th July 2017.
3. Mr Cardon received a car allowance of £6,000 per annum and life assurance and private medical cover to the value of £3,413 per annum for the period from 1st January
to 30th September 2018.
4. Mr Cardon received a salary supplement in lieu of a pension contribution of 12% of salary for the period from 1st January to 30th September 2018.
5.
Iain Menneer resigned as a director of the Company on 26th April 2018 and was placed on gardening leave for his 12 month notice period. Compensation for loss of office
represents the salary paid to Mr Menneer from 27th April to 31st December 2018 while on gardening leave.
6. Walter 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 to 26th
September 2017.
7.
8.
9.
Nick Downshire and James Lambert were directors of Animalcare Group plc for the whole of the financial year ended 31st December 2017. Remuneration disclosed
for 2017 relates to their remuneration for the 18 months from 1st July 2016 to 31st December 2017.
Jan Boone, Marc Coucke and Ed Torr were appointed directors of the newly formed Group from 13th July 2017. Remuneration disclosed for 2017 relates to their
remuneration from 13th July 2017 to 31st December 2017.
Ray Harding resigned as a director on 13th July 2017.
www.animalcaregroup.co.uk
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ANNUAL REMUNERATION REPORT
THIS REPORT COVERS THE FINANCIAL YEAR ENDED 31ST DECEMBER 2018.
Share option schemes
Save As You Earn
During the year, Iain Menneer exercised 5,142 share options granted in 2014 under the Save As You Earn scheme at an option price of
£1.05 per share. The value of this exercise to Mr Menneer was £5,399.
8,571 share options granted to Chris Brewster in 2014 under the Save As You Earn scheme lapsed in 2018.
Directors’ Interests in the Share Capital of the Company
The Directors’ interests in the share capital of the Company as at 31st December 2018 and the movements during the year are set
out below:
Director
Jan Boone
Chris Brewster
Chris Cardon
Marc Coucke
Nick Downshire
James Lambert
Edwin Torr
Jenny Winter1
1.
Appointed 1st October 2018.
Number of shares
held as at
1 January 2018
50,171
280,513
13,857,213
13,857,213
1,031,529
1,313,691
107,455
–
Acquired/
(disposed)
during the period
–
–
–
–
–
–
–
–
Number of shares
held as at
31st December
2018
50,171
280,513
13,857,213
13,857,213
1,031,529
1,313,691
107,455
–
Percentage of ISC
as at
31st December
2018
0.08
0.47
23.07
23.07
1.75
2.19
0.18
–
In addition, as at 1st January 2018, Nick Downshire had a non-beneficial interest of 190,446 shares; as at 31st December 2018, he had a
non-beneficial interest of 190,446 shares.
Iain Menneer resigned as a director during the year; as at 1st January 2018, he held 601,932 shares in the Company.
There were no changes in the Directors’ interests in shares between 31st December 2018 and 30th April 2019.
Ed Torr
Chairman of the Remuneration and Nomination Committee
30th April 2019
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OUR GOVERNANCE
rights and appointing a proxy or proxies.
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).
Other than the general provisions of the
Articles of Association (and prevailing
legislation), there are no specific
restrictions on the size of a holding or on
the transfer of any class of shares in the
Company. No shareholder holds securities
carrying any special rights or control over
the Company’s share capital.
Authority for the Company
to purchase its own shares
Subject to authorisation by shareholder
resolution, the Company may purchase
its own shares in accordance with the
Act. Any shares which have been bought
back may be held as treasury shares or
cancelled immediately upon completion
of the purchase.
At the AGM on 27th June 2018,
the Company was generally and
unconditionally authorised by its
shareholders to make market purchases
(within the meaning of section 693 of the
Companies Act 2006) of up to a maximum
of 6,001,412 of its ordinary shares.
The Company has not repurchased any
of its ordinary shares under this authority,
which is due to expire on the date of this
year’s AGM.
DIRECTORS’ REPORT
The Directors present the Directors’
report, together with the audited Financial
Statements of the Group and the Company
for the year ended 31st December 2018.
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 in the Chief Financial Officer’s
review on pages 20 to 24.
Corporate Governance and the Group’s
financial risk management objectives
in the Corporate Governance report on
pages 36 to 39.
Details of the salaries, bonuses, benefits
and share interests of Directors in the
Directors’ remuneration report on pages
43 to 46.
Directors’ responsibility statements
on page 50.
Likely future events and all post-balance
sheet events are disclosed within the
Strategic report on pages 1 to 28.
Dividend
The Board is recommending a final
dividend of 2.4p per share which, subject
to shareholder approval at the Company’s
2019 AGM, will result in a full year dividend
of 4.4p per share (including the interim
dividend of 2p per share paid in November
2018). The final dividend will be paid on
Friday 5th July 2019 to all shareholders
on the register of members at close of
business on Friday 7th June 2019.
Directors and Directors’
Interests
The names of the current Directors of the
Company and their biographical details
are shown on pages 30 to 33. Changes to
directorships during the reporting period
are shown on page 36. Details of Directors’
interests in the shares of the Company
are shown on page 46. This information is
incorporated into this report by reference.
Share capital
The Company’s issued share capital as at
31st December 2018 was £12,011,432.20
divided into 60,057,161 ordinary shares of
20 pence each. 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 96.
There have been no changes to the
Company’s issued share capital between
31st December 2018 and the date of
this report.
The Company’s ordinary shares rank pari
passu in all respects with each other,
including for voting purposes and for all
dividends. Ordinary shareholders are
entitled to receive notice of, and to attend
and speak at, any general meeting of the
Company. On a show of hands, every
shareholder present in person or by proxy
(or being a corporation represented by a
duly authorised representative) shall have
one vote, and on a poll, every shareholder
who is present in person or by proxy shall
have one vote for every share they hold.
The Notice of Annual General Meeting
specifies deadlines for exercising voting
www.animalcaregroup.co.uk
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DIRECTORS’ REPORT
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
£6.2m (2017: £3.9m).
Articles of Association
The rules governing the appointment
and replacement of directors are set out
in the Company’s Articles of Association.
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 20
to the Consolidated Financial Statements
on page 96.
Directors’ Indemnities
and Liability Insurance
The Company’s Articles of Association (the
‘Articles’) provide, subject to the provisions
of UK legislation, an indemnity for Directors
and officers of the Company and the Group
in respect of liabilities they may incur in the
discharge of their duties or in the exercise
of their powers. The Company has made
qualifying third party indemnity provisions
for the benefit of its Directors during the
period and these remain in force at the
date of this report.
The Group purchases and maintains
directors’ and officers’ liability insurance
for the benefit of its Directors, which was
in place throughout the year ended 31st
December 2018 and remains in place
at the date of this report. The Company
reviews its level of cover annually.
Political Donations
No political donations were made
during the year (2017: £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.
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 26th April 2019:
Name of holder
Alychlo NV
Ecuphar Invest
NV
Liontrust Asset
Management
No. of
ordinary
shares
13,857,213
%
holding
23.07
13,857,213
23.07
5,359,154
8.92
Relationship Agreement
On 23rd June 2017, the Company
entered into a 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.
The Relationship Agreement will
continue for as long as the Ordinary
Shares as defined in the Relationship
Agreement are admitted to trading on
AIM and the Substantial Shareholders
together with their respective groups are
interested in voting rights representing,
in aggregate, 25% or more of total
voting rights attaching to the Ordinary
Shares (provided that, if the interest
of a Majority Vendor together with its
associates falls below 5%, the Relationship
Agreement shall cease to apply to that
Majority Vendor).
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OUR GOVERNANCE
PricewaterhouseCoopers LLP have
indicated their willingness to continue in
office and resolutions seeking to reappoint
them and to authorise the Directors to
determine their remuneration will be
proposed at the forthcoming Annual
General Meeting.
Annual General Meeting
The Company’s Annual General Meeting
will be held at 11.30 a.m. on Tuesday
25th June 2019 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 1 to 28
and this Directors’ report on pages 47 to
49 were approved by the Board on 30th
April 2019.
Approved by the Board and signed on
its behalf by
Chris Brewster
Chief Financial Officer and
Company Secretary
30th April 2019
Going Concern
The principal risks and uncertainties facing
the Group are set out on pages 26 to 28.
For the purposes of their assessment
of the appropriateness of the
preparation of the Group’s financial
statements 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 2018,
the Group had cash on hand of £8.0m
(31st December 2017: £7.6m).
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 auditors are 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
auditors are aware of that information.
This confirmation is given and should
be interpreted in accordance with the
provisions of s418 of the Companies
Act 2006.
www.animalcaregroup.co.uk
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STATEMENT OF DIRECTORS’
RESPONSIBILITIES
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 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.
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 financial statements,
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
30th April 2019
The Directors are responsible for preparing
the Annual Report and the financial
statements in accordance with applicable
law and regulation.
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.
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26240 13 May 2019 6:46 pm Proof 7Report on the audit of the financial statementsOpinionIn 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 31 December 2018 and of the group’s loss and the group’s and the company’s cash flows for the year then ended;• have been properly prepared in accordance with International Financial Reporting Standards (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 consolidated and company statements of financial position as at 31 December 2018; the consolidated income statement, consolidated statement of comprehensive income, the consolidated and company cash flow statement, and the consolidated and company statements of changes in equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.Basis for opinionWe 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.IndependenceWe 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 approachOverview MaterialityAudit scopeKeyAuditMa�ers• Overall group materiality: £291,000 (2017: £255,000), based on 2.5% of Adjusted Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) excluding exceptional costs.• Overall company materiality: £250,000 (2017: £100,000), based on 1% of net assets, limited to less than group materiality.• We, as the group engagement team, audited the two components based in the UK - being Animalcare Group plc and Animalcare Limited.• The significant components based overseas, being Ecuphar N.V. and Ecuphar Veterinaria SA, and specified procedures over certain financial statement line items for Ecuphar GmbH, 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 and review and discussion of audit findings, in particular over our areas of focus.• As a result of this scoping we obtained coverage over £61.5 million (85%) of the group’s external revenues and £11.4 million (96%) of the group’s Adjusted EBITDA.• Risk of impairment to assets - Goodwill, intangible assets and investments (group and company).• Accounting and disclosures relating to the disposal of the Medini NV business (group).• Accounting for complex customer arrangements (group).• Carrying value of intangibles in relation to New Product Development (group).The scope of our auditAs 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.www.animalcaregroup.co.ukAnnual Report 2018 Animalcare Group plcOUR FINANCIALS51INDEPENDENT AUDITORS’ REPORTTO THE MEMBERS OF ANIMALCARE GROUP PLCAnimalcare 2018 AR.indd 5113-May-19 6:50:32 PM 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 understood and evaluated management’s budgeting and
forecasting process. We obtained the group impairment analysis
and tested the reasonableness of the key assumptions, including
the following:
• We tested the mathematical accuracy of the impairment
model and agreed the carrying value of non-current assets
being assessed for impairment to the balance sheet
• We challenged management’s calculated group weighted
average cost of capital (WACC) used for discounting future
cashflows within the impairment model, utilising valuation
specialists to assess the cost of capital for the group and
comparable organisations.
• We traced the forecast financial information within
the model to the latest Board approved budget and
challenged management to provide support to corroborate
trading assumptions, support for capital expenditure and
considered the accuracy of previous forecasts.
• We performed sensitivity analyses to ascertain the impact
of reasonably possible changes in key assumptions and
to quantify the downside changes needed before an
impairment would be required at the CGU level. We
determined that the disclosures made with respect to the
sensitivity of the WACC are appropriate.
Risk of impairment to assets
– Goodwill, intangible assets and investments
Group and company
The group has £50.9 million of goodwill and £51.5 million of
intangible assets. The parent company has investments of £147.7m.
The carrying value of goodwill is assessed by an annual impairment
review. Intangible assets at a group level and the investment held
by the parent company are reviewed for indicators of impairment
and if needed an impairment review performed. No impairment
charge has been recorded by management in the current year. The
risk we have focused on is that these non-current assets could be
overstated and an impairment charge may be required.
We focused on this area because the determination of whether
or not these non-current assets are impaired involves subjective
judgements and estimates about the future results and cash
flows of the business.
On an annual basis, management calculate the amount of
headroom between the value in use of the group’s Cash Generating
Units (‘CGUs’) and their carrying value to determine whether there
is a potential impairment of the goodwill relating to those CGUs.
The value in use of the CGU is dependent on a number of key
assumptions which include:
• Forecast cash flows for the three years;
• A long-term (terminal) growth rate applied beyond the end
of the three-year forecast period; and
• A discount rate applied to the model.
Management consider there to be just one CGU and therefore the
same valuation performed is used to support the carrying values of
the non-current assets for the group and parent company financial
statements, adjusted to remove the parent company costs.
See the accounting policies section within the financial statements
for disclosure of the related accounting policies, judgements and
estimates and Note 9 for detailed goodwill disclosures.
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OUR FINANCIALS
Key audit matter
How our audit addressed the key audit matter
Accounting and disclosures relating to the disposal
of the Medini NV business
Group
During the year the group disposed of its Wholesale business
in Europe, Medini NV. We have focused on this area because
the consideration received and the net assets disposed of
were material.
The risk we focused on was that the recognition of losses from
discontinued operations to ensure that these have been calculated
accurately, all assets and liabilities had been correctly identified and
that consideration received, including contingent consideration,
which requires management judgement, have been accounted
for correctly.
Management are required to present discontinued operations
separately and we have focused on the completeness and accuracy
of these disclosures.
We have understood and evaluated management’s assessment of
the sale and purchase agreement with the acquirer and undertook
the following procedures to test the accounting for the disposal:
• Reviewed the sale and purchase agreement;
• Confirmed the disposal date in accordance with the signed
agreement;
• Agreed the closing balance sheet to the underlying
accounting records for the business disposed;
• Confirmed that all amounts from the business were
eliminated from continuing operations and included in
discontinued operations;
• Agreed the consideration received to the agreement and to
cash received, as well as assessed management’s judgement
in respect of contingent consideration recognized; and
• Recalculated the loss on disposal.
We determined that the disclosures made with respect to the
requirements of IFRS 5 ‘Non-current assets held for sale and
discontinued operations’ are appropriate.
Accounting for complex customer arrangements
To test customer rebates, we:
Group
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.
•
•
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 correct
accounting period, and found no instances of amounts
recorded in the wrong period.
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INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF ANIMALCARE GROUP PLC
Key audit matter
How our audit addressed the key audit matter
Carrying value of intangibles in relation to
New Product Development
Group
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 was 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:
• understood and evaluated the group’s accounting policy
and confirmed it is consistent with IAS 38 ‘Intangible assets’;
•
tested a sample of costs capitalised during the year to
confirm that they have been appropriately treated in line
with the group’s accounting policy;
• 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 includes a discounted
cash flow analysis over the period the asset is expected to
generate income for the group, as well as technical aspects.
This has been reviewed to identify indicators for impairment
of the related intangible assets with no issues noted;
• we have considered whether there are any indicators of
impairment present, such as changes to drug formulation
or regulation that would impact the recoverability of the
capitalised costs with no issues noted; and
• determined that the disclosure detailed within note 10
is consistent with the requirements of IAS 38.
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.
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.
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OUR FINANCIALS
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
How we determined it
Rationale for benchmark applied
Group financial statements
£291,000 (2017: £255,000).
Company financial statements
£250,000 (2017: £100,000).
2.5% of Adjusted EBITDA excluding
exceptional costs.
1% of net assets, limited to less than
group materiality.
Based on the benchmarks used in the annual
report, Adjusted 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 is a holding company
only 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 £144,000 and £250,000.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £14,500
(group audit) (2017: £13,000) and £14,500 (company audit) (2017: £13,000) as well as misstatements below those amounts that,
in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
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.
We have nothing to report in respect of the above matters.
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. For example, the terms on which the United Kingdom may withdraw from the European Union are
not clear, and it is difficult to evaluate all of the potential implications on the group’s trade, customers, suppliers and the wider economy.
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INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF ANIMALCARE GROUP PLC
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.
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 2018 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 set out on page 56, 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.
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OUR FINANCIALS
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
30 April 2019
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CONSOLIDATED INCOME STATEMENT
YEAR ENDED 31ST DECEMBER 2018
£’000
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 from continuing
operations
Net profit/(loss) from
discontinuing operations
Net profit/(loss)
Net profit/(loss) attributable to:
The owners of the parent
Non-controlling interest
Earnings per share for profit/
(loss) from continuing operations
attributable to the ordinary
equity holders of the Company:
Basic earnings per share
Diluted earnings per share
Earnings per share for profit/
(loss) attributable to the ordinary
equity holders of the Company:
Basic earnings per share
Diluted earnings per share
Notes
6
7.1
7.2
7.3
7.4
7.5
7.8
7.9
7.10
4
8
8
8
8
For the year ended 31st December
Underlying
2018
72,470
(35,131)
37,339
Non-Underlying
(note 5)
2018
−
−
−
Total
2018
72,470
(35,131)
37,339
Underlying
2017
(Restated)
62,291
(29,966)
32,325
Non-Underlying
(note 5)
2017
(Restated)
−
(401)
(401)
Total
2017
(Restated)
62,291
(30,367)
31,924
(3,466)
(12,435)
(1,296)
−
(4,762)
(12,435)
(2,048)
(12,592)
(751)
−
(2,799)
(12,592)
(11,877)
(4,789)
(16,666)
(10,214)
(3,591)
(13,805)
43
9,604
(840)
266
9,032
(2,016)
7,016
40
7,056
7,058
(2)
11.7p
11.7p
11.8p
11.8p
(3,302)
(9,387)
−
−
(9,387)
2,151
(7,236)
(816)
(8,052)
(8,052)
−
(3,259)
217
(840)
266
(357)
135
(222)
(776)
(998)
(996)
(2)
89
7,560
(735)
96
6,922
(1,746)
5,176
109
5,285
5,285
−
(1,801)
(6,544)
−
−
(6,544)
1,454
(5,090)
(10)
(5,100)
(5,100)
−
(0.4p)
(0.4p)
12.3p
12.3p
(1.7p)
(1.7p)
12.6p
12.5p
(1,713)
1,016
(735)
96
377
(292)
85
99
184
184
–
0.2p
0.2p
0.4p
0.4p
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 these consolidated financial statements.
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OUR FINANCIALS
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
YEAR ENDED 31ST DECEMBER 2018
£’000
Net (loss)/profit for the year
Other comprehensive income
Cumulative translation differences*
Other comprehensive income, net of tax
Total comprehensive (expense)/income for the year, net of tax
Total comprehensive (expense)/income attributable to:
The owners of the parent
Non-controlling interest
* May be reclassified subsequently to profit and loss
For the year ended
31st December
2018
(998)
165
165
(833)
(831)
(2)
2017
184
664
664
848
848
−
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CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
YEAR ENDED 31ST DECEMBER 2018
£’000
Assets
Non-current assets
Goodwill
Intangible assets
Property, plant and 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 and 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
Accumulated losses
Other reserves
Equity attributable to the owners of the parent
Non-controlling interest
Total equity
For the year ended
31st December
Notes
2018
2017
9
10
11
7.10
13
12
13
20
13
14
16
15
18
19
16
7.10
18
17
21
21
50,937
51,334
477
1,699
59
294
104,800
14,891
13,084
−
2,736
8,035
38,746
143,546
(648)
(11,907)
(1,016)
(2,325)
(3,864)
(19,760)
(30,975)
(5,521)
(617)
(81)
(37,194)
(56,954)
86,592
12,012
132,729
(56,762)
(4,732)
3,345
86,592
−
86,592
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)
(1,520)
(2,116)
(3,201)
(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
The accompanying notes on page 64 to 101 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 authorised
for issue on 30th April 2019. They were signed on their behalf by:
Jennifer Winter
Chief Executive Officer
Chris Brewster
Chief Financial Officer
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OUR FINANCIALS
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
YEAR ENDED 31ST DECEMBER 2018
£’000
At 1st January, 2018
Net loss
Other comprehensive
income
Total comprehensive
expense
Dividends paid
Exercise of share options
Share based payments
At 31th December, 2018
£’000
At 1st January, 2017
Net profit
Other comprehensive
income
Total comprehensive
income
Dividends paid
Shares issued as
consideration
Exercise of share options
Share issue cost
Arising on reverse
acquisition
Issue of new shares
Cash consideration for
Ecuphar
Share-based payments
At 31th December, 2017
Attributable to the owners of the parents
Share
capital
Share
premium
Treasury
shares
Accumulated
losses
Reverse
acquisition
reserve
11,983
−
132,588
−
−
−
−
−
29
−
12,012
−
−
141
−
132,729
−
−
−
−
−
−
−
−
(1,347)
(996)
(56,762)
−
Other
reserve
3,180
−
Total
89,642
(996)
−
−
165
165
(996)
(2,401)
−
12
(4,732)
−
−
−
−
(56,762)
165
−
−
−
3,345
(831)
(2,401)
170
12
86,592
Attributable to the owners of the parents
Share
capital
Share
premium
Treasury
shares
Accumulated
losses
4,244
−
6,687
−
−
−
−
5,750
275
−
−
1,714
−
−
−
94,880
3,953
(1,218)
−
28,286
−
−
11,983
−
−
132,588
−
−
−
−
−
−
−
−
−
−
−
−
−
1,258
184
−
184
(2,816)
−
−
−
−
−
−
27
(1,347)
Reverse
acquisition
reserve
5,146
−
−
−
−
−
−
−
(61,908)
−
−
−
(56,762)
Other
reserve
2,518
−
662
662
−
Total
19,853
184
662
846
(2,816)
− 100,630
4,228
−
(1,218)
−
−
−
(61,908)
30,000
−
−
3,180
−
27
89,642
Non-
controlling
interest
2
(2)
−
(2)
−
−
−
−
Non-
controlling
interest
2
−
−
−
−
−
−
−
−
−
−
−
2
Total
equity
89,644
(998)
165
(833)
(2,401)
170
12
86,592
Total
equity
19,855
184
662
846
(2,816)
100,630
4,228
(1,218)
(61,908)
30,000
−
27
89,644
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.
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CONSOLIDATED CASH FLOW
STATEMENT
YEAR ENDED 31ST DECEMBER 2018
£’000
Operating activities
Loss/profit before tax from continuing operations
Loss/profit before tax from discontinued operations
Loss/Profit before tax
Non-cash and operational adjustments
Depreciation of property, plant and equipment
Amortisation of intangible assets
Impairment of intangible assets
Impairment of goodwill
Share-based payment expense
Loss/(gain) on disposal of property, plant and equipment
Loss on disposal of subsidiary
Movement allowance for bad debt and inventories
Financial income
Financial expense
Impact of foreign currencies
Other
Movements in working capital
Increase in trade receivables
Increase in inventories
Increase/(decrease) 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
Sale/(purchase) of available for sale financial investments
Net cash flow used in investing activities
For the year ended
31st December
Notes
2018
2017
4
11
10
10
9
4
11
10
4
4
4
(357)
(776)
(1,133)
333
7,965
852
456
12
(2)
682
620
(254)
879
16
2
(540)
(1,207)
904
(2,155)
7,430
(213)
(4,568)
6
−
−
2,403
459
(1,913)
377
167
544
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)
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OUR FINANCIALS
CONSOLIDATED CASH FLOW
STATEMENT CONTINUED
YEAR ENDED 31ST DECEMBER 2018
£’000
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 (used in)/from financing activities
Net increase of cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange rate differences on cash and cash equivalents
Cash and cash equivalents at end of year
£’000
Reconciliation of net cash flow to movement in net debt
Net increase in cash and cash equivalents in the year
Cash flow from decrease/(increase) 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
Debt transferred on sale of subsidiary
Net debt at the end of the year
For the year ended
31st December
Notes
2018
2017
−
(2,257)
170
(2,401)
(637)
11
(5,114)
403
7,579
53
8,035
8,298
(649)
29,402
(2,816)
(528)
(129)
33,578
6,574
951
54
7,579
For the year ended
31st December
2018
2017
403
2,257
(349)
2,311
(25,908)
9
(23,588)
6,574
(7,649)
(1,051)
(2,126)
(23,782)
−
(25,908)
14
14
Notes
4
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
YEAR ENDED 31ST DECEMBER 2018
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
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”) 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.
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.
This is the first set of the Group’s annual financial statements
in which IFRS 15 Revenue from Contracts with Customers and
IFRS 9 Financial Instruments have been applied. Changes to
significant accounting policies are described in note 3.
The consolidated financial statements cover the year ended
31st December 2018 and comprise the consolidated results of
the Group described in note 1. On 13th July 2017 the Group
completed the reverse acquisition of Ecuphar NV (“Ecuphar”).
In the comparatives financial statements, for the year ending
31st December 2017, the results of the Group are included
as of 13th July 2017. For the period from 1st January 2017 to
the date of the reverse acquisition the results of Ecuphar, the
substance of the reverse acquisition, are solely shown.
Wholesale divestment 2018
Following the divestment of the Wholesaling business Medini
NV registered in Belgium, Legeweg 157i, 8020 Oostkamp on
4th September 2018, 2017 financial information have been
restated in accordance with IFRS 5, to show continuing operations
separately from discontinued operations. Both continuing and
discontinued operations were restated to include elements
relating to transactions between entities which were previously
eliminated in the consolidation as intra-group.
Reverse acquisition Animalcare Group Plc 2017
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;
• 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.
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OUR FINANCIALS
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 page 26.
For the purposes of their assessment of the appropriateness of
the preparation of the financial statements on a going concern
basis, the Directors have considered the current cash position
and forecasts of future trading, including working capital and
investment requirements.
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.
During the year the Group met its day-to-day general corporate
and working capital requirements through existing cash resources.
At 31st December 2018 the Group had cash on hand of £8,035k
(2017: £7,579k).
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.
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.
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.
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 financial statements to better understand the
elements of trading performance during the year and hence to
better assess trends in that performance. Reference can be made
to note 5 Non-underlying items and note 6 Segment information.
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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31ST DECEMBER 2018
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 had two operating segments: Pharmaceutical and
Wholesale. From 2018 onwards, the Group will only report
one segment, being Pharmaceuticals, due to the sale of its
Wholesaling business.
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 euro. 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 month-end for the year ended December
2018 (2017: 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.
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 re-measured 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.
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OUR FINANCIALS
Depreciation is calculated on a straight-line basis over the
estimated useful lives of the assets as follows:
• Equipment
• Office furniture and office
equipment
• Leased equipment
• Leasehold improvements
5 years
3-5 years or lease term if
shorter
4-5 years
5 years or lease term if shorter
Land is not depreciated.
The useful life of the intangible assets is as follows:
• Capitalised software
• Patents, distribution rights and
5 years
7-12 years
licenses
• Product portfolios and product
10 years
•
development
In process research and
development
• Goodwill
Not amortised
Not amortised
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.
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
recognised as an expense in the period in which they are incurred.
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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.
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 three years. For longer periods, a long-term growth rate is
calculated and applied to future cash flows projected after the
third 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 CGU 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 CGU 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.
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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.
The group applies the expected loss model under IFRS 9 as of
2018 instead of the incurred loss model under IAS 39 for the
impairment of trade receivables.
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.
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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.
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.
Contributions are recognised 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
Revenue is recognised in a manner that depicts the pattern of
transfer of goods and services to our customers. The amount
recognised reflects the amount to which the Group expects to
be entitled in exchange for those goods and services. The Group
applies the five-step model to account for revenue arising from
contracts with customers.
Sales of goods and services
Revenue is recognised when the performance obligation (the
promise to transfer a good or service to a customer) is satisfied at
a point in time. This is when the control of these goods or services
are transferred to the customer, generally on delivery of the
goods. The Group recognises service revenue by reference to the
stage of completion. Up-front 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 would be 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 would be included under financial income
in the income statement.
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 the law
of April 2008 related to supplementary pension plans, subject
to minimum guaranteed rates of return, 3.25% on employer
contributions and 3.75% on employee contributions. As a result
of the law of 18th December, 2015 aiming to guarantee the
sustainability and the social nature of the supplementary pension
plans these minimum guaranteed rates of return have been
adjusted. These rates are 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%.
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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.
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 standards adopted as of 2018
The Group has initially applied IFRS 15 and IFRS 9 from
1st January 2018. Except for IFRS 15 and IFRS 9, the Group has
no transactions that would be affected by the newly effective
standards or its accounting policies are already consistent with the
new requirements. The Group has not early adopted any other
standard. IFRS 15 and IFRS 9 have no material impact on the Group
financial statements.
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IFRS 9
IFRS 9 sets out requirements for recognising and measuring
financial assets, financial liabilities and some contracts to buy or
sell non-financial items. This standard replaces IAS 39 Financial
Instruments: Recognition and Measurement. The Group has
adopted the new standard on the required effective date. The
comparative information has not been restated. 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.
The Group has performed an impact assessment of all three aspects
of IFRS 9. There is no significant impact on its balance sheet and
equity of applying the impairment requirements of IFRS 9.
A) Classification and measurement of financial assets and
financial liabilities
IFRS 9 contains three principal classification categories for financial
assets: measured at amortised cost, fair value through other
comprehensive income (FVOCI) and fair value through profit or
loss (FVTPL). IFRS 9 eliminates the previous IAS 39 categories of
held to maturity, loans and receivables and available for sale.
The adoption of IFRS 9 has not had a significant effect on the
Group’s accounting policies related to financial liabilities and
derivative financial instruments.
Trade and other receivables are held to collect contractual cash
flows representing solely payments of principal and interest and
are measured at amortised cost.
B) Impairment of financial assets
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an
‘expected credit loss’ (ECL) model. The new impairment model
applies to financial assets measured at amortised cost, contract
assets and debt investments at FVOCI, but not to investments in
equity instruments.
The Group has determined that the application of IFRS 9’s
impairment requirements of the expected credit loss did not
have a significant impact on equity. Refer to note 13 on amounts
receivable and other non-current assets.
C) Hedge accounting
All existing hedge relationships that are currently designated in
effective hedging relationships still qualify for hedge accounting
under IFRS 9. As IFRS 9 does not change the general principles
of how an entity accounts for effective hedges, there was no
significant impact on the Group as a result of applying IFRS 9.
IFRS 15
IFRS 15 establishes a comprehensive framework for determining
whether, how much and when revenue is recognised. It replaced
IAS 18 Revenue, IAS 11 Construction Contracts and related
interpretations. Under IFRS 15, revenue is recognised when a
customer obtains control of the goods or services. Determining
the timing of the transfer of control – at a point in time or over
time – requires judgement. 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.
The terms ‘contract assets’ and ‘contract liabilities’ used within
IFRS 15 are not mandatory to use in the consolidated financial
statements. The Group opted to not use these terms in the
consolidated financial statements. These balances are described
in the notes.
The Group has adopted IFRS 15 using the cumulative effect
method, with the effect of initially applying this standard
recognised at the date of initial application (i.e. 1st January
2018). Accordingly, the information presented for 2017 has
not been restated. The adoption of IFRS 15 did not have a
significant impact on the financial statement of the Group.
We refer to our accounting principles on revenue recognition
for further information.
New and revised standards not yet adopted
Of those standards that are not yet effective, IFRS 16 is expected
to have a material impact on the Group’s financial statements in
the period of initial application.
IFRS 16 Leases
The Group is required to adopt IFRS 16 Leases from 1st January
2019. The Group has assessed the estimated impact that initial
application of IFRS 16 will have on its consolidated financial
statements. The actual impacts of adopting the standard on
1 January 2019 may change because the new accounting policies
are subject to change until the Group presents its first financial
statements that include the date of initial application.
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IFRS 16 introduces a single, on-balance sheet lease accounting
model for lessees. A lessee recognises a right-of-use asset
representing its right to use the underlying asset and a lease
liability representing its obligation to make lease payments.
There are recognition exemptions for short-term leases and
leases of low-value items. Lessor accounting remains similar to
the current standard – i.e. lessors continue to classify leases as
finance or operating leases.
IFRS 16 replaces existing leases guidance, including IAS 17 Leases,
IFRIC 4 Determining whether an Arrangement contains a Lease,
SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the
Substance of Transactions Involving the Legal Form of a Lease.
The Group will, where it acts as a lessee, recognise new assets
and liabilities for its operating leases of buildings, vehicles and
machinery and equipment. The nature of expenses related to
those leases will now change because the Group will recognise
a depreciation charge for right-of-use assets and interest expense
on lease liabilities.
Previously, the Group recognised operating lease expenses on a
straight-line basis over the term of the lease, and recognised assets
and liabilities only to the extent that there was a timing difference
between actual lease payments and the expense recognised.
In addition, the Group will no longer recognise provisions for
operating leases that it assesses to be onerous. Instead, the Group
will include the payments due under the lease in its lease liability.
No significant impact is expected for the Group’s finance leases.
The information on the Group’s leasing arrangements currently
available were reviewed in light of the new lease accounting
rules in IFRS 16. The Group estimates that it will recognise right
of use assets and lease liabilities of approximately £2.3 million to
£3.4 million on 1st January 2019. The Group expects that the net
profit after tax will not decrease materially for 2019 as a result of
adopting the new rules. Furthermore, the application of IFRS 16
on these commitments will have an estimated positive impact on
EBITDA of £1 million to £1.5 million.
The Group plans to apply IFRS 16 initially on 1st January 2019,
using the modified retrospective approach with the right-of-use
asset equal to the lease liability. Therefore, the comparative
information has not been restated.
The Group plans to apply the practical expedient to grandfather
the definition of a lease on transition. This means that it will apply
IFRS 16 to all contracts entered into before 1st January 2019 and
identified as leases in accordance with IAS 17 and IFRIC 4.
Standards issued but not yet effective
The IFRS accounting standards and interpretations that are issued,
but not yet effective, up to the date of issuance of the Group’s
financial statements are disclosed below. The Group intends to
adopt these standards and interpretations, if applicable, when
they become effective.
•
IFRIC 23 Uncertainty over Tax Treatments, effective
1st January 2019.
• Prepayment Features with Negative Compensation
(Amendments to IFRS 9), effective 1st January 2019 with
the EU.
•
IFRS 16, effective 1st January 2019.
• Long-term Interests in Associates and Joint Ventures
(Amendments to IAS 28), effective 1st January 2019 (not yet
endorsed by the EU as at 31st December 2018).
• Plan Amendment, Curtailment or Settlement (Amendments to
IAS 19), effective 1st January 2019 (not yet endorsed by the EU
as at 31st December 2018).
• Annual Improvements to IFRS Standards 2015–2017 Cycle –
various standards, effective 1st January 2019 (not yet endorsed
by the EU as at 31st December 2018).
• Amendments to References to Conceptual Framework in IFRS
Standards, effective 1st January 2020 (not yet endorsed by the
EU as at 31st December 2018).
•
IFRS 17 Insurance Contracts, effective 1 January 2021
(not yet endorsed by the EU as at 31 December 2018).
• Business Combinations (Amendments to the guidance of IFRS
3), effective 1st January 2020 (not yet endorsed by the EU as
at 31st December 2018).
• Amendments to the definition of material in IAS 1 and IAS 8,
effective 1st January 2019 (not yet endorsed by the EU as at
31st December 2018).
Significant accounting judgments,
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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31ST DECEMBER 2018
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 generated 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 2018, the Group had £788k (2017: £699k) 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.
Impairment of goodwill
The Group has goodwill for a total amount of £50,937k (2017:
£51,413k) which has been subject to an impairment test. The
goodwill is tested for impairment based on the Value In Use (VIU).
The key assumptions for the VIU calculations are disclosed and
further explained in note 9.
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.
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OUR FINANCIALS
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 license sales and maintenance
agreements;
• the fair value of the plant and equipment;
• the fair value of the deferred revenue;
• discount rates; and
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 the 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.
• the determination of useful lives and amortisation period
of acquired intangible assets.
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 £(56,762)k 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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31ST DECEMBER 2018
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.
Reverse acquisition Animalcare Group Plc
£’000
Assets
Historical goodwill
Intangible assets
Tangible assets
Deferred tax asset
Inventory
Trade receivables
Other current assets
Cash
Liabilities
Deferred tax liabilities
Trade payables
Other liabilities
Total identified assets and liabilities
Goodwill
Fair value of consideration
Carrying
value at
acquisition
date
Fair value
adjustments
Fair value
at
acquisition
date
12,711
4,658
227
149
2,014
3,392
559
6,293
30,003
(414)
(3,948)
(4,040)
(8,402)
21,601
(12,711)
30,957
−
885
401
−
−
−
19,532
(6,843)
−
−
(6,843)
12,689
−
−
−
35,615
227
1,034
2,415
3,392
559
6,293
49,535
(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, the fair value
uplift of the identified intangibles amounted to £30,957k. Deferred tax assets and liabilities respectively were increased by £885k
and £(6,843)k.
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OUR FINANCIALS
Disposal of subsidiaries
On 4th September 2018, the Group announced and completed the disposal of its Wholesale business Medini NV registered in Belgium,
Legeweg 157i, 8020 Oostkamp.
The Group recognised a loss including expenses in relation to the disposal of £682k during the year ending 31st December 2018. This is
based on the total consideration of £2,989k and a net asset value of £3,622k, excluding intercompany debt. The Group has received an
initial cash consideration of £2,413k including intercompany loan balances due from the Wholesale Division to other Animalcare Group
plc companies. A further £362k is payable to the Group on 30th June 2019 in relation to the remaining intercompany balance owed.
The balance of approximately £214k is subject to achieving specific revenue targets between 1st July 2019 and 30th June 2020 and
payable in July 2020.
In accordance with IFRS 5, the income statement for the 12 months ended 31 December 2017 and 2018 have been restated to show
continuing operations separately from discontinued operations. Both continuing and discontinued operations were restated to include
elements relating to transactions between entities which were previously eliminated in the consolidation as intra-group. The effect
of including these elements is shown as consolidation adjustments.
£’000
Revenue
Cost of sales
Gross profit
Research and development expenses
Selling and marketing expenses
General and administrative expenses
Net other operating expenses
Operating profit/(loss)
Financial expenses
Financial income
Loss before tax
Income tax
Net loss
£’000
Revenue
Cost of sales
Gross profit
Research and development expenses
Selling and marketing expenses
General and administrative expenses
Net other operating expenses
Operating profit
Financial expenses
Financial income
Profit before tax
Income tax
Net profit
Continuing
operations
2018
72,470
(35,131)
37,339
(4,762)
(12,435)
(16,666)
(3,259)
217
(840)
266
(357)
135
(222)
Discontinued
operations
2018
16,572
(15,059)
1,513
−
(1,111)
(387)
(762)
(746)
(39)
9
(776)
−
(776)
Consolidation
adjustments
2018
(719)
689
(30)
−
46
(18)
2
−
20
(20)
−
−
−
Total continuing
and discontinued
operations
2018
88,323
(49,501)
38,822
(4,762)
(13,500)
(17,071)
(4,019)
(529)
(859)
255
(1,133)
135
(998)
Continuing
operations
2017
62,291
(30,367)
Discontinued
operations
2017
23,938
(21,523)
Consolidation
adjustments
2017
(2,553)
2,477
As reported
last year
2017
83,676
(49,413)
31,924
(2,799)
(12,592)
(13,805)
(1,713)
1,016
(735)
96
377
(292)
85
2,415
−
(1,594)
(625)
(12)
184
(30)
13
167
(68)
99
(76)
−
88
26
(38)
−
18
(18)
−
−
−
34,263
(2,799)
(14,098)
(14,404)
(1,762)
1,200
(747)
91
544
(360)
184
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31ST DECEMBER 2018
The net cash flow by discontinued operations can be found below:
£’000
Net cash flow from operating activities
Net cash flow used in investing activities
Net cash flow used in financing activities
Net increase/(decrease) of cash and cash equivalents
The major classes of assets and liabilities of the Wholesale business at the disposal date can be found below:
For the year ended
31st December
2018
133
(94)
(28)
11
2017
107
(83)
(30)
(6)
£’000
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Current assets
Inventories
Trade receivables
Other current assets
Cash and cash equivalents
Total assets classified as held for sale
Current liabilities
Borrowings
Trade payables
Tax payables
Accrued charges and deferred income
Other current liabilities
Non-current liabilities
Deferred tax liabilities
Liabilities associated with assets classified as held for sale
Total net assets
Consideration received or receivable
Cash
Receivable
Total disposal consideration
Carrying amount of net assets sold
Loss on sale before reclassification of foreign currency translation reserve
Reclassification of foreign currency translation reserve
Loss on sale
Loss attributable to minority
Loss attributable to owners of the parent
Selling price received in cash
Cash and cash equivalents transferred
Total cash flow
106
2
244
2,669
2,451
77
10
5,559
(9)
(1,690)
(52)
(12)
(169)
(5)
(1,937)
3,622
2,413
576
2,989
(3,622)
(633)
(49)
(682)
(2)
(680)
2,413
(10)
2,403
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OUR FINANCIALS
For the year ended
31st December
2018
2017
1,296
4,789
513
6,598
1,235
485
796
273
9,387
(2,151)
7,236
134
682
8,052
751
3,591
4,342
401
1,454
347
6,544
(1,454)
5,090
10
5,100
5. Non-underlying items
£’000
Amortisation and impairment of acquisition-related intangibles
Classified within research and development expenses
Classified within general and administrative expenses
Classified within net other operating expenses
Total amortisation and impairment of acquisition-related intangibles
Fair value uplift of inventory acquired through reverse acquisition
Restructuring costs*
Acquisition and integration costs
Impairment on goodwill and intangibles
Other non-underlying items
Total non-underlying items before taxes
Tax impact
Total non-underlying items after taxes from continuing operations
Other non-underlying items from discontinued operations
Loss on disposal
Total non-underlying items after taxes
The amortisation charge of acquisition-related intangibles largely relates to the Esteve acquisition of £2,037k (2017: £2,017k), the
Riemser acquisition of £372k (2017: £368k) and the reverse acquisition of Animalcare Group plc of £3,676k (2017: £1,685k, which was
the amortisation impact from the acquisition date, 12th July 2017, until 31st December 2017). The impairment charge of acquisition-
related intangibles largely relates to an impairment charge of £498k for R&D.
Restructuring costs of £1,235k include £203k in relation to compensation for loss of office in respect of Iain Menneer, as disclosed in the
Annual Remuneration Report on page 45 and a further £382k for other senior management.
The non-underlying items are excluded for KPI purposes as shown in the section on Key Performance Indicators on page 14.
6. Segment information – from continuing operations
For management purposes, the Group was organised into two segments: the Pharmaceuticals and the Wholesale segments. From 2018
onwards, the Group will only report one segment, being Pharmaceuticals, due to the sale of its Wholesale business.
The Pharmaceutical segment is active in the development and marketing of innovative pharmaceutical products that provide significant
benefits to animal health.
The Wholesale segment focused on the sale of veterinary pharmaceuticals, supplies and instruments in the Belgian market and is
presented under discontinued operations in the financial information.
The measurement principles used by the Group in preparing this segment reporting are also the basis for segment performance
assessment. The Board of Directors of the Group acts as the Chief Operating Decision Maker. As a performance indicator, the Chief
Operating Decision Maker controls performance by the Group’s revenue, gross margin, Underlying EBITDA and EBITDA. EBITDA is
defined by the Group as net profit plus finance expenses, less financial income, plus income taxes and deferred taxes, plus depreciation,
amortisation and impairment. Underlying EBITDA equals EBITDA plus non-underlying items.
The following table summarises the segment reporting from continuing operations for each of the reportable periods. 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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31ST DECEMBER 2018
Pharma
Wholesale
Total
segments
Adjustments
and
eliminations Consolidated
£’000
For the year ended 31st December 2018
Revenues
Gross margin
Gross margin %
Segment underlying EBITDA
Segment underlying EBITDA %
Segment EBITDA
Segment EBITDA %
For the year ended 31st December 2017
Revenues
Gross margin
Gross margin %
Segment underlying EBITDA
Segment underlying EBITDA %
Segment EBITDA
Segment EBITDA %
72,470
37,339
52%
11,798
16%
9,805
14%
62,291
31,924
51%
9,698
16%
7,496
12%
−
−
−
−
−
−
−
−
72,470
37,339
52%
11,798
16%
9,805
14%
62,291
31,924
51%
9,698
16%
7,496
12%
The segment EBITDA is reconciled with the consolidated net profit of the year as follows:
£’000
Segment EBITDA
Depreciation, amortisation and impairment
Operating profit
Financial expenses
Financial income
Income taxes
Deferred taxes
Net (loss)/profit
−
−
−
−
−
−
−
−
72,470
37,339
52%
11,798
16%
9,805
14%
62,291
31,924
51%
9,698
16%
7,496
12%
For the year ended
31st December
2018
9,805
(9,588)
217
(840)
266
(869)
1,004
(222)
2017
7,496
(6,480)
1,016
(735)
96
(592)
300
85
Non-current assets excluding deferred tax assets and financial instruments located in Belgium, Spain, Portugal, the United Kingdom and
other geographies are as follows:
£’000
Belgium
Spain
Portugal
UK
Other
Non-current assets excluding deferred tax assets and financial instruments
For the year ended
31st December
2018
18,423
2,127
4,122
73,913
4,379
102,964
2017
19,691
2,170
4,101
76,010
4,375
106,347
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OUR FINANCIALS
For the year ended
31st December
2018
44,465
22,824
4,618
563
72,470
2017
33,670
23,680
4,682
259
62,291
For the year ended
31st December
2018
71,507
8,260
1,719
16,802
9,784
20,706
4,984
4,600
4,652
558
139
266
72,470
2017
61,424
8,781
1,142
9,459
8,907
20,909
4,458
4,514
3,254
471
45
351
62,291
For the year ended
31st December
2018
71,025
1,445
72,470
2017
62,162
129
62,291
Revenue by product category
£’000
Companion animals
Production animals
Horses
Petfood, Instrumentation and Services
Total
Revenue by geographical area:
£’000
Europe
Belgium
The Netherlands
United Kingdom
Germany
Spain
Italy
Portugal
European Union – other
Asia
Middle East and Africa
Other
Total
Revenue by category:
£’000
Product sales
Services sales
Total
Product revenue is recognised when the performance obligation is satisfied at a point in time. Service revenue is recognised by reference
of the stage of completion.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31ST DECEMBER 2018
7. Income and expenses – from continuing operations
7.1 Cost of sales – from continuing operations
Cost of sales includes the following expenses:
£’000
Purchase of goods and services
Inventory and other write-downs
Payroll expenses
Other expenses
Total
7.2 Research and development expenses – from continuing operations
Research and development expenses include the following:
£’000
Amortisation and depreciation
Payroll expenses
Other R&D expenses
Total
7.3 Selling and marketing expenses – from continuing operations
Selling and marketing expenses include the following:
£’000
Transport costs of sold goods
Promotion costs
Payroll expenses
Amortisation and depreciation
Other
Total
7.4 General and administrative expenses – from continuing operations
General and administrative expenses include the following:
£’000
Amortisation and depreciation
Payroll expenses
Other
Total
For the year ended
31st December
2018
33,840
337
222
732
35,131
2017
29,283
430
340
314
30,367
For the year ended
31st December
2018
1,398
2,025
1,339
4,762
2017
749
1,958
92
2,799
For the year ended
31st December
2018
1,031
2,160
8,516
17
711
12,435
2017
854
2,646
8,019
15
1,058
12,592
For the year ended
31st December
2018
6,828
3,264
6,574
16,666
2017
5,552
2,581
5,672
13,805
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OUR FINANCIALS
For the year ended
31st December
2018
(24)
(1)
(39)
1,308
2,015
3,259
2017
(44)
2
(257)
35
1,977
1,713
7.5 Net other operating expenses – from continuing operations
The net other operating expenses can be detailed as follows:
£’000
Re-invoicing costs
Gains/losses on disposals of fixed assets
Other operating income
Impairments
Other operating expenses
Total
The non-cash impairment charge of £1,308k (2017: £35k) primarily relates to impairment of acquired or in-process R&D due
to regulatory issues (£852k) and impairment of goodwill in respect of the Orthopaedics business in Benelux which is considered
non-core (£456k).
Other operating expenses for 2018 principally relate to restructuring and integration costs. Other operating expenses for 2017 mainly
relate to transaction costs in connection with the reverse acquisition of Animalcare Group plc.
7.6 Expenses by nature – from continuing operations
£’000
Other operating lease rentals
Employee expenses
Depreciation and amortisation
Transport costs sold goods
Promotion costs
Other operating expense/(income) - note 7.5
Other expenses
Total expenses
7.7 Payroll expenses – from continuing operations
The following table shows the breakdown of payroll expenses for 2018 and 2017:
£’000
Wages and salaries
Social security costs
Other pension costs
Total
The monthly average number of employees during the year was as follows:
For the year ended
31st December
2018
1,659
13,805
8,298
1,031
2,160
3,259
6,910
37,122
2017
1,735
12,557
6,306
854
2,646
1,713
5,098
30,909
For the year ended
31st December
2018
11,696
2,048
283
14,027
279
2017
10,795
1,898
205
12,898
265
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31ST DECEMBER 2018
Share options:
During the year Iain Menneer exercised 5,142 share options granted in 2014 under the Save As You Earn scheme (SAYE) at an option
price of £1.05 per share. The value of this exercise was £5,399. The SAYE options held by Chris Brewster, totalling options over 8,571
shares, lapsed during the year. As at 31st December 2018, no options are held or have been granted to the Directors.
7.8 Financial expenses – from continuing operations
Financial expenses include the following elements:
£’000
Interest expense
Foreign currency losses
Other financial expenses
Total
7.9 Financial income – from continuing operations
Financial income includes the following elements:
£’000
Foreign currency exchange gains
Other financial income
Total
7.10 Income tax – from continuing operations
Income tax
The following table shows the breakdown of the tax expense for 2018 and 2017:
£’000
Current tax charge
Tax adjustments in respect of previous years
Total current tax charge
Deferred tax – origination and reversal of temporary differences
Deferred tax – adjustments in respect of previous years
Total deferred tax credit
Total tax income/(expense) for the year
For the year ended
31st December
2018
637
119
84
840
2017
527
111
97
735
For the year ended
31st December
2018
192
74
266
2017
64
32
96
For the year ended
31st December
2018
(963)
94
(869)
597
407
1,004
135
2017
(770)
178
(592)
300
−
300
(292)
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OUR FINANCIALS
For the year ended
31st December
2018
(357)
68
2017
377
(73)
(64)
(156)
215
−
(133)
(38)
(15)
501
(195)
(48)
135
126
(201)
66
(1)
(56)
(37)
(294)
178
–
–
(292)
The total tax expense can be reconciled to the accounting profit as follows:
£’000
(Loss)/profit before tax
Tax at 19% (2017: 19.25%)
Effect of:
Overseas tax rates
Non-deductible expenses
Income not subject to tax
Other tax credits and tax deductions
Other permanent tax differences
Other taxes
Changes in statutory enacted tax rate
Tax adjustments in respect of previous year
Non-recognition of deferred tax on current year losses
Share-based payment deductions
Income tax credit/(expense) as reported in the consolidated income statement
The tax credit of £2,151k (2017: £1,454k) shown within “non-underlying items” on the face of the consolidated income statement,
which forms part of the overall tax credit of £135k (2017, tax charge of £292k), relates to the items in note 5.
The tax rates used for the 2018 and 2017 reconciliation above are the corporate tax rates of 29.58% in 2018 and 33.99% in 2017
(Belgium), 25% (the Netherlands), 30.7% in 2018 and 29% in 2017 (Germany), 33% (France), 25% (Spain), 24% in (Italy), 21% (Portugal)
and 19% (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
£’000
Goodwill
Intangible assets
Property, plant and equipment
Financial fixed assets
Inventory
Trade and other payables/receivables
Accruals and deferred income
Tax losses carried forward
Total
Assets
Liabilities
Total
2018
23
834
45
1
3
3
−
790
1,699
2017
(7)
515
28
1
51
297
19
699
1,603
2018
(632)
(4,969)
(43)
−
(21)
43
−
101
(5,521)
2017
(362)
(6,118)
(25)
−
(24)
−
75
−
(6,454)
2018
(609)
(4,135)
2
1
(18)
46
−
891
(3,822)
2017
(369)
(5,603)
3
1
27
297
94
699
(4,851)
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31ST DECEMBER 2018
(b) Movements during the year
Movement of deferred taxes during 2018:
£’000
Goodwill
Intangible assets
Property, plant and equipment
Financial fixed assets
Inventory
Trade and other payables/receivables
Accruals and deferred income
Tax losses carry forward and other tax
benefits
Net deferred tax
Movement of deferred taxes during 2017:
Balance at
1 January
2018
(369)
(5,603)
3
1
26
298
94
Recognised in
income
(234)
1,458
(1)
−
(50)
(250)
(94)
Acquired
through
business
combinations
−
−
−
−
−
−
−
Disposal of
subsidiaries
−
−
−
−
5
−
−
Foreign
exchange
adjustments
(6)
10
−
−
1
(2)
−
Balance at
31st December
2018
(609)
(4,135)
2
1
(18)
46
−
699
(4,851)
175
1,004
−
5
−
−
17
20
891
(3,822)
£’000
Goodwill
Intangible assets
Property, plant and equipment
Financial fixed assets
Inventory
Trade and other payables/receivables
Accruals and deferred income
Tax losses carry forward and other tax
benefits
Net deferred tax
Balance at
1 January
2017
(220)
175
13
1
46
565
173
Recognised in
income
(138)
565
27
−
57
(285)
(331)
Acquired
through
business
combinations
−
(6,356)
(38)
−
(76)
−
247
Disposal of
subsidiaries
−
−
−
−
(4)
−
−
Foreign
exchange
adjustments
(11)
13
1
−
3
18
5
Balance at
31st December
2017
(369)
(5,603)
3
1
26
298
94
292
1,045
405
300
(13)
(17)
−
(6,223)
15
44
699
(4,851)
Tax losses
The Group has unused tax losses, tax credits and notional interest deduction available in an amount of £3,141k for 2018 (2017: £2,636k).
Deferred tax assets have been recognised on available tax losses carried forward for some legal entities, resulting in amounts recognised
of £788k (2017: £699k). 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. The tax losses are expected to be reversed in a period of five years.
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OUR FINANCIALS
8. Earnings per share
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.
The following income and share data was used in the earnings per share computations:
Profit/(loss) from continuing and discontinuing operations
£’000
Net profit/(loss) from continuing operations
Net profit/(loss) from discontinuing operations
Net profit/(loss) attributable to ordinary equity holders of the parent
adjusted for the effect of dilution
Average number of shares (basic and diluted)
Number of shares
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
Basic earnings/(loss) per share
From continuing operations attributable to the ordinary equity holders
of the Company
From discontinued operation
Total basic earnings/(loss) per share attributable to the ordinary equity
holders of the Company
Diluted earnings/(loss) per share
From continuing operations attributable to the ordinary equity holders
of the Company
From discontinued operation
Total basic earnings/(loss) per share attributable to the ordinary equity
holders of the Company
For the year ended 31st December
2018
Underlying
7,016
40
2017
Underlying
5,175
109
7,056
5,284
2018
Total
(222)
(774)
(996)
For the year ended 31st December
2018
Underlying
2017
Underlying
2018
Total
2017
Total
85
99
184
2017
Total
60,008,714
5,452
41,998,692
178,191
60,008,714
5,452
41,998,692
178,191
60,014,166
42,176,883
60,014,166
42,176,883
For the year ended 31st December
2018
Underlying
Pence
2017
Underlying
Pence
11.7
0.1
11.8
12.3
0.3
12.6
2018
Total
Pence
(0.4)
(1.3)
(1.7)
For the year ended 31st December
2018
Underlying
Pence
2017
Underlying
Pence
11.7
0.1
11.8
12.3
0.3
12.5
2018
Total
Pence
(0.4)
(1.3)
(1.7)
2017
Total
Pence
0.2
0.2
0.4
2017
Total
Pence
0.2
0.2
0.4
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31ST DECEMBER 2018
9. Goodwill
On acquisition, goodwill acquired in a business combination is allocated to the cash-generating units which are expected to benefit
from that business combination. These cash-generating units correspond to the nature of the business, following the separate divisions
Pharmaceuticals and Wholesale. The goodwill has been allocated to the cash-generating units (“CGUs”) as follows:
£’000
CGU: Pharmaceuticals
CGU: Wholesale
Total
The changes in the carrying value of the goodwill can be presented as follows for the years 2018 and 2017:
£’000
At 1st January 2017
Additions
Currency translation
At 31st December 2017
Disposals
Impairment
Currency translation
At 31st December 2018
For the year ended
31st December
2018
50,937
−
50,937
2017
50,856
557
51,413
Total
9,958
41,048
406
51,413
(106)
(456)
86
50,937
The goodwill balance decreased as a result of the disposal of Medini NV in 2018 by £106k (see note 4) and impairment of goodwill
relating to the non-core Orthopaedics business by £456k.
Goodwill allocated to the Pharmaceuticals CGU includes goodwill recognised as a result of past business combinations of Esteve,
Equipharma NV, Ecuphar BV, Cardon Pharmaceuticals NV and the reverse acquisition of Animalcare Group plc in 2017. As of
31st December 2018, no goodwill is allocated to the Wholesale CGU following the disposal of Medini NV.
The discount rate and growth rate (in perpetuity) used for value in use calculations are as follows:
Discount rate (pre-tax)
Growth rate (in perpetuity) %
2018
10.5
2.0
2017
10.2
2.0
Cash flow forecasts are prepared using the current operating budget approved by the Directors, which covers a three-year period and
an appropriate extrapolation of cash flows beyond this. The cash flow forecasts assume revenue and profit growth in line with our
strategic priorities.
The Group’s impairment review is sensitive to a change in assumptions used, most notably the discount rates and the perpetuity
growth rates.
A 1% increase in discount rates would cause the value in use of the CGU to reduce by £14.0m but would not give rise to an impairment.
A 1% reduction in perpetuity growth rates would cause the value in use of the CGU to reduce by £12.5m, but would not give rise to
an impairment.
The CGU is highly sensitive to any reductions in short-term cash flows, whether driven by lower sales growth, lower operating profits or
lower cash conversion. A 15% reduction in total annual cash flows would give rise to an impairment of £0.5m in the CGU. An increase in
discount rates of 2.21% or a reduction in perpetuity growth rates of 2.6% would also give rise to an impairment in the CGU of £48k and
£235k respectively.
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OUR FINANCIALS
10. Intangible assets
The changes in the carrying value of the intangible assets can be presented as follows for the years 2018 and 2017:
£’000
Acquisition value
At 1st January 2017
Additions
Change due to business combinations
Disposals
Currency translation
Other
At 31st December 2017
Additions
Change due to business combinations
Currency translation
Other
At 31st December 2018
Amortisation
At 1st January 2017
Additions
Currency translation
Other
At 31st December 2017
Additions
Change due to business combinations
Impairments
Currency translation
Transfers
Other
At 31st December 2018
Net carrying value
At 31st December 2018
At 31st December 2017
Patents,
distribution
rights and
licenses
In process
R&D
Product portfolios
and product
development costs
Capitalized
software
2,839
550
10,013
−
116
−
13,518
3,525
−
36
−
17,079
(467)
(751)
(23)
−
(1,241)
(1,423)
−
(852)
(10)
−
(10)
(3,536)
12,437
187
4,561
(29)
510
19
17,685
1,340
(29)
104
8
19,108
(2,351)
(2,523)
(124)
8
(4,990)
(2,716)
29
−
(64)
−
20
(7,721)
13,543
12,277
11,387
12,695
16,956
1,174
21,041
−
704
−
39,875
670
(5)
128
−
40,668
(8,298)
(2,589)
(359)
5
(11,241)
(3,504)
3
−
(76)
−
2
(14,816)
25,852
28,634
187
468
−
−
14
48
717
452
−
12
−
1,181
(57)
(190)
(5)
(34)
(286)
(322)
−
−
(6)
(15)
−
(629)
552
431
Total
32,419
2,379
35,615
(29)
1,344
67
71,795
5,987
(34)
280
8
78,036
(11,173)
(6,053)
(511)
(21)
(17,758)
(7,965)
32
(852)
(156)
(15)
12
(26,702)
51,334
54,037
In-process research and development relates to acquired development projects as part of the Esteve business combination in 2015, the
reverse acquisition of Animalcare Group plc in 2018 and external and internal in-process R&D costs for which the capitalisation criteria
are met. 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 2018.
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 2018 is £7,965k (2017: £6,053k) which is included in the lines cost of sales, research and development
expenses, sales and marketing expenses and general and administrative expenses of the consolidated income statement. Included in the
total amortisation charge is £ 6.598k (2017: 4,342k) relating to acquisition related intangibles.
In 2018, Animalcare Group plc recorded an impairment charge of £852k (2017: £Nil).
In the total additions of £5,987k in 2018, an amount of £1,419k is included for the expected contractual pay-outs under a license
agreement over a two-year period starting 1st January 2019.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31ST DECEMBER 2018
11. Property, plant and equipment
The changes in the carrying value of the property, plant and equipment can be presented as follows for 2017 and 2018:
£’000
Acquisition value
At 1st January 2017
Additions
Change due to business combinations
Disposals
Currency translation
At 31st December 2017
Additions
Change due to business combinations
Disposals
Currency translation
At 31st December 2018
Depreciation
At 1st January 2017
Depreciation charge for the year
Disposals
Change due to business combinations
Currency Translation
At 31st December 2017
Depreciation charge for the year
Disposals
Transfers
Change due to business combinations
Currency translation
At 31st December 2018
Net book value
At 31st December 2018
At 31st December 2017
Office
furniture and
equipment
Equipment
Finance
leases
Leasehold
improvements
317
25
383
(1)
15
739
7
(138)
−
2
610
(234)
(50)
−
(274)
(9)
(567)
(52)
−
−
114
(2)
(507)
103
172
1,315
134
195
(9)
55
1,690
204
(455)
(46)
12
1,405
(845)
(215)
3
(169)
(37)
(1,263)
(218)
43
−
258
(9)
(1,189)
216
427
60
−
−
−
2
62
−
(62)
−
−
−
(23)
(12)
−
−
(1)
(36)
(6)
−
−
42
−
−
−
26
306
25
184
−
13
528
2
(39)
−
3
494
(177)
(50)
−
(93)
(8)
(328)
(57)
−
15
36
(2)
(336)
158
200
Total
1,998
184
762
(10)
85
3,019
213
(694)
(46)
17
2,509
(1,279)
(327)
3
(536)
(55)
(2,194)
(333)
43
15
450
(13)
(2,032)
477
825
The investment in property, plant and equipment in 2018 amounted to £213k (2017: £184k) and mainly related to the acquisitions of IT
and office equipment.
The Group realised a net gain on disposals of property, plant and equipment of £2k in 2018 (2017: £nil).
No impairment of property, plant and equipment was recorded.
Finance leases
The carrying value of assets held under finance leases at 31st December 2018 was £nil (2017: £26k). Finance leases mainly related to
leased trucks.
Borrowing costs
No borrowing costs were capitalised during the year ended 31st December 2018 or 31st December 2017.
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OUR FINANCIALS
For the year ended
31st December
2018
1,322
13,569
14,891
2017
1,062
15,733
16,795
12. Inventories
Inventories include the following:
£’000
Raw materials
Goods purchased for resale
Total inventories (at cost or net realisable value)
The decrease in inventory is mainly attributable to the sale of the Wholesale business.
The amount of inventory recognised as an expense during 2018 amounts to £33,840k (2017: £29,283k). Inventory write-downs during
2018 amounted to £169k (2017: £620k).
The comparative reported expenses and inventory write-downs for 2017 have been restated to account for the sale of the Wholesale
business in 2018.
13. Amounts receivable and other non-current assets
Trade receivables include the following:
£’000
Trade receivables
Allowance on trade receivables
Total
For the year ended
31st December
2018
13,163
(79)
13,084
2017
16,811
(131)
16,680
The Group applied the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for
all trade receivables based on historical losses. The Group analysed the impact of IFRS 9 and concluded there is no material impact on
the bad debt reserve booked. Trade receivables are non-interest-bearing and are generally on payment terms of between 30 to 90 days.
As at 31st December 2018, trade receivables of an initial value of £79k (2017: £131k) were impaired and fully provided for. The table
below shows the changes in the allowance of receivables.
£’000
At 1st January 2017
Additional impairments
Change due to business combinations
Reversal impairment
Exchange difference
Other movement
At 31st December 2017
Change due to business combinations
Reimbursement of receivables
Exchange difference
At 31st December 2018
(123)
(84)
(14)
26
(5)
69
(131)
15
38
(1)
(79)
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31ST DECEMBER 2018
Other current assets include the following:
£’000
Other receivables
Deferred charges
Total
For the year ended
31st December
2018
2,051
685
2,736
2017
1,118
816
1,934
Other current assets amount to £2,736k (2017: £1,934k) at the end of the reporting year and mainly include reclaimable taxes and a
receivable resulting from the sale of the Wholesale business. Deferred charges mainly include prepayments totalling £364k (2017: £562k).
£’000
Other non-current assets
For the year ended
31st December
2018
294
2017
–
Other non-current assets mainly include a receivable of £214k arising on the sale of the Wholesale business in 2018. The receivable
is subject to the acquirer achieving specific revenue targets. (see note 4 – Business combinations and disposals of subsidiaries for
more information).
14. Cash and cash equivalents
Cash and cash equivalents include the following:
£’000
Cash at bank
Cash equivalents
Total
For the year ended
31st December
2018
8,034
1
8,035
2017
7,577
2
7,579
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 2018 and 2017.
15. Trade payables
£’000
Trade payables
Total
For the year ended
31st December
2018
11,907
11,907
2017
14,128
14,128
The Directors consider that the carrying amount of trade payables approximates to their fair value.
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OUR FINANCIALS
16. Borrowings
The loans and borrowings include the following:
£’000
Other loans
Revolving credit facilities
Roll-over investment facility
Acquisition financing
Total loans and borrowings
of which non -current
current
Interest
rate
1.56%
Euribor +1.50%
Euribor +1.50%
Euribor +1.75%
Maturity
March 22
March 22
March 22
For the year ended
31st December
2018
22
25,513
2,063
4,025
31,623
30,975
648
2017
51
26,768
2,676
3,992
33,487
32,854
633
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.
These 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:
£’000
Provisions for risks and charges
Total
For the year ended
31st December
2018
81
81
2017
72
72
Provisions for risks and charges amount to £81k as at December 2018 (2017: £72k).
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
2018 and 2017. As a result no further disclosures have been provided.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31ST DECEMBER 2018
18. Deferred income and accrued charges
Deferred income and accrued charges consists of the following:
£’000
Accrued charges
Deferred income - due within one year
Other
Total due within one year
Deferred income – due after one year
For the year ended
31st December
2018
2,133
190
2
2,325
617
2017
1,868
219
29
2,116
780
Accrued charges mainly relate to accrued product development expenses of £1,188k (2017: £757k) and several accrued charges
relating to commissions and bonuses in Ecuphar Veterinaria for an amount of £255k (2017: £333k) and £181k for Belphar.
Deferred income are contract liabilities that arise 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 eight and 14 years.
Movements in the Group’s deferred income liabilities during the current year are as follows:
£’000
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
For the year ended
31st December
2018
999
−
139
(331)
807
2017
−
925
181
(107)
999
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OUR FINANCIALS
For the year ended
31st December
2018
190
617
807
2017
219
780
999
For the year ended
31st December
2018
993
1,083
1,788
3,864
2017
1,229
1,044
928
3,201
The deferred income liabilities fall due as follows:
£’000
Within one year
After one year
Balance at the end of the year
19. Other current liabilities
Other current liabilities include the following:
£’000
Payroll-related liabilities
Indirect taxes payable
Other current liabilities
Total
Other current liabilities mainly relate to outstanding payables at the year-end for expected contractual payouts under a licence
agreement for £1,419k as at 31st December 2018 (2017: £763k).
20. Fair value
Financial assets
The carrying value and fair value of the financial assets for 31st December 2018 and 2017 are presented as follows:
£’000
Financial assets measured at fair value
Assets available for sale at FV through OCI1
Loans and receivables measured at amortised cost
Trade and other receivables (current)
Trade and other receivables (non-current)
Other financial assets (non-current)
Other current assets
Cash and cash equivalents
Total loans and other receivables
1 As per IAS 39 in 2017
Carrying value
Fair value
2018
−
13,084
294
59
2,736
8,035
24,208
2017
464
16,680
−
72
1,934
7,579
26,265
2018
−
13,084
294
59
2,736
8,035
24,208
2017
464
16,680
−
72
1,934
7,579
26,265
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 was 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 2018 (2017: one investment in a company through publicly listed shares. The fair
value of this investment was 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 2018 and 2017.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31ST DECEMBER 2018
Financial liabilities
The carrying value and fair value of the financial liabilities for 31st December 2018 and 2017 are presented as follows:
£’000
Financial liabilities measured at amortised cost
Borrowings
Trade payables
Other liabilities
Total financial liabilities measured at amortised cost
Total non-current
Total current
Carrying value
Fair value
2018
2017
2018
2017
31,622
11,907
7,823
51,352
30,975
20,377
33,487
14,128
6,837
54,452
32,854
21,598
31,622
11,907
7,823
51,352
30,975
20,377
33,487
14,128
6,837
54,452
32,854
21,598
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 2018. In 2017,
the Group only had one investment in a company through publicly listed shares. The fair value of this investment was a Level 1
fair value.
21. Equity
Share capital
Number of shares
Allotted, called up and fully paid Ordinary Shares of 20p each
£’000
Allotted, called up and fully paid Ordinary Shares of 20p each
The following share transactions have taken place during the year ended 31st December 2018:
£’000, except share data
At 1st January 2018
Exercise of share options
At 31st December 2018
For the year ended
31st December
2018
60,057,161
2017
59,913,900
For the year ended 31st
December
2018
12,012
2017
11,983
For the year ended
31st December
2018
59,913,900
143,261
60,057,161
2017
11,983
29
12,012
During the year, a total of 143,261 shares were 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. On 13th July 2017, the Group completed the reverse acquisition of Animalcare Group plc. 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.
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OUR FINANCIALS
Dividends
£’000, except share data
Ordinary interim dividend for the period ended 30th June 2017 of 4.7p per share
Ordinary final dividend paid for the year ended 31st December 2017 of 2.0p per share
Ordinary interim dividend paid for the period ended 30th June 2018 of 2.0 per share
For the year ended
31st December
2018
−
1,200
1,201
2,401
2017
2,816
−
−
2,816
The proposed final dividend of 2.4 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 2018, in accordance with IAS 10 “Events After the Balance Sheet Date”.
Non-controlling interest
The non-controlling interest is £nil at 31st December 2018 (2017: £2k). The decrease to £nil during 2018 is due to the sale of the
Wholesale business.
22. Commitments and contingent liabilities
Operating lease commitments
The Group has operating lease commitments mainly related to buildings and vehicles as follows:
£’000
Within one year
Between two and three years
Between four and five years
More than five years
Total
For the year ended
31st December
2018
1,056
1,294
410
−
2,760
2017
767
1,467
576
492
3,302
The total operating lease payments recognised in the consolidated income statement in 2018 are £1,659k (2017: £1,735k. This amount
has been restated to account for the sale of the Wholesale business in 2018).
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:
£’000
Within one year
Between two and three years
Total
Less finance charges
Present value of minimum lease payments
31st December 2018
Minimum
lease
payments
13
9
22
−
22
Present
value of
payments
13
9
22
−
22
31st December 2017
Minimum
lease
payments
27
23
50
2
52
Present
value of
payments
28
24
52
−
52
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31ST DECEMBER 2018
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 2018 the Group’s maximum exposure to credit risk is £13,084k, which is the amount of the trade receivables in the
consolidated financial statements (2017: £16,680k).
To control this risk, the Group has set up a strict credit collection process. Historically, limited 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:
£’000
31st December 2018
31st December 2017
Total
13,084
16,680
Non-due
10,034
11,994
< 30 days
2,461
3,241
31-60 days
344
516
61-90 days
99
418
91-180 days
26
196
> 181 days
120
315
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 2018, the Group had the
following sources of liquidity available:
− Cash and cash equivalents: £8,035k
− Undrawn credit facilities with four Belgian banks: £11,610k
− Undrawn acquisition financing: £4,920k
The table below provides an analysis of the maturity dates of the financial liabilities:
£’000
At 31st December 2018
Borrowings
Trade payables
Other current liabilities
Total
£’000
At 31st December 2017
Borrowings
Trade payables
Other current liabilities
Total
< 1 year
1 to 3 years
4-5 years
> 5 years
Total
(648)
(11,907)
(3,864)
(16,419)
(30,975)
−
−
(30,975)
−
−
−
−
−
−
−
−
(31,623)
(11,907)
(3,864)
(47,394)
< 1 year
1 to 3 years
4-5 years
> 5 years
Total
(633)
(14,128)
(3,201)
(17,962)
(1,307)
−
−
(1,307)
(31,547)
−
−
(31,547)
−
−
−
−
(33,487)
(14,128)
(3,201)
(50,816)
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.
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OUR FINANCIALS
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:
£’000
EUR/GBP
EUR/USD
GBP/USD
EUR/DKK
For the year ended 31st December
Assets
2018
380
−
352
−
Assets
2017
670
−
205
−
Liabilities
2018
2,686
77
87
7
Liabilities
2017
658
155
87
−
The cumulative effect of the foreign currency translation effects is reported under other comprehensive income in the statement
of financial position and amounts to £3,345k (2017: £3,180k).
At the end of the reporting year, 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 31st December 2018. A positive number indicates that an increase in profit would arise from
a 10% change in value of sterling against these currencies a negative number indicates that a decrease would arise.
£’000
Euro
US dollar
DKK
Strengthening Weakening
(256)
21
(1)
210
(17)
1
Interest rate risk
The maturity dates and interest rates of the financial debts and liabilities are detailed in note 16. 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 16 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 £414k lower/higher in 2018 and £330k
lower/higher in 2017.
Forward foreign exchange contracts
The Group has nil (2017: two) open foreign exchange contracts at the end of the year.
£’000
Principal value
Fair value
For the year ended
31st December
2018
–
–
2017
–
4
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 maximise 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 £86,592k as at 31st December 2018 (2017: £89,642k).
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 2018 and 2017.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
YEAR ENDED 31ST DECEMBER 2018
24. Remuneration paid to the Company’s auditors
£’000
Fees payable to the Company's auditors for the audit of the Company's annual financial statements
The audit of the Company's subsidiaries pursuant to legislation
Total audit fees
Tax services
Other services
Total non-audit fees
Total auditors remuneration
For the year ended
31st December
2018
34
123
157
−
13
13
170
2017
19
99
118
16
144
160
278
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:
EMI
SAYE
in £
Outstanding at 1st January 2018
Lapsed during the year
Exercised during the year
Open at 31st December 2018
Exercisable at the end of the year
Options
142,500
(25,000)
(37,500)
80,000
80,000
Price £
1,916
2,145
1,555
2,014
2,014
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
Options
199,864
(63,457)
(105,761)
30,646
−
EMI
Options
191p
191p
45%
3.0 years
0.5%
Price £
1,567
2,087
1,050
2,280
−
SAYE
Options
195p
157p
42%
3.1 years
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 £12k (2017: £27k).
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OUR FINANCIALS
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 financial
statements and no information is provided thereon 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 45.
Transactions with shareholders accounted for a total amount of £nil in 2018 (2017: £nil). These amounts were recognised as an expense
during the reporting period.
27. Overview of consolidated entities
Name
Ecuphar NV
Medini NV
Orthopaedics.be NV
Ecuphar BV
Country of incorporation
Belgium
Belgium
Belgium
The Netherlands
Ecuphar Veterinary Products BV
The Netherlands
Ornis SA
Ecuphar GmbH
Euracon Pharma Consulting
und Trading GmbH
Ecuphar Veterinaria SA
Ecuphar Italia
Belphar
France
Germany
Germany
Spain
Italy
Portugal
Animalcare Group plc
United Kingdom
Animalcare Ltd
United Kingdom
Registered address
Legeweg 157i, 8020 Oostkamp
Legeweg 157i, 8020 Oostkamp
Legeweg 157i, 8020 Oostkamp
Verlengde Poolseweg 16, 4818
CL Breda
Verlengde Poolseweg 16, 4818
CL Breda
Rue de Roubaix 33, 59200
Tourcoing
Brandteichstraße 20, 17489
Greifswald
Max-Planck Str. 11, 85716
Unterschleißheim
Avenida Río de Janeiro, 60 –
66, planta 13, 08016 Barcelona
Viale Francesco Restelli, 3/7,
piano 1, 20124 Milano
R. Carlos Alberto da Mota
Pinto, Nº 17 - 3ºA, 1070-313
Lisabon
Unit 7, 10 Great North Way,
York Business Park, Nether
Poppleton, York YO26 6RB
Unit 7, 10 Great North Way,
York Business Park, Nether
Poppleton, York YO26 6RB
% equity interest
2018
100%
0%
100%
2017
100%
99.8%
99.98%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
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COMPANY STATEMENT
OF FINANCIAL POSITION
AS AT 31ST DECEMBER 2018
Non-current 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 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
Note
6
10
7
8
9
11
11
11
2018
£’000
147,743
7
147,750
997
1,411
2,408
150,158
(4,096)
(4,096)
(1,688)
(4,096)
146,062
12,012
132,729
1,321
146,062
2017
£’000
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
The financial statements of Animalcare Group Plc, registered number 1058025, were approved by the Board of Directors and authorised
for issue on 30th April 2019. They were signed on their behalf by:
Jennifer Winter
Chief Executive Officer
Chris Brewster
Chief Financial Officer
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OUR FINANCIALS
COMPANY STATEMENT OF CHANGES
IN SHAREHOLDERS’ EQUITY
YEAR ENDED 31ST DECEMBER 2018
Balance at 1st July 2017
Total comprehensive loss for the period
Transactions with owners of the Company, recognised in equity:
Dividends paid
Issue of share capital net of issue costs
Consideration shares
Exercise of share options
Share-based payments
Balance at 1st January 2018
Total comprehensive profit for the period
Transactions with owners of the Company, recognised in equity:
Dividends paid
Exercise of share options
Share-based payments
Balance at 31 December 2018
Note
3
5
11
12
Share
capital
£’000
4,212
–
–
1,714
5,750
307
–
11,983
–
–
29
–
12,012
Share
premium
account
£’000
6,506
–
–
27,068
94,880
4,134
–
132,588
–
–
141
–
132,729
Retained
earnings
£’000
443
6,028
(4,237)
–
10
2,244
1,478
(2,401)
–
1
1,321
Total
£’000
11,161
6,028
(4,237)
28,782
100,630
4,441
10
146,815
1,478
(2,401)
169
1
146,062
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COMPANY CASH FLOW STATEMENT
PERIOD ENDED 31ST DECEMBER 2018
Comprehensive income for the year/period 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
Increase/(decrease) in payables
Cash generated by operations
Net cash flow from operating activities
Investing activities:
Payments to acquire subsidiaries
Disposal of subsidiaries
Interest received
Net cash generated by/(used in) investing activities
Financing:
Receipts from issue of share capital
Equity dividends paid
Net cash generated by/(used in) financing activities
Net (decrease)/increase 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
Year ended
31st December
2018
£’000
1,109
18 month
period ended
31st December
2017
£’000
5,608
Note
3
12
7
9
6
6
11
5
–
(5)
1
1,105
13
411
1,529
1,529
–
–
5
5
169
(2,401)
(2,232)
(698)
2,109
1,411
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
8
1,411
2,109
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OUR FINANCIALS
NOTES TO FINANCIAL STATEMENTS
PERIOD ENDED 31ST DECEMBER 2018
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 12 months
from 1st January 2018 to 31st December 2018.
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 financial statements of the Company was £1,478k
(2017: £6,028k).
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. It is considered
appropriate to continue to prepare the financial statements on a
going concern basis.
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.
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).
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.
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.
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.
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NOTES TO FINANCIAL STATEMENTS
PERIOD ENDED 31ST DECEMBER 2018
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.
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.
Cash and cash equivalents
Cash and cash equivalents comprise cash in 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.
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.
New and revised standards not yet adopted
The Company has not applied the following new standards and
amendments to standards which are EU endorsed but not yet
effective:
•
•
IFRS 16 Leases
IFRIC 23 Uncertainty over Income Tax Treatments
Both IFRS 16 and IFRIC 23 are effective for annual periods
beginning on or after 1st January 2019. Neither are expected
to have an impact on the Company.
2. Non-recurring items
Professional and other fees relating to the reverse acquisition
Legal fees relating to Director resignation
Reorganisation and integration costs
Compensation for loss of office
Total exceptional and other items
Note
4
2018
£’000
–
–
218
203
421
2017
£’000
2,791
17
93
12
2,913
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.
Reorganisation and integration costs totalling £218k mainly relate to exceptional recruitment costs in respect of Jenny Winter, CEO,
and tax structuring advice as the Group continues to seek to optimise its tax position going forward.
The majority of the £2,913kexceptional costs included in the Company’s result for 2017 relate to the reverse acquisition of Ecuphar
NV which completed on 13th July 2017. The transaction costs totalling £2,791 largely comprise professional fees including corporate
finance, legal, accounting and taxation advice.
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OUR FINANCIALS
3. Total comprehensive income for the year/period
Total comprehensive income for the year/period 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
2018
£’000
–
(5)
–
2,247
2017
£’000
4
(4)
7,789
1,789
The above items are those charged/credited to total comprehensive income/(loss) only. Full details on items charged/(credited) to
non-recurring items are contained in note 2.
The analysis of remuneration paid to the Company’s auditor 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:
2018
£’000
34
34
2017
£’000
19
19
Period ended 31st December 2018
J Boone*
C Brewster
C Cardon
M Coucke*
N Downshire*
J S Lambert*
I D Menneer (resigned 26th April 2018)1
E Torr*
J Winter (Appointed 1st October 2018)
Total
* Indicates Non-Executive Directors
Company
pension
contributions
£’000
–
22
–
–
–
–
28
–
–
50
Bonus
£’000
–
–
–
–
–
–
–
–
–
–
Compensation
for loss of
office
£’000
–
–
–
–
–
–
203
–
–
203
Benefits
£’000
–
12
–
–
–
–
3
–
3
18
Salary
£’000
70
205
35
40
40
40
32
40
71
573
Total
£’000
70
239
35
40
40
40
266
40
74
844
1
I D Menneer resigned as a director of the Company on 26th April 2018 and was placed on gardening leave for his 12 months’ notice period. Compensation for loss of office
represents the salary paid to Mr Menneer from 27th April 2018 to 31st December 2018 while on gardening leave
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NOTES TO FINANCIAL STATEMENTS
PERIOD ENDED 31ST DECEMBER 2018
Period ended 31st December 2017
W Beyers2
J Boone*
C Brewster3
C Cardon
M Coucke*
N Downshire*
R B Harding* (resigned 13th July 2017)
J S Lambert*
Dr I D Menneer
E Torr*
Total
Company
pension
contributions
£’000
–
–
22
–
–
–
–
–
34
–
56
Bonus
£’000
–
–
46
–
–
–
–
–
63
–
109
Compensation
for loss of
office
£’000
–
–
–
–
–
–
12
–
–
–
12
Benefits
£’000
–
–
12
–
–
5
–
–
15
–
32
Salary
£’000
11
35
184
16
19
43
24
55
282
19
688
Total
£’000
11
35
264
16
19
48
36
55
394
19
897
* Indicates Non-Executive Directors.
2 W Beyers was appointed 13th July 2017 and resigned 26th September 2017
3
C Brewster resigned 12th July 2017 and was appointed 26th September 2017
All Company pension contributions relate to defined contribution pension schemes. Benefits consist of company car and private
medical insurance.
Share options
During the year Iain Menneer exercised 5,142 share options granted in 2014 under the Save As You Earn scheme (SAYE) at an option
price of £1.05 per share. The value of this exercise was £5,399. The SAYE options held by Chris Brewster, totalling options over 8,571
shares, lapsed during the year. As at 31st December 2018, no options are held or have been granted to the Directors.
5. Dividends
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
Ordinary final dividend paid for the period ended 31st December 2017 of 2.0p per share
Ordinary interim dividend paid for the period ended 30th June 2018 of 2.0 per share
2018
£’000
–
–
–
1,200
1,201
2,401
2017
£’000
997
425
2,815
–
–
4,237
The proposed final dividend of 2.4 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 2018, in accordance with IAS 10 Events After the Balance Sheet Date.
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OUR FINANCIALS
2018
£’000
147,743
6. Investments in subsidiaries
Subsidiary undertakings
Cost
At 1st January 2018 and 31st December 2018
The Directors consider that the carrying value of the investments are supported by future cashflows of the subsidiaries. A list of the
subsidiary undertakings, all of which are wholly owned, is given below. During the year, the Company disposed of Medini NV, its
wholesale operation.
Country of
registration or
incorporation
Belgium
Registered address
Legeweg 157i, 8020 Oostkamp
United Kingdom Unit 7, 10 Great North Way, York
Business Park, Nether Poppleton,
York YO26 6RB
Belgium
Legeweg 157i, 8020 Oostkamp
The Netherlands Verlengde Poolseweg 16, 4818
CL Breda
The Netherlands Verlengde Poolseweg 16, 4818
Principal activity
Holding company, marketer of
veterinary pharmaceuticals
Developer and marketer of
veterinary pharmaceuticals
Wholesale of veterinary products
Marketer of veterinary
pharmaceuticals
Non-trading
Marketer of veterinary
pharmaceuticals
Non-trading
CL Breda
Rue de Roubaix 33, 59200 Tourcoing Non-trading
Brandteichstraße 20, 17489
Greifswald
Max-Planck Str. 11, 85716
Unterschleißheim
Avenida Río de Janeiro, 60 – 66,
planta 13, 08016 Barcelona
Viale Francesco Restelli, 3/7,
piano 1, 20124 Milano
R. Carlos Alberto da Mota Pinto,
Nº 17 - 3ºA, 1070-313 Lisabon
Developer and marketer of
veterinary pharmaceuticals
Marketer of veterinary
pharmaceuticals
Marketer of veterinary
pharmaceuticals
Class
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Name
Ecuphar NV
Animalcare Ltd
Orthopaedics.be NV
Ecuphar BV
Ecuphar Veterinary
Products BV
Ornis SARL
Ecuphar GmbH
France
Germany
Euracon GmBH
Germany
Ecuphar Veterinaria SL
Spain
Ecuphar Italia SRL
Italy
Belphar IDA
Portugal
7. Other financial assets
Trade and other receivables
Corporation tax – Group relief
Other receivables
Prepayments and accrued income
2018
£’000
979
3
15
997
2017
£’000
604
7
24
635
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
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NOTES TO FINANCIAL STATEMENTS
PERIOD ENDED 31ST DECEMBER 2018
8. Cash and cash equivalents
Cash and cash equivalents
2018
£’000
1,411
Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less.
9. Other financial liabilities
Trade payables
Amounts payable to subsidiaries
Other taxes and social security costs
Other creditors
Accruals
2018
£’000
255
3,396
82
328
35
4,096
2017
£’000
2,109
2017
£’000
277
2,793
295
27
292
3,684
The Directors consider that the carrying amount of trade and other payables approximates to their fair value. The amount payable to
subsidiaries is free of interest and repayable on demand.
10. 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 2016
Charge/(credit) to income
Balance at 31st December 2017
Charge/(credit) to income
At 31st December 2018
Accelerated
tax depreciation
£’000
(7)
2
(5)
–
(5)
Share-based
payments
£’000
(96)
91
(5)
5
–
Other
£’000
(2)
–
(2)
–
(2)
Total
£’000
(105)
93
(12)
–
(7)
Deferred tax balances have been calculated at an effective rate of 17%, being the substantively enacted rate at 31st December 2018.
11. Share capital
Allotted, called up and fully paid at 1st January 2018
Exercise of share options
Allotted, called up and fully paid at 31st December 2018
No.
59,913,900
143,261
60,057,161
£’000
11,983
29
12,011
Exercise of share options was under the Save As You Earn (SAYE) scheme referred to in note 12.
12. Share-based payments
During the year the Company operated two share option schemes 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.
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OUR FINANCIALS
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:
EMI
SAYE
Outstanding at 1st January 2018
Granted during the period
Lapsed during the year
Exercised during the period
Open at 31st December 2018
Exercisable at the end of the year
Options
142,500
–
(25,000)
(37,500)
80,000
80,000
Price
£
1.916
–
2.145
1.555
2.014
2.014
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
Options
199 684
–
(63,457)
(105,761)
30,466
–
EMI
Scheme
191p
191p
45%
3.0 years
0.5%
Price
£
1.567
–
2.087
1.050
2.280
–
SAYE
Scheme
195p
157p
42%
3.1 years
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 £1,000 (2017: £10,200).
13. Related party transactions
Trading transactions
During the year ended 31st December 2018, the following trading transactions took place between the Company and its subsidiaries,
Animalcare Ltd and Ecuphar NV.
2018
Management charges levied
2017
Management charges levied
Ecuphar
NV £’000
302
Ecuphar
NV £’000
–
Animalcare
Ltd
£’000
120
Animalcare
Ltd
£’000
120
Total
£’000
422
Total
£’000
120
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel, is provided in note 4.
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SHAREHOLDER NOTES
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26240 13 May 2019 6:46 pm Proof 7www.animalcaregroup.co.ukAnnual Report 2018 Animalcare Group plcOUR FINANCIALSIBCADVISERSDirectors C Cardon C J Brewster E Torr J Boone J S Lambert J Winter Lord Downshire M CouckeSecretary C J BrewsterCompany Number 1058015Registered Office Unit 7, 10 Great North Way York Business Park Nether Poppleton York YO26 6RBAuditor PricewaterhouseCoopers LLP Central Square 29 Wellingotn Street Leeds LS1 4DLBankers Barclays Bank PLC PO Box 190 1 Park Row Leeds LS1 5WUSolicitors Squire Pattern Boggs (UK) LLP 6 Wellington Place Leeds LS1 4APNominated Advisor and Broker Panmure Gordon & Co One New Change London EC4M 9AFRegistrars Link Asset Services 34 Beckenham Road Beckenham Kent BR3 4TUAnimalcare 2018 AR.indd 613-May-19 6:47:56 PM A
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10 Great North Way, York Business Park, York YO26 6RB
10 Great North Way, York Business Park, York YO26 6RB
T: +44 (0) 1904 487687 F: +44 (0) 1904 487611
T: +44 (0) 1904 487687 F: +44 (0) 1904 487611
investors@animalcare.co.uk www.animalcaregroup.co.uk
investors@animalcare.co.uk www.animalcaregroup.co.uk
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