Eco Animal Health Group PLC
Annual Report 2016

Plain-text annual report

ECO Animal Health Group plc Annual report and accounts 2016 Animal Health Group plc … applying science carefully E C O A n i m a l H e a l t h G r ECO ANIMAL HEALTH GROUP PLC ECO Animal Health Group plc (‘’ECO”) (AIM: EAH) Results for the year ended 31 March 2016 1 July 2016 ECO ANIMAL HEALTH REPORTS ANOTHER STRONG PERFORMANCE HIGHLIGHTS Financials  51% increase in pre tax profit to £7.7m (2015: £5.1m)  21% increase in sales to £47.1m (2015: £39.0m)  21% increase in gross profit to £21.0m (2015: £17.5m) maintaining margin  29% increase in adjusted EBITDA to £11.1m (2015: £8.6m)  27% increase in second interim dividend to 3.80p (2015: 3.0p) making total dividend for the  year up 20% to 5.7p (2015:4.75p)  Strong cash generation from operations  Net cash of £16.0 million at year end Operations  Demand for Aivlosin® continues to grow strongly with sales up 22%  New marketing authorisations gained in USA and Europe (post period end)  Strong performances in all major geographic areas  Continued investment in product development and stockholding to support growth Peter Lawrence, Executive Chairman of ECO Animal Health Group plc, commented: ‘’ The new financial year has started well with sales maintaining momentum. The recent weakness in the value of sterling may benefit ECO as virtually all our sales and majority of costs arise locally in dollars, RMB or the euro. Our newly gained approvals for Aivlosin should provide another platform for future growth and I look forward with confidence to ECO delivering another impressive performance. ‘’ Contacts: ECO Animal Health Group plc Peter Lawrence 020 8336 6190 Marc Loomes 020 8447 6906 Spiro Financial Anthony Spiro 020 8336 6196 Peel Hunt LLP (Nominated Adviser) Dan Webster, Adrian Trimmings, George Sellar 020 7418 8900 ECO Animal Health Group plc is a leader in the development, registration and marketing of pharmaceutical products for animals. Our products for these global growth markets promote well- being. Our financial goals are achieved through the careful and responsible application of science to generate value for our shareholders. ECO ANIMAL HEALTH GROUP PLC DIRECTORS AND ADVISORS Directors Peter Lawrence Marc Loomes Kevin Stockdale Brett Clemo Julia Trouse David Danson Anthony Rawlinson Chairman Chief Executive Finance Director Executive Director Executive Director Non Executive Director Non Executive Director – Secretary Julia Trouse Company Number 1818170 Registered office Registered auditors Registrars Bankers Nominated Adviser And Broker 78 Coombe Road New Malden Surrey KT3 4QS Kreston Reeves LLP Third Floor 24 Chiswell Street London EC1Y 4YX Share Registrars Limited Suite E, First Floor 9 Lion and Lamb Yard Farnham Surrey GU9 7LL Natwest plc Mitcham Branch 282 London Road Mitcham Surrey CR4 2ZP Peel Hunt LLP Moor House 120 London Wall London EC2Y 5ET ECO ANIMAL HEALTH GROUP PLC CHAIRMAN’S STATEMENT FOR THE YEAR ENDED 31 MARCH 2016 I am again delighted to report that ECO Animal Health Group has delivered a record set of results. Profit before tax increased by over 51 per cent compared to the previous year and, for the second successive year, ECO has achieved sales growth in excess of 20 per cent. This growth record is reflected in the rising market capitalisation of your company, which recently exceeded £260m, placing it among the 60 largest companies traded on London’s AIM market. ECO is a global business, selling its products in almost sixty countries. The US dollar and the Chinese RMB each account for approximately 30 per cent of sales, followed by the euro at around 15 per cent. Less than 3 per cent of sales are invoiced in sterling. Financial Performance Sales for the year increased by almost 21 per cent to £47.1m (2015: £39m). Earnings before interest, tax, depreciation, amortisation, non-controlling (minority) interests, foreign exchange and share based payments (EBITDA) were £11.1m (2015: £8.6m), an increase of 29 per cent. Cash generated from operations remained positive at £3.2m for the year - this was achieved despite our planned programme of investment in both new technology and an increase in strategic stock holding to support our growth. Pre-tax profits rose over 51 per cent to £7.7m (2015: £5.1m) and earnings per share increased 42 per cent to 9.71 pence per share. Gross profit increased by 21% to £21 million maintaining margin. The Board is pleased to declare a second interim dividend of 3.80 pence per share to be paid on 5 October 2016 to shareholders on the register on 9 September 2016. The total dividend for the year of 5.7 pence per share (2015: 4.75 pence) is 20 per cent above the level of last year and reflects the Board’s continued confidence in the growth potential of the Company and its desire to implement a progressive dividend policy. Marketing and development ECO operates in a market segment that provides essential medications to the global animal protein production industry, which seeks to meet ever growing demand. These treatments, when used under veterinary supervision, help ensure animal health, welfare and food safety. The company is now realising the commercial benefit from its investment, totalling some £60m, made over many years in the intellectual property inherent in Aivlosin®, its patented molecule. Aivlosin® is used for the treatment of economically important diseases of pigs and poultry and is prescribed under veterinary control at low, yet efficacious, dose rates for the short duration treatment of specified diseases. We now hold over six hundred marketing authorisations around the globe and our focus is to capitalise on the sales potential of these assets. The benefit to ECO of such a high investment cost and the lengthy time scale associated with obtaining marketing authorisations is the barrier to entry it creates for potential competition. In March 2016, we announced the granting of a marketing authorisation for Aivlosin® Type A Medicated Article (or Premix) formulation in the United States by the Center for Veterinary Medicine of the Food & Drug Administration. This second drug licence in the USA is for the treatment of ileitis, an enteric (gut) disease in swine. This approval complements the first licence, which was for the water soluble presentation of Aivlosin®. Importantly, with global concerns about the use of antibiotics in food production animals, both formulations meet all the guidelines for the responsible use of antimicrobials. These treatments are under the strict control of veterinarians and have low, yet highly effective, therapeutic dose rates, short treatment durations and a zero day drug withholding period. The overall and desired beneficial effect is to reduce the level of antibiotics used in the production of food. In April 2016, after the year end, we received a positive opinion from the Committee for Medicinal Products for Veterinary Use of the European Medicines Agency for the use of Aivlosin® 625 mg/g ECO ANIMAL HEALTH GROUP PLC water soluble granules in chickens laying eggs for human consumption, with formal approval granted in June 2016. This licence was also given a zero drug withdrawal period which means that the eggs can still be collected from treated and recovering laying birds and sent to market. These licenses, once commercial layers are approved in the key global egg producing markets, have the potential to generate significant revenue. We have continued to invest in our product development project pipeline which encompasses the roll out of existing approvals into new geographies, new disease indications for pigs and poultry and new species, all of which should offer continuing growth opportunities for sales of our patented medication. Operations Worldwide revenue growth was derived from existing licenses in the major food producing regions that we serve, with strong performances in all major territories. Sales of Aivlosin®, our flagship antibiotic, increased by 22 per cent compared with the same period last year. Sales of Aivlosin® in North America, a region that accounts for more than one third of Aivlosin’s® potential market, grew by 11 per cent during a year of unusually mild weather and consequently low disease pressure. The approval, after the year end, of Aivlosin® Type A Medicated Article (or Premix) formulation in the United States will enable us to build on the excellent start that we have made in this key market. Sales in the Far East were up by 34 per cent. In China, our subsidiary, Zhejiang ECO Biok Animal Health Products, which was established over a decade ago, had another extremely successful year with sales rising almost 35 per cent, buoyed by the recent high price of pork and increased investment by producers in high value breeding stock. In Japan sales grew by nearly 15 per cent driven by increased volume. Following the acquisition in 2014 of our Southeast Asian distributor, revenue from this region advanced by 40 per cent. The performance was boosted by a strategic business review and investment in additional staff. In Latin America revenue grew by 16 per cent. ECO Brazil had another good year with sales up 17 per cent although there was a softening of demand in the last quarter in the face of increasing political and economic uncertainty. Our subsidiary in Mexico continued to demonstrate growth despite the difficult economic climate with sales increasing by 26 per cent compared with the previous year. In Europe, sales grew by close to 9 per cent driven by increased Aivlosin® penetration, notably to customers in Denmark, Germany, Poland, Spain and the UK. People On behalf of all shareholders I would like to thank our people worldwide for their individual contribution to the results. Their team working and dedicated commitment underpin our performance and generate considerable optimism for the future of ECO. It is unusual to highlight individual performances but I will break that rule to thank Tony Chen, managing director of our ECO Shanghai operation, for his outstanding and loyal service to the company. Tony, who established our Shanghai office in 1994, has decided to step down and we wish him a long, happy and healthy retirement and thank him for his immense contribution to the success of ECO. Outlook Following two years of record results, ECO has started the current year strongly with increasing demand for our specialist veterinary medications in our key global markets. The recent weakness in the value of sterling may benefit ECO as virtually all our sales and the majority of costs arise locally in dollars, RMB or the euro. Our balance sheet remains robust with good cash generation, allowing us to invest in the business to ensure it is able to maximise efficiency and capitalise on market opportunities. Demand for Aivlosin®, our flagship patented treatment, is building rapidly and gives us great confidence in the future potential and long term growth of the business. Peter A Lawrence 30th June 2016 ECO ANIMAL HEALTH GROUP PLC STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2016 Financial Group sales in the year to 31 March 2016 rose by over 20% to £47.1m. Our flagship, patented, therapeutic (disease treating) drug, Aivlosin, also rose by over 20% in sterling above the level of the previous year. This encouraging performance continues to reflect our strategic decision to focus primarily on our core high margin products and less on lower margin generics and therefore margins were substantially maintained on the increased business. EBITDA (Earnings before interest, tax, depreciation, amortisation, share based payments, foreign exchange movements and non-controlling (minority) interests) is our main key performance indicator because we are required to amortise our drug registration costs even though we believe they are increasing in value and this figure increased over 29% to almost £11.1m, another new record for the company. Pre-tax profit increased by over 51% to £7.7m. Group cash at the year end was £15.7m. Inventories were intentionally much higher than last year, which ensures continuity of supply of key products and will also delay the impact of a weaker sterling on the cost of goods bought in foreign currencies following the recent vote to leave the EU. The inventory figure also includes £925,000 of expenditure on a property that the group has acquired for renovation and resale. Management expect that the return will far exceed the rates available on bank deposits and expect to repeat the exercise as suitable opportunities arise. Key Performance Indicators The key performance indicators (‘KPIs’) for the Group are those that communicate the financial performance and strength of the group as a whole to shareholders. A summary of the KPI’s is as follows: Financial201620152014Revenue £m47.139.031.9Gross Profit £m21.017.514.1Gross Margin %44.644.744.5EBITDA £m11.18.607.05Cash balances, net of borrowing £m15.717.718.2Non Financial Health and Safety - major accidents reported to the board in the yearNilNilNil ECO ANIMAL HEALTH GROUP PLC STRATEGIC REPORT (CONTINUED) FOR THE YEAR ENDED 31 MARCH 2016 Currency Under IFRS rules, financial assets at the period end are translated from foreign currencies using the period end exchange rates. It has been our practice not to convert the majority of the currency balances into sterling, but to use them to pay overseas suppliers in local currency and invest in the business. As expected, the currency losses experienced on bank balances during the year ended March 2015 did indeed reverse in the year ended March 2016. Risks and Uncertainties All businesses face a number of strategic and operational risks and uncertainties and the Board considers that the following could influence the Group’s performance: Currency Movements The Group exports its products to almost 60 countries and is exposed to movements in currency. It has not been the company’s practice to convert currencies which are used for purchasing raw materials and services in those currencies and this acts as an extensive hedge against currency fluctuations. Commercial Risks There is increasing pressure on veterinarians to prescribe medications appropriately and in accordance with the product label. Aivlosin® meets all current guidelines for the judicious and prudent use of antimicrobials for food producing animals and is never used in human health. The Group spends considerable effort and resource liaising with regulatory authorities and leading consultants to ensure that it remains compliant with all prescribing guidelines. Supply Risks The Group is dependent on a small number of suppliers for some of its raw materials and maintains business interruption insurance in respect of each of these. In the longer term the Group continues to build strategic manufacturing partnerships internationally and has increased safety stock levels in order to protect its complex global supply chain. Dependence on key customers The Group is dependent on a number of customers and distributors in each of the territories into which it sells. The loss of one or more of its key customers could result in lower than expected sales and have a significant impact on the scale of its operations. The Group seeks to minimise reliance on key territories and individual customers and distributors by expanding its sales base to new regions of the world, most recently by increasing its presence in South East Asia. Disease Although outbreaks of diseases for which our products are indicated are generally beneficial to our sales, some disease outbreaks temporarily impact on production, disrupt the free movement of animals and affect trade. In the face of continued global demand for animal protein, however, any reduction in supply leads to increased prices and therefore benefits those who have taken effective measures to prevent or control the disease. In the medium term, most disease outbreaks are generally well controlled by appropriate intervention strategies. Timing of approval of marketing authorisations Aivlosin® has been licenced for use in pigs and/or in poultry by Europe, the USA, Canada, Japan, China and by many other regulatory bodies globally but the exact timing of new approvals of marketing authorisations is difficult to predict. Regulatory authorities may submit additional questions or require supplementary trial work to be performed prior to granting of a license and this can lead to some delay. Therefore, considerable resource is devoted to our licensing work in order to address any issues that may arise in as timely a manner as is possible. ECO ANIMAL HEALTH GROUP PLC STRATEGIC REPORT (CONTINUED) FOR THE YEAR ENDED 31 MARCH 2016 Strategy ECO Animal Health Group plc is a leader in the development, registration and marketing of pharmaceutical products for animals. The company has developed into a significant UK based business with subsidiaries, joint operation and distributors in 60 countries. ECO has been granted over six hundred drug registrations around the world for its pharmaceutical products, which are principally, but not exclusively, for the treatment of various conditions in pigs and poultry. The company uses advanced science in order to offer a wide and effective range of specialist treatments, underpinned by strong customer service. The company will continue to pursue organic growth by developing its markets and expanding its customer base. It will also continue to research and develop additional applications for its established and proven ranges of active pharmaceutical ingredients including new species. ECO will also consider acquisition opportunities as they arise, provided they meet its market, financial and strategic objectives. Post balance sheet event The Company paid a dividend of £1,209,000 (net of £9,000 waived by the Employee Benefit Trust) on 4th April 2016 to its shareholders. Trading update and outlook The current year has started well with major markets maintaining their rate of growth and particularly good demand from customers in China and North America (aided by the launch of Aivlosin Premix in the USA). The consequences of a weaker pound against the main currencies in which we trade following last week’s vote to “leave” the EU will be largely beneficial for our business, as less than 3% of the group sales are in sterling. Peter Lawrence Executive Chairman 30 June 2016 ECO ANIMAL HEALTH GROUP PLC CORPORATE GOVERNANCE FOR THE YEAR ENDED 31 MARCH 2016 Principles of Corporate Governance The Company is quoted on the AIM market of the London Stock Exchange and the Company is therefore not required to report on compliance with the UK Corporate Governance Code. However, the Directors support the UK Corporate Governance Code and are implementing many of the recommendations which are relevant to a business of the size of Eco Animal Health Group plc. The Board is committed to high standards of corporate governance. The Board At the 31st March 2016, the Board comprised of two Non-Executive Directors and five Executive Directors. The composition of the board of directors as well as Directors’ biographies can be found on our website www.ecoanimalhealthgroupplc.com under the section “About the Company” and then “Directors”. The full Board is responsible and accountable to the shareholders for the management and success of the Company and provides effective controls to assess and manage the risks in the Company. The Board meets at least once a quarter to review the operational and financial performance of the Company and to determine and monitor the Company’s strategy and to ensure that the necessary resources are in place to meet the Company’s objectives. The Board members each receive an agenda prior to the meeting and the Financial Director prepares a financial pack which is distributed to the Directors every month. The roles of the Chief Executive Officer and Executive Chairman are well defined and clearly separated. The Chairman oversees the Board’s work, ensures the Board’s decision-making is balanced and that the Non-Executive Directors have all the relevant information on matters to be decided and discussed. The Chief Executive Officer is responsible for implementing the strategy of the Board and managing the day to day business activities of the Company. All Directors are subject to reappointment by shareholders at the first Annual General Meeting following their appointment and thereafter by rotation. The Board considers that it has sufficient independence and that both of the Non-Executive Directors are of sufficient competence and calibre to add strength and objectivity to the Board. The Board delegates its authority for certain matters to its Audit and Remuneration Committees, details of which can be found on our website at www.ecoanimalhealthgroupplc.com/investor- relations/rule-26.aspx . The Audit Committee Throughout the financial year, the committee comprised of two Non-Executive Directors, Mr Anthony Rawlinson ACA BA (Hons) as Chairman and Mr David Danson BVSc MRCVS and meets at least twice each financial year with the external auditors and considers any issues that are identified during the course of the audit work. The Board is satisfied that the Committee members have both recent and relevant experience. ECO ANIMAL HEALTH GROUP PLC CORPORATE GOVERNANCE (Continued) FOR THE YEAR ENDED 31 MARCH 2016 The Audit Committee (Continued) In the year ended 31 March 2016 and up to the date of this report, the actions taken by the Audit Committee to discharge its duties included:  Reviewing the 2016 Annual Report and financial statements and the Interim Report issued in December 2015. As part of these reviews, the Committee received a report from the external auditors on their audit of the annual financial statements;  Reviewing the effectiveness of the Group’s internal controls and disclosures made in the Annual Report and financial statements;  Meeting with the external auditors, without management being present, to discuss any issues arising from the audit;  Considering the need for a new internal audit function; and  Reviewing the performance and independence of the external auditors. The Remuneration Committee In view of the size of the Board, the duties and responsibilities of the remuneration committee have been assumed by the Board as a whole. The Board expects this situation to continue for the foreseeable future until further development of the business gives rise to the appointment of one or more additional directors. Relations with Shareholders The Board recognizes the importance of communication with its shareholders. The Group maintains an informative website at www.ecoanimalhealthgroupplc.com .Copies of the Annual Report and financial statements are issued to all shareholders who have requested hard copies and electronic copies are available on the Group’s website. The Group also uses its website to provide information likely to be of interest to shareholders and other interested parties. The Company Secretary, Mrs Julia Trouse, also deals with correspondence as and when it arises throughout the year. Following the announcement of the Company’s half year and full year results the Chairman, the Chief Executive Officer and other Directors, although usually only two, make detailed presentations to institutional shareholders and investment analysts. The Board encourages shareholder participation at its Annual General Meeting, where shareholders may ask questions and can be updated on the Group’s activities and strategies, which are already in the public domain. Internal control The Board is ultimately responsible for the Group’s system of internal controls and for reviewing its effectiveness throughout the year. The system is designed to manage rather than eliminate the risk of failure to achieve the Group’s strategic objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. ECO ANIMAL HEALTH GROUP PLC CORPORATE GOVERNANCE FOR THE YEAR ENDED 31 MARCH 2016 Internal control (continued) The Board monitors financial controls through the setting and approval of an annual budget and the regular review of monthly management accounts. Management accounts contain a number of indicators that are designed to reduce the possibility of misstatement in the financial statements. The Group has in place defined authorisation levels for expenditure, the placing of orders and signing authorities. The daily cash movements of the Group are reconciled and monitored by the finance department and circulated to the Directors daily and the Group’s cash flow is monitored. The Board maintains a continuous process for identifying, evaluating and managing significant risks across the Group together with a comprehensive annual review of risks which covers both financial and non-financial areas. Where the management of operational risk requires outside advice, this is sought from expert consultants. Going concern At the balance sheet date the Group had cash balances of £15.6 million and no borrowings. Since the year end the Group has continued to trade profitably and to generate cash. The Board considers that the Group has sufficient cash to meet its current and future liabilities when they fall due and that the Company and the Group have sufficient resources available to continue operating in the foreseeable future. Future uses of the cash are monitored against known and authorised budget expenses for the Company’s planned growth and expansion. For this reason, the going concern basis continues to be adopted in preparing the financial statements. By order of the Board Julia Trouse Company Secretary 30 June 2016 ECO ANIMAL HEALTH GROUP PLC DIRECTORS REPORT FOR THE YEAR ENDED 31 MARCH 2016 The directors present their report and financial statements for the year ended 31 March 2016. Directors The following directors have held office since 1 April 2016: Peter Lawrence Marc Loomes Kevin Stockdale Brett Clemo Julia Trouse David Danson Anthony Rawlinson Chairman Chief Executive Finance Director Executive Director Executive Director Non-Executive Director Non-Executive Director Principal activities The principal activities of the Group in the year under review were those of manufacturers and suppliers of animal health products. These activities were conducted on a global scale, through a network including both regional offices, (notably in Shanghai and Princeton) and overseas subsidiaries. Results and dividends The consolidated income statement for the year is set out on page 15. The profit for the year after tax was £6,709,000 (2015: £4,621,000). The directors have declared a dividend of 3.80p per share making a total for the year of 5.70p (2015: 4.75p). Future Developments The likely future development of the business is covered in the Chairman’s Statement and in the Strategic Report. Substantial shareholdings At 30 May 2016, the Company had been notified of the following holdings of 3 per cent or more of its issued share capital. P A Lawrence and family Prudential plc Schroder Investment Management Limited Axa Investment Managers SA Old Mutual plc Artemis Harrier Trading Ordinary shares 11,397,030 9,339,659 7,653,343 6,403,424 5,240,199 3,621,983 2,350,000 Per cent 17.78 14.57 11.96 10.00 8.18 5.65 3.67 ECO ANIMAL HEALTH GROUP PLC DIRECTORS' REPORT (CONTINUED) FOR THE YEAR ENDED 31 MARCH 2016 Group research and development activities The Group is continually researching into and developing new products and markets. Details of expenditure incurred and written off during the year are shown in the notes to the financial statements. Following the approval of our second marketing authorisation for Aivlosin® in the USA, the Group remains committed to obtaining further authorisations of its Aivlosin® products in other key territories and for additional disease applications. Share capital The company made purchases of 16,233 of its own ordinary shares of 5p each during the year for a consideration of £42,636. The Directors considered that the purchase would be in the best interests of shareholders as it will reduce dilution when options are exercised in the future. A total of 24,311 shares are now held in treasury representing 0.038% of the called up share capital of the company. Directors’ interests Under the Group’s executive share option scheme the following directors have the right to acquire Ordinary shares. The following directors also have an interest in shares which they hold jointly with the ECO Animal Health Group plc Employee Benefit Trust, as more fully described in note 22 to the accounts. M D Loomes20164,040 at £2.15 135,000 at £2.26 150,000 at £1.96 30,000 at £1.615 100,000 at £2.005 400,000 at £2.65 350,000 at £3.12520154,040 at £2.15 135,000 at £2.26 150,000 at £1.96 30,000 at £1.615 100,000 at £2.005 K Stockdale201645,000 at £2.26 50,000 at £1.96 12,500 at £1.615 40,000 at £2.005 150,000 at £2.65 50,000 at £3.125201527,640 at £1.085 45,000 at £2.26 50,000 at £1.96 12,500 at £1.615 40,000 at £2.005J Trouse201613,950 at £2.15 45,000 at £2.26 50,000 at £1.96 12,500 at £1.615 40,000 at £2.005 150,000 at £2.65 50,000 at £3.125201513,950 at £2.15 45,000 at £2.26 50,000 at £1.96 12,500 at £1.615 40,000 at £2.005B Clemo20168,070 at £2.15 75,000 at £2.26 100,000 at £1.96 20,000 at £1.615 60,000 at £2.005 250,000 at £2.65 250,000 at £3.12520158,070 at £2.15 75,000 at £2.26 100,000 at £1.96 20,000 at £1.615 60,000 at £2.005D Danson201630,000 at £0.85 30,000 at £2.65201530,000 at £0.85A Rawlinson201630,000 at £2.005 30,000 at £2.65201530,000 at £2.005M D Loomes2016Nil shares (2015: 1,131,110 shares)J Trouse2016125,000 shares (2015: 518,460 shares)K Stockdale2016362,360 shares (2015: 362,360 shares)B Clemo2016Nil shares (2015: 432,360 shares) ECO ANIMAL HEALTH GROUP PLC DIRECTORS' REPORT (CONTINUED) FOR THE YEAR ENDED 31 MARCH 2016 Directors’ emoluments The directors who served in the year received the following; emoluments, pension contributions, share-based payments and benefits in kind. Directors' insurance The Company maintains directors' and officers' liability insurance for the benefit of its directors which remained in place at 31 March 2016 and throughout the preceding year. Financial instruments The Group's accounting policies for financial instruments and strategy for management of those financial instruments are given in notes 2 and 32 to the financial statements respectively. Internal financial control The board of directors is responsible for the Group's system of internal financial control. Internal control systems are designed to meet the particular needs of the companies concerned and the risks to which they are exposed. This provides reasonable, but not absolute, assurance against material misstatement or loss. Strict financial and other controls are exercised by the Group over its subsidiary companies by day to day supervision of the businesses by the directors. Stockbrokers Peel Hunt LLP were the Company's nominated advisor and stockbrokers at the year end. The closing share price on 31 March 2016 was 327.5p per share (2015: 205p). During the year the average share price was 294.62p (2015: 183.1p). Auditors The auditors Kreston Reeves LLP will be proposed for reappointment in accordance with the provisions of section 489 of the Companies Act 2006. 20162015£000's£000'sP A Lawrence-1M D Loomes412379J Trouse129145K Stockdale143127B Clemo262243D Danson1816J Henderson-15A Rawlinson204984930Audited Information ECO ANIMAL HEALTH GROUP PLC DIRECTORS' REPORT (CONTINUED) FOR THE YEAR ENDED 31 MARCH 2016 Statement of directors' responsibilities The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and Parent 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 the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the directors are required to:     select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group 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. Statement of disclosure to auditors So far as each of the directors are aware; there is no relevant audit information of which the Company's auditors are unaware, and they have taken all the steps that they ought to have taken as directors in order to make (a) (b) themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information. Forward-Looking Statements This document contains certain forward-looking statements. The forward-looking statements reflect the knowledge and information available to the Company and Group during preparation and up to the publication of this document. By their very nature, these statements depend upon circumstances and relate to events that may occur in the future and thereby involving a degree of uncertainty. Therefore, nothing in this document should be construed as a profit forecast by the Company or Group. On behalf of the board .............................. Peter Lawrence Director 30 June 2016 ECO ANIMAL HEALTH GROUP PLC INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC We have audited the financial statements (the “financial statements”) of ECO Animal Health Group plc for the year ended 31 March 2016 which comprise the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated and company statements of financial position, the Consolidated and company statements of changes in equity, the Consolidated and company statements of cash flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 12, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and Parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall position of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies, we will consider the implications for our report. Opinion on financial statements In our opinion:  the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 March 2016 and of the Group’s profit for the year then ended; the Group’s financial statements have been properly prepared in accordance with IFRSs adopted by the European Union; the Parent Company’s financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.    ECO ANIMAL HEALTH GROUP PLC INDEPENDENT AUDITORS’ REPORT (Continued) TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the Group Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:  adequate accounting records have not been kept, or returns adequate for our audit have not yet been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or we have not received all of the information and explanations we require for our audit.    Stephen Tanner BSc (Econ) FCA Senior Statutory Auditor For and on behalf of; Kreston Reeves LLP Statutory Auditors Chartered Accountants London EC1Y 4YX 30 June 2016 The maintenance and integrity of the Group’s website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. ECO ANIMAL HEALTH GROUP PLC CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2016 20162015Notes£000's£000'sRevenue2,347,13838,997Cost of sales(26,109)(21,546)Gross profit 21,02917,451Other income4337293Administrative expenses(13,918)(12,407)Profit from operating activities57,4485,337Finance income620868Finance costs6(7)(327)Net finance income/(expense)201(259)Share of profit of associate1425-Reversal of impairment of associate1430-55-Profit before income tax7,7045,078Income tax (charge)8(995)(457)Profit for the year 6,7094,621Profit attributable to:Owners of the parent company6,0374,094Non-controlling interest24672527Profit for the year6,7094,621Earnings per share (pence)79.716.82Diluted earnings per share (pence)79.566.79 ECO ANIMAL HEALTH GROUP PLC CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2016 All items listed in other comprehensive income have gone through reserves and are shown in the consolidated statement of changes in equity. 20162015Notes£000's£000'sProfit for the year6,7094,621Other comprehensive income (net of related tax effects):Items that will or may be reclassified to (loss)/profit in future periods:Foreign currency translation differences(198)350Items that will not be reclassified:Defined benefit plan actuarial gains/(losses)2127(55)Revaluation of property10844Deferred tax on revaluations(22)(9)Other comprehensive income for the year(85)330Total comprehensive income for the year6,6244,951Attributable to:Owners of the parent company6,0494,090Non-controlling interest245758616,6244,951 ECO ANIMAL HEALTH GROUP PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2016 CONSOLIDATEDShareShare TreasuryRevaluationOtherRetainedTotalNon-controllingTotalCapitalPremiumReserveReserveReservesEarningsInterestEquityAccount£000's£000's£000's£000's£000's£000's£000's£000's£000'sBalance as at 31 March 20143,12453,429(5,217)5331,81616,95570,6402,16872,808Profit for the year-----4,0944,0945274,621Other comprehensive income:Foreign currency differences-----1616334350Actuarial (losses) on pension scheme assets-----(55)(55)-(55)Revaluation of investment property ---44--44-44Deferred taxation---(9)--(9)-(9)Total comprehensive income for the year---35-4,0554,0908614,951Transactions with owners recorded directly in equityContributions by and distributions to ownersIssue of shares in the year33769----802-802Purchase of shares into treasury-----(17)(17)-(17)Share-based payments----252-252-252Transfers on expiry of options----(293)293---Dividends relating to 2014-----(2,515)(2,515)-(2,515)Transactions with owners recorded directly in equity33769--(41)(2,239)(1,478)-(1,478)Balance as at 31 March 20153,15754,198(5,217)5681,77518,77173,2523,02976,281Profit for the year-----6,0376,0376726,709Other comprehensive income:Foreign currency differences-----(101)(101)(97)(198)Actuarial gains on pension scheme assets-----2727-27Revaluation of freehold property ---108--108-108Deferred taxation(22)--(22)-(22)Total comprehensive income for the year---86-5,9636,0495756,624Transactions with owners recorded directly in equityContributions by and distributions to ownersMovement in Treasury Reserve arising from disposal of jointly owned shares--4,073---4,073-4,073Issue of shares in the year481,392----1,440-1,440Purchase of shares into treasury-----(43)(43)-(43)Share-based payments----326-326-326Transfers on expiry of options----(73)73---Dividends relating to 2015-----(2,940)(2,940)(402)(3,342)Transactions with owners481,3924,073-253(2,910)2,856(402)2,454Balance as at 31 March 20163,20555,590(1,144)6542,02821,82482,1573,20285,359Attributable to the owners of the Parent ECO ANIMAL HEALTH GROUP PLC STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2016 COMPANYShareShare TreasuryRevaluationOtherRetainedTotalCapitalPremiumReserveReserveReservesEarningsAccount£000's£000's£000's£000's£000's£000's£000'sBalance as at 31 March 20143,12453,429(5,217)2641,81610,39963,815Profit for the year-----4,7604,760Other comprehensive income:Actuarial (losses) on pension scheme assets-----(55)(55)Revaluation of investment property---44--44Deferred taxation---(9)--(9)Total comprehensive income for the year---35-4,7054,740Transactions with owners recorded directly in equityContributions by and distributions to ownersIssue of shares in the year33769----802Share-based payments----252-252Purchase of shares into treasury-----(17)(17)Transfers on expiry of options----(293)293-Dividends relating to 2014-----(2,515)(2,515)Transactions with owners33769--(41)(2,239)(1,478)Balance as at 31 March 20153,15754,198(5,217)2991,77512,86567,077Profit for the year----9191Other comprehensive income:Actuarial gains on pension scheme assets-----2727Revaluation of property---108--108Deferred taxation---(22)--(22)Total comprehensive income for the year---86-118204Transactions with owners recorded directly in equityContributions by and distributions to ownersIssue of shares in the year481,392----1,440Movement in Treasury Reserve arising from disposal of shares--4,073---4,073Share-based payments----326-326Purchase of shares into treasury-----(43)(43)Transfers on expiry of options----(73)73-Dividends relating to 2015-----(2,940)(2,940)Transactions with owners481,3924,073-253(2,910)2,856Balance as at 31 March 20163,20555,590(1,144)3852,02810,07370,137 ECO ANIMAL HEALTH GROUP PLC STATEMENTS OF FINANCIAL POSITION (CO. NUMBER: 01818170) AS AT 31 MARCH 2016 Approved by the Board and authorised for issue on 30 June 2016 Peter Lawrence Director 2016201520162015Notes£000's£000's£000's£000'sNon-current assetsIntangible assets1149,33745,660--Property, plant and equipment121,8331,619738640Investment property13185189185189Investments1464920,08220,08251,41947,47721,00520,911Current assetsInventories1515,5939,833925-Trade and other receivables1613,62911,52241,40936,505Income tax recoverable14039--Other taxes and social security5171103098Cash and cash equivalents1815,66520,0917,10913,219Total current assets45,54441,59549,75249,732LiabilitiesTrade and other payables19(10,373)(9,542)(229)(931)Short -term borrowings20-(2,356)-(2,356)Income tax(280)(223)--Other taxes and social security(240)(343)(156)(69)Dividends(38)(35)(38)(35)Current liabilities(10,931)(12,499)(423)(3,391)Net current assets34,61329,09649,32946,341Total assets less current liabilities86,03276,57370,33467,252Non current liabilitiesProvisionsDeferred tax17(573)(192)(97)(75)Dilapidations on property leases(100)(100)(100)(100)TOTAL ASSETS LESS TOTAL LIABILITIES85,35976,28170,13767,077EQUITYIssued share capital233,2053,1573,2053,157Share premium account55,59054,19855,59054,198Treasury reserve(1,144)(5,217)(1,144)(5,217)Revaluation reserve654568385299Other reserves262,0281,7752,0281,775Retained earnings21,82418,77110,07312,86582,15773,25270,13767,077Non-controlling interests243,2023,029--TOTAL EQUITY85,35976,28170,13767,077GroupCompany ECO ANIMAL HEALTH GROUP PLC STATEMENT OF CASHFLOWS FOR THE YEAR ENDED 31 MARCH 2016 GroupGroupCompanyCompany2016201520162015Notes£000's£000's£000's£000'sCashflows from operating activitiesProfit before income tax7,7045,078944,761Adjustment for:Net finance (income)/costs6(201)259(635)503Depreciation12 & 132421862020(Profit)/loss on disposal of non-current assets(2)41--Amortisation of intangible assets112,6812,538--Impairment of intangible assets-256--Pension payments21(55)(59)(55)(59)Pension operating costs21-4-4Share of associate's results14(25)---Reversal of impairment of associate14(30)---Share based payments22326252326252Operating cash flows before movements in working capital10,6408,555(250)5,481Change in inventories(5,761)(2,861)(925)-Change in receivables(2,432)(1,460)(5,122)(2,503)Change in payables7283,463(616)886Cash generated from/(absorbed by) operations3,1757,697(6,913)3,864Finance costs(7)(31)(6)(533)Income tax(680)(446)(3)-Net cash from/(absorbed by) operating activities2,4887,220(6,922)3,331Cash flows from investing activitiesAcquisition of property, plant and equipment12(364)(778)(6)(3)Disposal of property, plant and equipment69--Purchase of intangibles11(6,358)(5,280)--Purchase of own shares(43)(17)(43)(17)Finance income6676864230Net cash (used in)/from investing activities(6,692)(5,998)59310Cash flows from financing activitiesProceeds from issue of share capital and sale of jointly owned shares5,5138025,513802Dividends paid(3,437)(2,510)(2,938)(2,510)Net cash from/(used in) financing activities2,076(1,708)2,575(1,708)Net (decrease)/increase in cash and cash equivalents(2,128)(486)(3,754)1,633Foreign exchange movements58(19)--Balance at 1 April 201517,73518,24010,8639,230Balance at 31 March 20161815,66517,7357,10910,863 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2016 General information 1. Eco Animal Health Group plc (“the company”) and its subsidiaries (together “the group”) manufacture and supply animal health products globally. The Company is traded on the AIM market of the London Stock Exchange and is incorporated and domiciled in the UK. The address of its registered office is 78 Coombe Road, New Malden, Surrey, KT3 4QS. 2. Summary of significant accounting policies Basis of preparation 2.1 The group has presented its annual report and accounts in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union, IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The preparation of financial statements, in conformity with IFRS as adopted by the European Union, requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The principal accounting policies of the group are set out below and have been applied consistently in dealing with items which are considered material in relation to the Group’s financial statements. Adoption of new and revised standards 2.2 The following amendments to existing standards and interpretations were effective for periods beginning after 1 January 2015, but the adoption of these amendments to existing standards and interpretations did not have a material impact on the financial statements of the Group:    IAS 19 – (Amendments) Defined Benefit Plans – Employee Contributions IAS 39 – (Amendments) Novation of Derivatives and Continuation of Hedge Accounting IFRIC 21 – Levies The following new standards, amendments and interpretations to existing standards have been published that are mandatory for accounting periods beginning after 1 January 2016 (unless otherwise stated) and have not been applied in preparing these consolidated financial statements.            IAS 1 – Disclosure Initiative IAS 16 and IAS 38 – Clarification of Acceptable Methods of Depreciation and Amortisation IAS 16 and IAS 41 – Bearer Plants IAS 27 – Equity Method in Separate Financial Statements IAS 28 and IFRS 10 – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture IAS 28, IFRS 10 and IFRS 12 – Investment Entities: Applying the consolidation exception IFRS 9 – Financial Instruments (effective 1 January 2018) IFRS 11 – Accounting for Acquisitions of Interests in Joint Operations IFRS 14 – Regulatory Deferral Accounts IFRS 15 – Revenue from contracts with customers (effective from 1 January 2017) IFRS 16 – Leases (effective from 1 January 2019) ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 2.2 Adoption of new and revised standards (continued) The directors do not expect that the adoption of the Standards and Interpretations listed above will have a material impact on the financial statements of the Group in future periods. Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review has been completed. Basis of consolidation 2.3 The consolidated financial statements comprise the accounts of the Company and its subsidiaries drawn up to 31 March 2016. An entity is classed as a subsidiary of the Company when as a result of contractual arrangements the Company has the power to govern its financial and operating policies so as to obtain benefits from its activities. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured, as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value, the difference is recognised directly in the income statement. Accounting policies have been changed where material to ensure consistency with the policies adopted by the Group. Although the subsidiaries in Brazil and China and the Joint Operations in the USA and Canada all have December year ends, the Group uses management accounts to the end of March to prepare the Group accounts. Subsidiaries are wholly consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Segment reporting 2.4 Operating segments are reported in a manner consistent with the internal reporting to the chief operating decision-maker. The chief operating decision-maker who is responsible for allocating resources and assessing performance of the operating segments has been identified as the Board. ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 2.5 (a) Foreign currency translation Functional and presentational currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“functional currency”). The consolidated financial statements are presented in Pounds Sterling, which is the Company’s functional and the Group’s presentational currency. (b) Transactions and balances Monetary assets and liabilities denominated in foreign currencies are translated into Pounds Sterling at the rates of exchange ruling at the date of the financial statements. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Foreign exchange gains and losses that relate to borrowing and cash and cash equivalents are presented in the income statement within finance income or finance costs. (c) Group companies The results and financial position of all Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows;   assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of the balance sheet; income and expenses for each income statement are translated at average exchange rates unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case the income and expenses are translated at the rate on the dates of the transaction; and  all resulting exchange differences are recognised as a separate component of equity. When a foreign operation is partially disposed or sold, exchange differences that were recognised in equity are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing exchange rate. 2.6 a) Financial instruments Non-derivative financial assets The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows from the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 2.6 Financial instruments (continued) Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group has the following non-derivative financial assets: b) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables comprise trade and other receivables and cash and cash equivalents. Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. c) Non-derivative financial liabilities All financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. The Group has the following non-derivative financial liabilities: bank overdrafts and trade and other payables. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest method. Goodwill 2.7 Goodwill arising on the acquisition of an entity represents the excess of the costs of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is not subject to amortisation but is tested for impairment. Negative goodwill arising on an acquisition is recognised directly in the income statement. On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss recognised in the income statement on disposal. Goodwill arising before the date of transition to IFRS, on 1 April 2004, has been retained at the previous UK GAAP amounts, subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal. ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 2.8 Other intangible assets Drug registrations, patents and licences The Group recognises internally generated or externally acquired intangible assets at cost and subsequently recognises them at cost less accumulated amortisation and impairment losses. Intangible assets acquired as part of a business combination are recognised at fair value. Expenditure on drug registrations and licences is recognised as an internally generated or externally acquired intangible asset only if all the following conditions are met:    an asset is created that can be identified it is probable that the asset created will generate future economic benefits: and the development cost of the asset can be measured reliably. All drug registrations and licences have previously been amortised on a straight-line basis over their useful economic life of 10 years. However, following the granting of Aivlosin’s® first marketing authorisation in the USA in July 2012, which greatly increased the economic potential of the product, management revised their estimate of the useful life of the Aivlosin drug registrations only from 10 to 20 years and in accordance with IAS8 have amortised the remaining book value of the Aivlosin registrations over the remainder of the useful life of these registrations from that date. Distribution rights Distribution rights are recognised at cost and amortised on a straight line basis over their estimated useful economic life of 20 years. They are reviewed for impairment when any indication of potential impairment exists. Property, plant and equipment and depreciation 2.9 Plant and equipment are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows; Plant and machinery 20% on cost Fixtures, fittings and equipment 20% on cost 25% on cost Motor Vehicles Freehold land and buildings are stated at valuation less depreciation. The property is professionally valued by a qualified surveyor at least once every three years. Surpluses and deficits arising from the periodic valuations are taken to the revaluation reserve in the statement of financial position and are recognised in the statement of comprehensive income for the year. Depreciation is provided at a rate calculated to write off the valuation less estimated residual value over the remaining useful life of the building at a rate of 2 per cent per annum. Land is not depreciated. Impairment of non-financial assets 2.10 The carrying amounts of the Group’s assets are reviewed at each year end, to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated in order to determine the impairment loss if any. The recoverable amount is the higher of its fair value and its value in use. For intangible assets with an indefinite useful life, an impairment test is performed at each year end. In assessing value in use, the expected future cash flows from the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognised in the income statement whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a change in the estimates used to determine the recoverable amount, but not to an amount higher than the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognised in prior years. ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 Investment property 2.11 The investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is measured at cost on initial recognition and subsequently at its valuation less any accumulated impairment and depreciation. The property is professionally valued by a qualified surveyor at least once every three years. Surpluses and deficits arising from the periodic valuations are taken to the revaluation reserve in the statement of financial position and are recognised in the statement of comprehensive income for the year. Depreciation is provided on a straight line basis over the property’s expected useful economic life of 50 years. Investments 2.12 Non-current asset investments are stated at fair value, including transaction costs, less impairment. They are recognised or derecognised on the date when the contract for acquisition or disposal requires the delivery of that investment. Investments in subsidiaries are stated at cost less impairment in the Parent Company’s statement of financial position. An impairment is recognised in profit or loss when there is objective evidence that the asset is impaired and is measured on the difference between the investment’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate adjusted for a risk premium. Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised costs would have been had the impairment not been recognised. Investments classified as available-for-sale are stated at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in net profit or loss for the period. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity, determined using the weighted average cost method, is included in the net profit or loss for the period. Interest in joint operations 2.13 A joint operation is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control; that is, when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control. The group accounts for its interest in joint operations using proportional consolidation, as it has rights to substantially all of the economic benefits of the assets and obligations for the liabilities shown in these financial statements relating to those operations. Under proportional representation, the Group’s share of the assets, liabilities, income, expenses and cash flows of jointly controlled entities are combined with the equivalent items in the results on a line by line basis. Investments in Associates 2.14 An associate is an entity in which an investor has significant influence but not control or joint control. Significant influence is defined as “the power to participate in the financial and operating policy decisions but not to control them”. The group reports its interests in associates using the equity method of accounting. Under this method, an equity investment is initially recorded at cost (subject to initial fair value adjustment if acquired as part of the acquisition of a subsidiary), and is subsequently adjusted to reflect the group’s share of the net profit or loss of the associate. If the group’s share of losses of an associate equals or exceeds its “interest in the associate”, the group discontinues recognising its share of further losses. If the associate subsequently reports profits, the investor resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised. ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 2.14 Investments in Associates (continued) During the year, one associated company, ECOPharma.com (which had previously had insignificant net assets) was recognised in the consolidated financial statements for the first time. 2.15 The Group leases certain property, plant and equipment. Leasing Assets obtained under finance leases, where the Group has substantially all the risks and rewards of ownership are capitalised as property, plant and equipment and depreciated over the shorter of the lease term and their useful lives. Obligations under such agreements are included in borrowings net of the financial charge allocated to future periods. The financial element of the rental payment is charged to the income statement so as to produce constant periodic rates of charge on the net obligations outstanding in each period. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. Inventories 2.16 Inventories (including property under development) are valued at the lower of cost and net realisable value. Cost is determined using the first-in, first-out method. The cost of finished goods comprises raw materials, direct labour and other direct costs. Net realisable value is the estimated selling price in the ordinary course of business, less any costs which would be incurred in completing the goods and rendering them ready for sale. Trade receivables 2.17 Trade receivables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowance for estimated, irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. 2.18 Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held on call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position. 2.19 Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. 2.20 Bank borrowings and loans Interest-bearing bank loans and overdrafts are recorded as the proceeds received, net of direct issue costs (which equate to fair value). Finance charges including premiums payable on settlement or redemption and direct issue costs are accounted for on an accruals basis in profit or loss using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 2.21 Trade payables Trade payables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method. 2.22 Provisions Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be required to settle the obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation outstanding at the year end and are discounted to present value where the effect is material. 2.23 Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the Group’s activities. Revenue is shown net of value added tax, returns, rebates and discounts and after eliminating sales within the Group. The Group recognises revenue on despatch of the goods (which the directors believe transfers substantially all the risks and rewards of ownership to the buyer). No goods are despatched on a sale or return basis. Distributors trade on their own account and not as agents. The Group also receives interest, rental income, royalty income and management charges for Non- Executive Director’s and accounting services supplied. The amounts are small and are recognised on an accruals basis. 2.24 Pensions Defined Contribution Scheme The pension costs charged against operating profits represent the amount of the contributions payable to the schemes in respect of the accounting period. Defined Benefit Scheme The regular cost of providing retirement pensions and related benefits is charged to the income statement over the employees’ service lives on the basis of a constant percentage of earnings. The present value of the defined benefit obligation less the fair value of the plan assets is disclosed as an asset or liability in the statement of financial position in accordance with IAS19. The disclosure of a net defined benefit asset is limited to the present value of any economic benefit available in the form of refunds from the plan or reductions in future contributions to the plan. Actuarial gains or losses are taken directly to equity in the statement of comprehensive income. 2.25 Share-based payments The Group has applied the requirements of IFRS2 Share-based payments. In accordance with the transitional provisions, IFRS2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested at 1 January 2005. The Group issues equity-settled share-based payments to certain employees in exchange for services from those 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 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). The Group’s Employee Benefit Trust (“the Trust”) was set up on 6 October 2011 to administer the Group’s Joint Share Ownership Plan (JSOP). The trust is funded by loans from the Group, with its assets comprising shares in the Company. The Group recognises the assets and liabilities of the Trust in its own accounts and the carrying value of the Company’s shares held by the Trust are recorded as a deduction in total equity until such a time as the shares vest unconditionally to employees. ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 Share-based payments (continued) 2.25 Fair value, for both options and jointly owned shares 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 behaviour considerations. Further details of the inputs to the Black-Scholes model can be found in note 22 to the accounts. 2.26 Taxation Tax expense for the period comprises current and deferred tax. Current tax, including UK corporation tax and foreign tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted by the year end. Tax expenses are recognised in the income statement or statement of comprehensive income according to the treatment of the transactions which give rise to them. Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax basis of assets and liabilities and their carrying amount in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted, or substantially enacted, by the date of the statement of financial position and are expected to apply when the related deferred tax asset is realised or deferred tax liability is settled. Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. 2.27 Equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Amounts arising on the restructuring of equity and reserves to protect creditor interests are credited to the capital redemption reserve. The cost of its own shares bought into treasury by the company is debited to retained earnings as required by the Companies Act 2006. A subsequent sale of these shares would result in this entry being wholly or partly reversed with any profit on the sale being credited to Share Premium. The Treasury reserve arises when the Company issues equity share capital under its Joint Share Ownership Plan, which is held in trust by ECO Animal Health Group plc Employee Benefit Trust. The interests of this trust are consolidated into the Group’s financial statements and the relevant amount treated as a reduction in equity. The expenses of the trust are included in the consolidated income statement. 2.28 Non-controlling (minority) interest For each business combination, the Group elects to measure any non-controlling interest in the acquiree either at fair value or at their proportionate share of the acquiree’s identifiable net assets which are generally at fair value. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as transactions with owners in their capacity as owner. Adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary. No adjustments are made to goodwill and no gain or loss is recognised in the statement of profit or loss. 2.29 Dividend distribution Final dividend distributions to the Company’s shareholders are recognised as liabilities in the financial statements in the period in which they are approved by the Company’s shareholders. Interim dividends are recognised when they are paid. ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 2.30 Critical accounting estimates and judgements The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are: (a) Estimated impairment value of intangible assets The Group tests annually whether intangible assets with indefinite life have suffered any impairment. Other intangible assets are reviewed for impairment when an indication of potential impairment exists. Impairment provisions are recorded as applicable based on directors’ estimates of recoverable values. Details of the impairment reviews performed can be found in note 11 of the financial statements. (b) Income taxes The Group is subject to income taxes predominantly in the United Kingdom but also in other jurisdictions. Significant estimates are required in determining the provision for income taxes. There are some transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises assets and liabilities based on estimates of the final agreed position. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. (c) Pension scheme The Group maintains one defined benefit pension scheme which has been accounted for according to the provisions of IAS19. Although the assumptions were determined by a qualified actuary, any change in those assumptions may materially impact the financial position and results of the Group. Details of the assumptions used can be found in note 21 of the financial statements. (d) Share-based payments The charge to the Income Statement in respect of share-based payments has been externally calculated using management’s best estimates of the amount of options expected to vest and various other inputs to the Black-Scholes model, as disclosed in note 22. Any variation in those assumptions may have a material impact on the Group’s future results and financial position. ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 Segment information 3. Management has determined the operating segments based on the reports reviewed by the Board that are used to make strategic decisions. The Board considers the business from a geographical perspective. Geographically, management considers the performance in the UK and Europe, the Far East, Latin America, North America and the Middle East and Africa. Management considers Earnings before Interest, Tax, Depreciation and Amortisation (“EBITDA”), adjusted for share-based payments. Goodwill and other intangible assets are initially allocated to the geographical segments on the basis of the proportion of sales achieved by each segment. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Corporate/U.K.EuropeFar EastLatin AmericaNorth AmericaMiddle East and AfricaTotal£000's£000's£000's£000's£000's£000's£000'sYear ended 31 March 2016Total segmental revenue1,2026,94329,02411,37216,2871,69366,521Inter-segment revenue--(6,128)(4,067)(9,188)-(19,383)Revenue from external customers1,2026,94322,8967,3057,0991,69347,138Sale of goods1,2026,94322,8967,3057,0991,53546,980Royalties-----1581581,2026,94322,8967,3057,0991,69347,138Adjusted EBITDA(1,269)1,3886,9131,0192,27536910,695Total assets20,42912,58932,45115,88211,0594,55396,963Year ended 31 March 2015Total segmental revenue8856,60921,8239,75215,3611,77956,209Inter-segment revenue--(4,784)(3,480)(8,948)-(17,212)Revenue from external customers8856,60917,0396,2726,4131,77938,997Sale of goods8856,60917,0396,2726,4131,57938,797Royalties-----2002008856,60917,0396,2726,4131,77938,997Adjusted EBITDA(1,504)1,6025,0157422,2155408,610Total assets22,77511,58127,19313,5479,1664,81089,072 ECO ANIMAL HEALTH GROUP PLC FOR THE YEAR ENDED 31 MARCH 2016 3. Segment information (Continued) A reconciliation of adjusted EBITDA to profit before tax is provided as follows: 4. Other income 20162015£000's£000'sAdjusted EBITDA for reportable segments10,6958,610Depreciation(242)(186)Profits/(losses) on disposal of fixed assets2(41)Amortisation(2,681)(2,538)Impairment of intangible assets-(256)Share-based payment charges(326)(252)Finance income/(expense)201(259)Share of associate's results25-Reversal of impairment re associate30-Profit before tax on continuing activities7,7045,07820162015£000's£000'sManagement charges155145Rental income177143Sundry income55337293 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 5. Result from operating activities 20162015£000's£000'sResult from operating activities is stated after charging/(crediting)Cost of inventories recognised as an expense25,99421,474Employee benefits expenses6,0344,797Amortisation of intangible assets2,6812,538Impairment of intangible assets-256Depreciation (notes 12 &13)242186(Profit)/loss on disposal of assets(2)41Loss/(profit) on foreign exchange transactions361(41)Research and development201Operating lease rentals480504Fees payable to the Company's auditor for the audit of the parent Company and Group annual accounts1719For the audit of the Company's subsidiaries3633Fees payable for audit of the Company's subsidiaries pursuant to legislation8620162015£000's£000'sEarnings due to shareholders before interest, tax, depreciation, amortisation, share-based payments and foreign exchange differencesProfit from operating activities7,4485,337Depreciation 242186(Profit)/loss on disposal of fixed assets(2)41Amortisation2,6812,538Impairment of intangible assets-256Share-based payments32625210,6958,610Foreign exchange differences361(41)11,0568,569 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 6. Finance income/(expense) Earnings per share 7. The calculation of basic earnings per share is based on the post-tax profit for the year divided by the weighted average number of shares in issue during the year. Diluted earnings per share takes into account the dilutive effect of share options. For the purposes of calculating earnings per share, shares held by the Employee Benefit Trust as part of the Joint Share Ownership Plan are excluded from the calculation of the weighted average number of shares. The weighted average number of shares held by the Trust during the year was 1,521,594 (2015: 2,603,290). 20162015£000's£000'sFinance incomeInterest received on short term bank deposits6768Foreign exchange differences on bank loans and overdrafts141-20868Finance costsInterest paid(7)(31)Foreign exchange differences on bank loans and overdrafts-(296)(7)(327)EarningsWeighted average number of sharesPer share amountEarningsWeighted average number of sharesPer share amount£000's000(pence)£000's000(pence)Earnings attributable to ordinary shareholders on continuing operations after tax6,03762,1709.714,09460,0076.82Dilutive effect of share options-988(0.15)-282(0.03)Fully diluted earnings per share 6,03763,1589.564,09460,2896.7920162015 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 8. Taxation The UK corporation tax rate reduced from 21% to 20% with effect from 1 April 2015. Deferred tax balances at the year end have been measured at 18%, which is expected to be the rate in force when they become payable. 20162015£000's£000'sCurrent tax yearForeign corporation tax on profits for the year693451Withholding tax on intercompany dividend42-Research and development tax credits claimed(98)-Deferred taxOrigination and reversal of temporary differences4036Due to change in effective rate(45)-Income tax charge99545720162015£000's£000'sFactors affecting the tax charge for the yearProfit on ordinary activities before taxation7,7045,078Profit on ordinary activities before taxation multiplied by the applicable rate of UK corporation tax of 20% (2015: 21%)1,5411,066Effects of:Non deductible expenses358210Non chargable credits(291)(190)Witholding tax on inter-company dividends42-Enhanced allowance on research and development expenditure(764)(829)Different tax rate for foreign subsidiaries11172Reduced effective deferred tax rate(45)-Unused tax losses carried forward43128Income tax charge99545720162015%%Applicable tax rate per UK legislation20.0021.00Effects of:Non deductible expenses4.654.14Non chargable credits(3.77)(3.75)Witholding tax on inter-company dividends0.54-Enhanced allowance on research and development expenditure(9.92)(16.32)Different tax rate for foreign subsidiaries1.441.43Reduced effective deferred tax rate(0.58)-Unused tax losses caried forward0.562.51Effective tax rate12.929.01 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 9. Profit for the financial year 10. Dividends The Board is declaring a total dividend of 5.7 pence per share in respect of the year ended 31 March 2016. 20162015£000's£000'sParent Company's profit for the financial year914,76020162015£000's£000'sDividend for the period ended 31 March 2014 of 4.2p per ordinary share-2,624Dividend for the period ended 31 March 2015 of 4.75p per ordinary share3,020-Dividend waived by Employee Benefit Trust(80)(109)2,9402,515 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 11. Intangible fixed assets The amortisation and impairment charges are included within administrative expenses on the income statement. Distribution rights are amortised over their estimated useful life of 20 years and reviewed for impairment when any indication of potential impairment exists. The remaining amortisation period at the date of the financial statements ranged from 7 to 18 years. The carrying value of goodwill is attributable to the following cash generating units: Entity Date of acquisition Eco Animal Health Limited Zhejiang Eco Biok Animal Health Products Limited 1 April 2007 ECO Animal Health Japan Inc. 1 October 2004 24 December 2009 £000’s 17,359 94 477 17,930 ==================== GroupGoodwillDistribution rightsDrug registrations, patents and license costsTotal£000's£000's£000's£000'sCostAt 1 April 201417,9301,26648,25267,448Additions - internally generated--4,7864,786Additions- acquired separately-176318494At 1 April 201517,9301,44253,35672,728Additions - internally generated--5,8855,885Additions- acquired separately--473473Foreign exchange movements--(2)(2)At 31 March 201617,9301,44259,71279,084AmortisationAt 1 April 2014-54423,73224,276Charge for the year-712,4672,538Impairment in the year--256256Foreign exchange movements--(2)(2)At 1 April 2015-61526,45327,068Charge for the year-722,6092,681Foreign exchange movements--(2)(2)At 31 March 2016-68729,06029,747Net Book ValueAt 31 March 201617,93075530,65249,337At 31 March 201517,93082726,90345,660At 31 March 201417,93072224,52043,172 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 Intangible fixed assets (Continued) 11. Goodwill acquired in a business combination is allocated at acquisition to the cash generating units (CGU’s) that are expected to benefit from the business combination. The recoverable amounts of the CGU’s are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding discount rates, growth rates and the estimated remaining useful life of the asset which is maintained at 30 years through ongoing investment in the cash generating unit. The Group prepares cash flow forecasts derived from the most recent financial budgets and projections that are approved by management for the year ahead and then extrapolates them assuming a 3% annual growth rate which is well below the current performance of the existing business. The directors believe that the long term growth rate assumed does not exceed the average long term growth rate for the relevant markets. Management estimates discount rates using the pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU’s. In the current year management estimated the applicable rate to be 11%. Management considers that there is adequate headroom when comparing the net present value of the cash flows to the carrying value of goodwill to conclude that no impairment is necessary this year. On current assumptions the excess of recoverable amount over carrying value is over £67 million (2015: £55 million). Management believes that the most significant assumption in the calculation of value in use is the estimated growth rate. However, even if the growth rate were to be zero, the recoverable amount would still be over £43 million more than the carrying value and no impairment would be necessary. The net book value of Drug registrations and licenses can be broken down as follows: Aivlosin is a highly effective antibiotic that treats a range of specific enteric (gut) and respiratory diseases in pigs and poultry, ensuring a rapid return to health. In addition to the welfare benefits, healthy animals gain weight faster, digest food more efficiently and get to market earlier which all bring economic benefit to the farmer. Substantial ongoing product development covering more formulations, species and diseases is expected to substantially further increase its revenue generating potential. The remaining amortisation period is from 7 to 20 years. Ecomectin is an endectocide that controls worms, ticks, lice and mange in grazing stock and pigs. The remaining amortisation period is 0 to 10 years. Drug registrations and licences are amortised over their estimated useful lives of 10 to 20 years, which is the directors’ estimate of the time it would take to develop a new product allowing for the Group’s patent protection and the exclusivity period which comes with certain registrations. Given the economic climate the directors have conducted an impairment review in the current year by preparing cash flow projections for the year ahead and extrapolating the results for the remaining life of the registrations assuming zero growth and an 11% discount rate to establish value in use. On the current assumptions the excess of the value in use over carrying value is over £12 million (2015: £5 million). Fair value calculated as 10 times the current cash generated by the registrations gives an even higher value of £109m and this higher figure determines the recoverable amount, so management has again concluded that no impairment is necessary. £000'sAivlosin27,998Ecomectin1,293Others1,36130,652 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 March 2016 Intangible fixed assets (Continued) 11. A review of individual projects has not identified any necessary impairment in the year. (2015: £256,000 relating to Carprofen). 12. Property, plant and equipment The freehold property at 78 Coombe Road, New Malden was valued on 11 May 2016 by Mr R Sworn of Kelion Sworn Chartered Surveyors and Valuers, London, W1. The fair value in use of the freehold property was determined at £730,000 by means of applying a 7.5% discount rate to the annual rental value of the property as determined by local market conditions. The property will continue to be valued on a regular basis. The value of non-depreciable land included within Land and Buildings is £180,000. The freehold property of 78 Coombe Road, New Malden is subject to a legal charge held by the company’s bankers dated 20 March 1987. GroupLand and Buildings (freehold)Plant and machineryFixtures, fittings and equipmentMotor VehiclesTotal£000's£000's£000's£000's£000'sCost or valuationAt 1 April 20146501,205473752,403Additions-59315827778Foreign exchange movements-153-(5)148Disposals-(524)-(11)(535)At 1 April 20156501,427631862,794Additions8028579-444Foreign exchange movements-(23)--(23)Disposals-(31)-(33)(64)At 31 March 20167301,658710533,151DepreciationAt 1 April 20149934402571,402Charge for the year91173918183Foreign exchange movements-761(2)75Disposals-(474)-(11)(485)At 1 April 201518653442621,175Charge for the year10157629238Revaluation adjustment(28)---(28)Foreign exchange movements-(9)3-(6)Disposals-(29)-(32)(61)At 31 March 2016-772507391,318Net Book ValueAt 31 March 2016730886203141,833At 31 March 2015632774189241,619At 1 April 201464127171191,002 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 Property, plant and equipment (continued) 12. The value of the freehold property would have been recorded at £284,000 (2015: £295,000) on a historical cost basis giving rise to the current revaluation surplus of £350,000 net of deferred tax provision. This balance is not distributable to shareholders. Depreciation has been included in the administrative expenses line on the income statement, except for £115,000 (2015: £72,000) of depreciation of production equipment in the Chinese subsidiary ECO Biok, which is included within cost of sales. CompanyLand and Buildings (freehold)Fixtures, fittings and equipmentMotor VehiclesTotalCost or valuation£000's£000's£000's£000'sAt 1 April 201465014626822Additions-3-3At 1 April 201565014926825Additions-6-6Revaluation in the year80--80At 31 March 201673015526911DepreciationAt 1 April 2014914316168Charge for the year92617At 1 April 20151814522185Charge for the year102416Revaluation adjustment(28)--(28)At 31 March 2016-14726173Net Book ValueAt 31 March 20167308-738At 31 March 201563244640At 1 April 2014641310654 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 13. Investment property Depreciation has been included in the administrative expenses line on the income statement. The property in Western Road, Mitcham was valued at £189,000 as at 31 March 2015 by Mr R. Sworn of Kelion Sworn Chartered Surveyors, London W1. This property was previously the Head Office of Lawrence plc (now ECO Animal Health Group plc) and is occupied by a charity. The value of the investment property would have been recorded at £142,000 on a historical cost basis giving rise to the current revaluation surplus of £35,000 net of deferred tax provision. This balance is not distributable to shareholders. Group and CompanyLand and Buildings (freehold)Total£000's£000'sCost /RevaluationAt March 2014157157Revaluation in 20153232Valuation at March 2015 and March 2016189189DepreciationAt March 201488Charge for the year33Elimination on revaluation(11)(11)At March 2015--Charge for the year44At March 201644Net Book ValueAt 31 March 2016185185At 31 March 2015189189At 1 April 2014149149 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 14. Fixed asset investment GroupInvestment in AssociateUnlisted investmentsTotal(Equity)(Cost)£000's£000's£000'sAt March 2014 and 2015-99Reversal of previous impairments30-30Share of associate's result for the year25-25At March 201655964CompanyUnlisted investmentsTotalCost or fair value£000's£000'sAt March 2014 ,2015 and 201621,27321,273ImpairmentAt March 2014 ,2015 and 20161,1911,191Net Book ValueAt March 2014 ,2015 and 201620,08220,082 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 14. The Company holds more than 20% of the share capital of the following companies: Fixed asset investments (continued) Company Country of registration or incorporation Class Shares held % Subsidiary undertakings held by Company Zhejiang ECO Biok Animal Health Products Limited P. R. China Shanghai ECO Biok Veterinary Drug Sale Company Ltd. (via Zhejiang ECO Biok Animal Products Ltd.) Petlove Limited Eco Animal Health Limited P. R. China Great Britain Great Britain Subsidiary undertakings held by Group ECO Animal Health Southern Africa (Pty) Limited South Africa Zhejiang ECO Biok Animal Health Products Limited P. R. China Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 3 3 91 100 100 48 Shanghai ECO Biok Veterinary Drug Sale Company Ltd. (via Zhejiang ECO Biok Animal Products Ltd.) P. R. China Ordinary 48 ECO Animal Health do Brasil Comercio de Brazil Produtos Veterinarios Ltda. Japan ECO Animal Health Japan Inc. U.S.A. ECO Animal Health USA Corp. U.S.A. Interpet LLC ECO Animal Health de Mexico, S. de R. L. de C. V. Mexico ECO Argentina S.A. ECO Animal Health Malaysia Sdn. Bhd Argentina Malaysia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 100 100 100 100 100 100 The principal activity of these undertakings for the last relevant financial year was as follows: ECO Animal Health Limited ECO Animal Health Southern Africa (Pty) Limited Petlove Limited Zhejiang ECO Biok Animal Health Products Limited Shanghai ECO Biok Veterinary Drug Sale Company Ltd. ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda ECO Animal Health Japan Inc. ECO Animal Health USA Corp. Interpet LLC ECO Animal Health de Mexico, S. de R. L. de C. V. ECO Argentina S.A. ECO Animal Health Malaysia Sdn. Bhd Principal activity Distribution of animal drugs Non-trading Non-trading Manufacture of animal drugs Distribution of animal drugs Distribution of animal drugs Distribution of animal drugs Distribution of animal drugs Non-trading Distribution of animal drugs Non-trading Non-trading ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 Fixed asset investments (continued) 14. The aggregate amount of capital and reserves and the results of these undertakings for the last relevant financial year were: The equity and results of Shanghai ECO Biok Veterinary Drug Sale Company Ltd are included within those disclosed for Zhejiang ECO Biok Animal Health Products Limited. All of the subsidiaries listed above were included in the consolidation for the year. Zhejiang ECO Biok Animal Health Products Limited and ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda both have 31 December year ends. The Group receives management accounts for the three months to 31 March for these subsidiaries for use in preparing the consolidated financial statements. Both ECO Argentina S.A. and ECO Animal Health Malaysia Sdn. Bhd hold neither assets nor liabilities and which have not traded since formation have been excluded from consolidation. Interpet LLC has also been excluded from consolidation as it holds no assets or liabilities and has ceased trading. The following trading subsidiaries have no requirement for audit under local legislation; ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda. ECO Animal Health Japan Inc. ECO Animal Health USA Corp. ECO Animal Health de Mexico, S. de R. L. de C. V. Joint Operations The Group also holds (by means of its ownership of ECO Animal Health USA Corp.), a 50% interest in Pharmgate Animal Health LLC, which is resident in the U.S.A. Pharmgate Animal Health LLC distributes the group’s products in the U.S.A. The Group also holds a 50% interest in Pharmgate Animal Health Canada Inc., which distributes its products into Canada. EquityProfit/(loss)EquityProfit/(loss)for the yearfor the year2016201620152015£000's£000's£000's£000'sECO Animal Health Limited13,0626,6926,6874,141ECO Animal Health Southern Africa (Pty) Limited217(121)33815Zhejiang ECO Biok Animal Health Products Ltd6,5315516,1781,076ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda.1,06091,122231ECO Animal Health Japan Inc.8677372345ECO Animal Health de Mexico, S. de R. L. de C. V.(290)(97)(201)(70)ECO Animal Health USA Corp.(11)105(107)(62) ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 Fixed asset investments (continued) 14. Both Pharmgate Animal Health LLC and Pharmgate Animal Health Canada Inc. have accounting years which end on 31 December. The group’s holdings in each of the joint operations’ share capital is given in the table below: In each case class A shares carry the rights to dividends payable out of profits attributable to the group. These are made up of profits made by products supplied by the ECO group plus 50% of any profit relating to new products developed jointly by the partners to the joint operation. The following amounts included in the group’s financial statements are related to its interest in these joint operations. Associated Company The Group also holds (by means of its ownership of ECO Animal Health Japan Inc.) a 47.62% interest in EcoPharma.com which is resident in Japan. This company distributes Animal Health products and other general merchandise within Japan and has previously not had significant net assets. ECO Animal Health Japan Inc’s holding in Eco Pharma.com is 10,000,000 shares out of a total of 21,000,000 shares. Pharmgate Animal Health Canada IncHolding (shares)Shares in IssueHolding %Common shares10020050Class A shares100100100Class B shares-100-Pharmgate Animal Health USA LLCHolding (shares)Shares in IssueHolding %Common shares10020050Class A shares100100100Class B shares-100-2016201520162015£000's£000's£000's£000'sCurrent assets1,4831,325494335Current liabilities(1,461)(1,308)(493)(335)Sales4,2243,6602,6812,627Expenses(892)(662)(247)(270)Pharmgate LLCPharmgate Animal HealthCanada Inc ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 Fixed asset investments (continued) 14. The following amounts included in the group’s financial statements are related to its interests in this associated company. 15. Inventories The cost of inventories recognised as an expense and included in cost of sales in the period amounted to £25,994,000 (2015: £21,474,000). 16. Trade and other receivables 2016£000'sInvestments (share of net assets)55Share of results for the year25Reversal of previous impairment30552016201520162015£000's£000's£000's£000'sRaw materials and consumables9,8245,868--Finished goods and goods for resale4,3733,965--Work in progress472---Property under development925-925-15,5949,833925-GroupCompany2016201520162015£000's£000's£000's£000'sTrade receivables12,0369,870--Amounts owed by group undertakings--41,00236,185Amounts owed by joint operations490303--Other receivables610688348240Prepayments and accrued income493661598013,62911,52241,40936,505GroupCompany ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 Trade and other receivables (continued) 16. As at 31 March 2016, trade receivables of £2,373,000 (2015: £2,085,000) due to the Group and £nil (2015: £nil) due to the Company were past due but not impaired. These relate to long standing distributors with whom we have agreed settlement terms and with whom there is no history of default. The ageing analysis of these trade receivables is as follows: As at 31 March 2016, trade receivables of £453,000 (2015: £276,000) were impaired and provided for. The impaired receivables mainly relate to historic debt for which recovery is still being sought. The Group mitigates its exposure to credit risk by extensive use of commercial credit reference agencies, close management of its customers’ trading against terms offered and use of retention of title clauses wherever possible. The ageing analysis of the impaired balances is as follows: Movement on the Group provision for impairment of trade receivables is as follows: 2016201520162015£000's£000's£000's£000'sUp to 3 months past due1,6211,546--3 to 6 months past due709504--Over 6 months past due4335--2,3732,085--GroupCompany2016201520162015£000's£000's£000's£000'sUp to 3 months past due10917--3 to 6 months past due16717--Over 6 months past due177242--453276--GroupCompanyGroup20162015£000's£000'sBalance at 1 April 276105Provided in the year194173Written off in the year(17)(2)Balance at 31 March453276 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 16. The carrying amounts of trade and other receivables are denominated in the following currencies: Trade and other receivables (continued) The carrying amounts of trade and other receivables are not significantly different to their fair values. 17. Deferred tax Group Deferred tax assets and liabilities are attributable to the following: The movement on the deferred tax account can be summarised as follows: 2016201520162015£000's£000's£000's£000'sPounds Sterling98778041,40936,505Euros3,0622,194--U S Dollars5,4424,672--Chinese RMB1,1951,208--Brazilian Real7481,117--Japanese Yen563478--Other currencies1,6321,073--13,62911,52241,40936,505GroupCompany2016201520162015£000's£000's£000's£000'sDrug registration expenditure(2,337)(2,285)(2,337)(2,285)Freehold property(89)(66)(89)(66)Investment property(8)(9)(8)(9)Plant and equipment(27)(28)(27)(28)Tax losses carried forward1,8882,1961,8882,196Amount (payable) after more than one year(573)(192)(573)(192)LiabilitiesNetDrug registration expenditureFreehold propertyInvestment propertyTotal£000's£000's£000's£000'sAt 31 March 2015(117)(66)(9)(192)(Charge) for the year through income statement(359)--(359)(Charge)/credit for the year through revaluation reserve-(23)1(22)At 31 March 2016(476)(89)(8)(573) ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 Deferred tax (continued) 17. The tax losses carried forward are not expected to expire under current legislation. Any future dividend received from the Chinese subsidiary Zhejiang ECO Biok Animal Health Products Limited will be subject to a 10% withholding tax (reduced to 5% in respect of dividends paid out of profits made in 2015 or after). The deferred tax liability in respect of this has not been recognised. No charge or credit (2015: no charge or credit) was recognised in the Company’s income statement for the year. A charge of £22,000 (2015: charge of £9,000) was recognised in the Company’s Revaluation Reserve. 18. Cash and cash equivalents Cash and cash equivalents comprise cash and short term deposits held by the Group. The carrying amount of these assets are not significantly different to their fair value. Company201620162016201520152015Freehold propertyInvestment propertyTotalFreehold propertyInvestment propertyTotal£000's£000's£000's£000's£000's£000'sAt 1 April (66)(9)(75)(66)-(66)Movement in the year through revaluation reserve(23)1(22)-(9)(9)At 31 March (89)(8)(97)(66)(9)(75)Note2016201520162015£000's£000's£000's£000'sCash and cash equivalents15,66520,0917,10913,219Overdrafts 20-(2,356)-(2,356)Net funds per cash flow15,66517,7357,10910,863GroupCompany ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 19. Trade and other payables 20. Borrowings Included within payables on the statement of financial position are the following amounts at fair value secured by a debenture on the assets of the group: Currency analysis of short term borrowings The Group has the facility to overdraw in specific currencies but no net facility. The interest rate for all currency overdrafts is 2.75 per cent over the relevant currency base rate and the borrowings are secured by two debentures held over all assets of the company dated 28 January 1995 and 28 November 2006. 21. Pension and other post-retirement benefit commitments Defined Contribution Pension Scheme The Group operates defined contribution pension schemes for the benefit of certain directors and senior employees. The assets of the schemes are held separately from the Group and independently administered by insurance companies. The pension cost charge represents contributions payable to the funds in the year and amounted to £452,000 (2015: £330,000). 2016201520162015£000's£000's£000's£000'sTrade payables8,2816,7518390Amounts due to joint operation8799--Other payables9611,95085761Accruals and deferred income1,044742618010,3739,542229931GroupCompany2016201520162015£000's£000's£000's£000'sShort term borrowings-2,356-2,356GroupCompany2016201520162015£000's£000's£000's£000'sU S Dollars-2,356-2,356GroupCompany ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 Pension and other post-retirement benefit commitments (continued) 21. Defined Benefit Pension Scheme The Group operates a defined benefit scheme in the UK for ex-employees only. A full actuarial valuation was carried out at 6 April 2012 and updated 31 March 2016 by a qualified independent actuary. The major assumptions used by the actuary were: Discount rate Rate of increase in pension payment Inflation assumption with a maximum of 5% p.a. 31 March 2016 3.50% 1.95% 2.95% 1 April 2015 3.20% 2.20% 2.90% Mortality rates Pre-retirement mortality is based on the mortality table known as AMCOO for males and AFCOO for females and 70% of the mortality indicated by this table has been taken, as in the previous year. Post retirement mortality is based on the mortality table known as S1NMA for males and S1NFA for females with reference to member’s years of birth. Allowance has been made for the improvement in mortality experienced recently and expected in the future by using 100% of the CMI’s 2015 improvement table, subject to a minimum improvement rate of 1.25% (2015: 1%) for males and 1% (2015: 0.7%) for females. Under these mortality assumptions, the expected future lifetime for a member retiring at age 65 at the year end would be 22.4 years for males (2015: 22.8 years) and 24.4 years for females (2015: 24.7 years). For members retiring in 20 years time, the expectation of life would be 24 years for males (2015: 24.7 years) and 25.9 years for females (2015: 26.0 years). The weighted average term of the liabilities is 16 years (2015: 17 years). The scheme is exposed to a number of risks including: 1. Interest rate risk: Movements in the discount rate used could affect the present value of the defined benefit pension obligations. 2. Longevity risk: Changes in the estimated mortality rates of former employees could affect the present value of the defined benefit pension obligations. 3. Investment risk: Variations in the actual return from the scheme’s investments could affect the scheme’s ability to meet its future pension obligations. ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 21. Pension and other post-retirement benefit commitments (continued) The pension fund assets are all held within a policy managed by an insurance company. Results20162015£000's£000's£000's£000'sAssets at start of year2,9852,680Defined benefit obligation at start of year(2,782)(2,478)Net asset at 1 April 203202Current service cost, including risk benefits-(4)Operating cost-(4)Expected return on assets95115Interest cost(89)(107)68(Loss)/gain on asset return(42)78Experience gain132Gain/(loss) on changes in assumptions56(135)Statement of other comprehensive income27(55)Employer contributions gross5559Expenses paid by trustees(7)(7)4852Net asset at 31 March 2016284203Actual assets at end of year2,7152,985Actual defined benefit obligation at end of year(2,431)(2,782) ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 21. Pension and other post-retirement benefit commitments (continued) Reconciliation of changes in the asset value during the year The expected contribution to be paid by the employer during the next accounting year is £59,000. This includes a provision of £4,000 for death in service risk premium, (2015: £4,000). Defined benefit obligation – sensitivity analysis The following amounts are the effect (on the defined benefit obligation) of reasonably possible changes to the key actuarial assumptions, as required by IAS 19. £000's£000's£000's£000'sFair value of assets at 1 April2,9852,680Expected return on assets95115(Loss)/gain on asset return(42)78Employer contributions (gross)5559Death in service insurance premiums paid-(4)Expenses paid by trustees(7)(7)(Decrease)/increase in secured pensioners' value due to scheme experience(371)64Fair value of assets at 31 March 20162,7152,985Reconciliation of changes in the liability value during the yearDefined benefit obligation at 1 April2,7822,478Interest cost89107Experience (gain) on liabilities(13)(2)(Gain)/loss on changes in assumptions(56)135(Decrease)/increase in secured pensioners' value due to scheme experience(371)64Defined benefit obligation at 31 March 20162,4312,78220162015Year ended 31 March20162015201420132012£000's£000's£000's£000's£000'sFair value of plan assets2,7152,9852,6802,7602,959Present value of defined benefit obligation2,4312,7822,4782,6312,957Surplus in plan2842032021292Experience gains on plan liabilities1324(31)(5) ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 21. Pension and other post-retirement benefit commitments (continued) 22. Share-based payments The measurement requirements of IFRS2 have been implemented in respect of share options that were granted after 7 November 2002. The expense recognised for share based payments made during the year is shown in the following table: The share based payment plans are described below: Movements in issued share options and jointly owned shares during the year The following table illustrates the number and weighted average exercise prices (WAEP) of and movements in, share options and jointly owned shares during the period: The average share price during the year was 294.62p (2015: 183.1p). Actuarial assumptionReasonably Possible ChangeDiscount rate(+/- 1%)(107)138(125)162Increase in inflation(+/- 1%)--6(7)Members' life expectancy(+/- 1year)26(27)28(29)2015 £000's2016 £000's(Decrease)/Increase in Defined Benefit Obligation20162015£000's£000'sTotal expense arising from equity settled share-based transactions35625220162016201620162015201520152015000'sWAEP000'sWAEP000'sWAEP000'sWAEP££££Outstanding at 1 April3,6421.822,6032.003,4411.942,6032.00Granted during the period3,0292.83--8741.89--Expired/cancelled during the period(29)1.95--(9)1.89--Exercised during the period(948)1.52(2,051)1.99(664)1.20--Outstanding at 31 March5,6942.415522.053,6421.822,6032.00Exercisable at 31 March8361.795522.051,4061.482,6032.00OptionsJointly owned sharesOptionsJointly owned ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 Share-based payments (continued) 22. The maximum aggregate number of shares over which options may currently be granted cannot exceed 10 per cent of the nominal share capital of the Company on the grant date. The options outstanding at 31 March 2016 had a weighted average share price of £2.41 (2015: £1.82) and a weighted average contractual life of 5.7 years (2015: 4.9 years). Eco Animal Health Group plc Executive Share Option Scheme In accordance with the Executive Share Option Scheme, approved and unapproved share options are granted to directors and employees who devote at least 25 hours per week to the performance of duties or employment with the Company. Details of options granted to directors can be found in the Directors Report and notes 29 (Directors Emoluments) and 31 (Related Party Transactions). The exercise price of the options is equal to the market price of the shares at the date of grant. The options vest three years from the date of grant and if the option holder ceases to be a director or employee of the Company due to injury, disability, redundancy or retirement on reaching pensionable age or any other age at which they are bound to retire at in accordance with the terms of their contract of employment, the option may be exercised within a period of six months after the option holders so ceasing, although the Board may, at its discretion, extend this period by up to 36 months after the date of cessation. If the option holder ceases employment for any other reason, the option may not be exercised unless the Board permits. The approved and unapproved options will be forfeited where they remain unexercised at the end of their respective contractual lives of ten and seven years. An analysis of the expiry dates of the outstanding options is given below: ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 22. Share-based payments (continued) ECO Animal Health Group plc Joint Share Ownership Plan In accordance with the Group’s Joint Share Ownership Plan (JSOP), jointly owned shares may be awarded to directors and employees of the company. The shares are awarded at the market price on the day of the award and are held jointly by the employee concerned and the ECO Animal Health Group plc Employee Benefit Trust. After a three year vesting period, the shares may be sold at the option of the employee. The proceeds of sale are split between the trust and the employee so that the Trust receives the original market value of the shares sold plus a 5.9% per annum carry charge, with the employee receiving any excess over this amount. Date of grantUnapprovedApprovedExercise price (pence)Expiry date03 March 200838,910108.5003 March 201818 September 200830,00085.0018 September 201830 April 20097,500147.0030 April 201906 August 200922,000135.0006 August 201906 August 200928,000135.0006 August 201620 May 201022,650140.0020 May 202020 May 2010175,350140.0020 May 201711 October 201140,000186.5011 October 202111 October 2011147,000186.5011 October 201809 July 2012325,000222.5009 July 201824 April 201326,060215.0024 April 202020 August 201313,200226.0020 August 202320 August 2013306,800226.0020 August 202009 October 201382,940196.0009 October 202309 October 2013478,060196.0009 October 202022 January 201414,450207.5022 January 202422 January 201450,550207.5022 January 202107 August 201479,800161.5007 August 202407 August 2014178,700161.5007 August 202113 February 2015118,800200.5013 February 202513 February 2015479,200200.5013 February 202216 April 20154,000239.0016 April 202516 April 201541,000239.0016 April 202226 August 2015136,100265.0026 August 202526 August 20151,694,900265.0026 August 202218 December 2015700,000312.5018 December 202218 January 201612,800315.0018 January 202618 January 2016365,200315.0018 January 202317 February 201624,600312.5017 February 202617 February 2016400312.5017 February 202301 March 20169,600312.5001 March 202601 March 201640,400312.5002 March 20235,010,560683,410 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 22. Share-based payments (continued) Because these are actual issued shares in the company rather than options there is no expiry date associated with jointly owned shares. However, they will normally be forfeit if the employee ceases to be an employee of the company for any reason other than death, injury, redundancy, retirement on or after normal retirement age or disposal by the Group of the employing business entity. The market price of the shares at 31 March 2016 was 335.0p with a range in the year of 202.50p to 335.0p. Inputs to the Valuation Model (for options and jointly owned shares) The fair value of share options granted prior to 31 March 2007 were estimated at the time of grant using trinomial pricing model, taking into account all the terms and conditions upon which the options were granted. For options issued after 1 April 2007, the directors took the decision that a Black- Scholes model would be more appropriate. The following table lists the inputs to the Black-Scholes model which applies to both options and jointly owned shares. The risk free rate has been based on the yield from UK Government treasury coupons. The volatility of the share price was estimated based on standard deviation calculations on the historic share price. No shares were issued under the Joint Share Ownership Plan during the year or the previous year. The fair value of the part interest in the jointly owned shares was calculated using a Black-Scholes model with the same assumptions as those used for the options issued during the same year. The weighted average fair value of the Jointly owned shares issued during the year ended 31 March 2012 was 26.1p. 20162015201420132012Vesting period (years)33333Option expiry (years)7-10 yrs7-10 yrs7-10 yrs7-10 yrs7-10 yrsDividends expected on the shares1.50%2.0-2.3%1.4-1.9%1.40%1.00%Risk free rate (average)1.00%1.00%0.5-1.2%0.50%2.00%Volatility of share price20%15%20%25%27%Weighted average fair value (pence)43.019.229.138.741.0 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 23. Share capital During the year the Company bought 16,233 of its own shares into treasury at an average price of £2.63. During the year 948,025 shares were issued at a premium of £1,392,000 as a result of the exercise of options by employees. 24. Non-controlling (minority) interests 25. Treasury share reserve Treasury share reserve consists of £1,144,000 (2015: £5,217,000), being the cost of 552,360 (2015: 2,603,290) shares in the Company held by the Group’s JSOP. 20162015£000's£000'sAuthorised68,100,000 Ordinary shares of 5p each3,4053,40510,790 Deferred ordinary shares of 10p each1132,334 Convertible preference shares of £1 each32323,4383,438Allotted, called up and fully paid64,090,446 (2015: 63,142,421) Ordinary shares of 5p each3,2053,1572016201620152015£000's£000's£000's£000'sBalance at 1 April 3,0292,168Share of subsidiary's profit for the year672527Share of foreign exchange (loss)/gain on net investment(97)334575861Share of dividend paid by subsidiary(402)-Balance at 31 March 3,2023,02920162015£000's£000'sBalance at 1 April 5,2175,217Repaid on disposal of jointly owned shares4,073-Balance at 31 March 1,1445,217 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 26. Other reserves The only material reserve remaining at the year end is the reserve for share based payments which records the total amount which has been charged to the Group’s results in respect of unexpired share based payment arrangements. Included in the Group’s retained earnings are the following exchange movements which have been taken directly to reserves on consolidation of the subsidiaries and joint operation listed below: Group and CompanyCapital redemption reserveReserve for share-based paymentsTotal£000's£000's£000'sAt 31 March 20141061,7101,816Share-based payments-252252Transfer to retained earnings on expiry of options-(293)(293)At 1 April 20151061,6691,775Share-based payments-326326Transfer to retained earnings on expiry of options-(73)(73)At 31 March 20161061,9222,028At 1 AprilMovementAt 31 March2015in the year2016£000's£000's£000'sIn respect of:Zhejiang ECO Biok Animal Health Products Limited746(101)645ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda(427)(72)(499)ECO Animal Health Japan Inc.(161)72(89)Eco Animal Health USA Corp.(7)(9)(16)ECO Animal Health de Mexico, S. de R. L. de C. V.(33)8(25)ECO Animal Health Southern Africa (pty) Ltd.---Pharmgate LLC112Pharmgate Canada LLC---Foreign currency differences attributable to owner (debited) directly to reserves.(101) ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 Financial commitments 27. At 31 March 2016 the Group had minimum commitments under non-cancellable operating leases as follows: 28. The group had no authorised capital commitments as at 31 March 2016 (2015: Nil). Capital commitments 29. Directors’ emoluments During the year the directors exercised 27,640 (2015: 112,910) share options realising a gain of £50,000 (2015: £83,000) and disposed of interests in 1,956,930 shares held under the joint share ownership plan realising gains of £1,952,000 (2015: £nil). The number of directors for whom retirement benefits are accruing under money purchase pension schemes amounted to 4 (2015: 3). No directors accrued benefits under defined benefit schemes for this or the previous year. The highest paid director received £412,000 (2015: £379,000) including £86,000 of share-based payments and £80,000 (2015: £40,000) of pension contributions. 2016201520162015£000's£000's£000's£000'sExpiry date:Within one year4624038470Between the second and fifth year76458210295In over five years1,7771,364--3,0032,349186165Minimum expected sublease rental receipts:Within one year140140--Between two and five years53194--193334--Land and BuildingsOther20162015£000's£000'sEmoluments for qualifying services569662Company pension contributions to money purchase schemes18794Share-based payments204151Benefits in kind2423984930 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 30. Number of employees Employees The average number of employees (including directors) during the year was: 20162015NumberNumberDirectors77Production and development6458Administration4240Sales8573198178Employment costs (including amounts capitalised)20162015£000's£000'sWages and salaries6,9026,095Share-based payments326252Social security costs641419Other pension costs4563348,3257,100 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 Related party transactions 31. During the year P Lawrence and his family received dividends to the value of £541,000 (2015: £478,000). At the year end ECO Animal Health Group plc owed P A Lawrence and members of his family a total of £64,000 (2015: £619,000). No interest was paid in respect of these balances which are payable on demand. The other directors and their families received dividends to the value of £8,000 (2015: £1,000). During the year the Group paid £55,000 to Emmelle Developments Limited, a company in which P A Lawrence is a Director and shareholder, in respect of work done on a property acquired by the Group for renovating. During the year, the Group provided management services to Anpario plc, a company in which P A Lawrence is a Director and holds share options. Fees of £36,000 (2015: £33,000) were charged. During the year, the Group provided the services of two employees to C-Corp Limited, a company in which P A Lawrence is a Director and shareholder. Fees of £43,000 (2015: £43,000) were charged. During the year ECO Animal Health Limited made sales on an arm’s length basis to the following other companies. The sales and year end balances are given in the table below. Since all of these companies are wholly owned by the Group, these transactions and balances have all been eliminated on consolidation. Interest and management charges from Parent to the other Group companies During the year the Company made management charges on an arm’s length basis to ECO Animal Health Limited amounting to £190,000 (2015: £195,000) and charged interest of £600,000 (2015: £490,000) to the Company. Both of these charges were made through the inter-company account and were eliminated on consolidation. ECO Animal Health Limited also made management charges on an arm’s length basis to ECO Animal Health Japan Inc. amounting to £46,000 (2015: £30,000). The whole transaction was eliminated on consolidation. ECO Animal Health Limited also paid £145,000 (2015: £341,000) of service charges to ECO Animal Health USA Corp. during the year. This transaction was eliminated on consolidation. During the year ECO Animal Health Limited paid interest of £13,000 (2015: £15,000) to ECO Animal Health Southern Africa (Pty) Limited. This transaction was eliminated on consolidation. During the year Zhejiang ECO Biok Animal Health Products Limited paid dividends of £32,000 to ECO Animal Health Group plc (2015: £nil) and £386,000 to ECO Animal Health Limited (2015: £nil). Subsidiary companiesSalesYear end (payables)/receivables (net)SalesYear end (payables)/receivables (net)2016201620152015£000's£000's£000's£000'sZhejiang ECO Biok Animal Health Products Limited5,0431,6573,814292ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda.3,929(182)3,334162ECO Animal Health Japan Inc.1,085162970196ECO Animal Health de Mexico, S. de R. L. de C. V.13880146839ECO Animal Health USA Corp.2,9991,5943,324890 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 Related party transactions (continued) 31. During the year ECO Animal Health Limited declared no dividend to ECO Animal Health Group plc (2015: £5,000,000). Inter Company Guarantee ECO Animal Health Group plc and ECO Animal Health Limited have each given a guarantee dated 28 January 1995 to the company’s bankers in respect of the foreign currency overdraft facility which has been extended to them jointly. Joint operations During the year ECO Animal Health Limited made sales on an arm’s length basis of £1,965,000 (2015: £1,962,000) to Pharmgate Animal Health Canada LLC. The balance outstanding at the year end was £449,000 (2015: £286,000). Key management compensation The group regards the board of directors as its key management. The number of directors for which retirement benefits are accruing is 4 (2015: 3). Financial instruments 32. The Group uses financial instruments comprising borrowings, cash and liquid resources and various items, such as trade receivables, trade payables etc. that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the Group’s operations. The directors are responsible for the overall risk management. The main risks arising from the Group’s use of financial instruments are interest rate risk, capital and liquidity risk, credit risk and foreign currency risks and they are summarised below. The policies have remained unchanged throughout the year. Interest rate risk The Group finances its operations through a mixture of retained earnings and bank borrowings. At the year end the Group was exposed to interest rates on currency overdraft facilities of £nil (2015: £2,356,000). 20162015£000's£000'sSalaries and short term benefits593686Retirement benefits18794Share-based payments204150984930 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 Financial instruments (Continued) 32. Capital and liquidity risk The Group manages its capital to ensure continuity as a going concern whilst maximising returns through the optimisation of debt and equity. As part of this, the Board considers the cost and risk associated with each class of capital. The capital structure of the Group consists of debt which includes the borrowings disclosed in note 20, cash and cash equivalents in note 18 and equity attributable to equity holders of the parent comprising issued capital, reserves and retained earnings as disclosed in the Group’s statement of changes in equity. Liquidity risk is managed by maintaining adequate reserves and banking facilities with continuous monitoring of the latest developments by management. At 31 March 2016 the Group was contractually obliged to make repayments as detailed below: Credit risk Credit risk is that of financial loss as a result of default by a counterparty on its contractual obligations. The Group’s exposure to credit risk arises principally in relation to trade receivables from customers and on short term bank deposits. Customers’ creditworthiness is wherever possible checked against independent rating databases and filing authorities or otherwise assessed on the basis of trade knowledge and experience. Exposure and customer credit limits are continually monitored both on specific debts and overall. The credit risk in relation to short term bank deposits and derivatives is limited because the counterparties are banks with good credit ratings. The Group operates in certain geographical areas (for example Venezuela) which are from time to time subject to restrictions in the free movement of funds. The Board seeks to minimise the group’s exposure to these markets but the nature of our business makes it impossible to eliminate this exposure completely. Currency risk The Group operates in overseas markets particularly through its subsidiaries in China, Brazil, the USA and Japan and its Joint operation in Canada and is subject to currency exposure on transactions undertaken during the year. The Group does some simple economic hedging of receivables when the Board feels it is appropriate to do so and foreign exchange differences on retranslation of foreign monetary items are taken to the income statement. 20162015WITHIN ONE YEAR OR ON DEMAND£000's£000'sBank overdrafts-2,356Trade payables8,2816,7518,2819,107 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 Financial instruments (Continued) 32. The table below shows the extent to which the Group companies have monetary assets and liabilities in currencies other than in Sterling: At 31 March 2016 the Group was mainly exposed to the Dollar, Euro, the Chinese RMB, the Japanese Yen, the Brazilian Real and the Canadian Dollar. The following table details the effect of a 10 per cent movement in the exchange rate of these currencies against sterling when applied to outstanding monetary items denominated in foreign currency as at 31 March 2016. A positive number indicates the decrease in profit which would arise from a 10 per cent weakening of the foreign currency concerned. Foreign currency of Group operations2016US DollarEurosRandChinese RMBJapanese YenBrazilian RealCanadian DollarOtherSterling equivalent (000's)2,7933,1642252,7996058211,0084982015Sterling equivalent (000's)(2,644)2,9743643,3344221,2271,21054020162015£000's£000'sU S Dollar254(240)Euro288270Chinese RMB254303Japanese Yen5538Brazilian Real75111Canadian Dollar92110 ECO ANIMAL HEALTH GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2016 32. Analysis of financial instruments by category Financial instruments (Continued) Group Company All financial liabilities in the Group’s and Company’s statements of financial position are classified as held at amortised cost for both the current and previous year. Post balance sheet event 33. The Company paid a dividend of £1,209,000 on 4th April 2016 to shareholders on the register, net of £9,000 waived by the Employee Benefit Trust. Loans and receivablesTotal2016£000's£000'sInvestments6464Trade and other receivables (excluding prepayments)13,13613,136Cash and cash equivalents15,66515,6652015Loans and receivablesTotal£000's£000'sInvestments99Trade and other receivables (excluding prepayments)10,86110,861Cash and cash equivalents20,09120,091Loans and receivablesTotal2016£000's£000'sTrade and other receivables (excluding prepayments)41,35041,350Cash and cash equivalents7,1097,1092015Loans and receivablesTotal£000's£000'sTrade and other receivables (excluding prepayments)36,42536,425Cash and cash equivalents13,21913,219 

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