ECO ANIMAL
HEALTH GROUP PLC
ANNUAL REPORT & ACCOUNTS FOR
THE YEAR ENDED 31 MARCH 2020
ECO Animal Health Group Plc
ECO ANIMAL HEALTH GROUP PLC
DIRECTORS
AND ADVISERS
Directors
Andrew Jones
Non-Executive Chairman
(effective from 22 August 2019)
Marc Loomes
Chief Executive
Christopher Wilks
Finance Director
Frank Armstrong
Non Executive Director
Anthony Rawlinson Non Executive Director
Secretary
Christopher Wilks
Company Number
1818170
Registered Office
Registered Auditors
78 Coombe Road
New Malden, Surrey
KT3 4QS
BDO LLP
Level 12
Thames Tower
Station Road
Reading
RG1 1LX
Registrars
Lawyers
Bankers
Nominated Adviser
And Broker
Joint Broker
Share Registrars Limited
The Courtyard, 17 West Street
Farnham, Surrey
GU9 7DR
Mills and Reeve
Monument Place, 24 Monument Street
London
EC3R 8AJ
Natwest plc
Tooting Branch, 30 High Street
London
SW17 0RG
N+1 Singer
One Bartholomew Lane
London
EC2N 2AX
Peel Hunt
Moor House, 120 London Wall
London
EC2Y 5ET
2
ECO Animal Health Group Plc | Annual Report 2019/20
CONTENTS
4
6
Financial Highlights
Operations Highlights
10
Chairman’s Statement
12
Chief Executive’s Report
14
Finance Director’s Report
19
Strategic Report
23
Corporate Governance Report
37
Directors’ Report
39
Independent Auditor Report
46
Consolidated Income Statement
47
48
Consolidated Statement
Of Comprehensive Income
Consolidated Statement
Of Changes In Equity
50
Statement Of Changes In Equity
52
Statements Of Financial Position
(Co. Number: 01818170)
53
Statement Of Cash Flows
54
Notes To The Consolidated
Financial Statements
3
FINANCIAL HIGHLIGHTS
SALES 7% HIGHER
AT £72.1m
(2019 restated: £67.3m)
GROSS MARGIN CONSISTENT TO
within 1%
(2020 46%, 2019 47%)
INCREASED R&D INVESTMENT
RESULTS IN ADJUSTED EBITDA 33%
LOWER AT
£8.4m
(2019 restated: £12.5m)
4
ECO Animal Health Group Plc | Annual Report 2019/20
EARNINGS PER SHARE 65% LOWER
AT 3.82p
(2019 restated: 10.86p)
STRONG CASH GENERATION FROM
OPERATIONS OF
£5.5m
(2019 restated: £7.1m)
NEW PRODUCT DEVELOPMENT
EXPENDITURE 17% HIGHER
AT £10.9m
(2019 £9.3m)
NET CASH LOWER
AT £9.8m
(2019 restated: £16.9m)
5
OPERATIONS HIGHLIGHTS
DEMAND FOR AIVLOSIN®
CONTINUED TO
GROW STRONGLY,
with two new marketing authorisations gained in Europe and
Indonesia for breeding chickens and laying chickens, respectively.
STRONG REVENUE IN CHINA IN
SECOND HALF AS
MARKET RECOVERS
from worst effects of African Swine Fever (ASF).
SALES GROWTH AND MARGIN RECOVERY IN THE
USA AS TRADE TENSIONS
between the USA and China recede.
TWO NEW POULTRY VACCINE
COLLABORATIONS SIGNED
DURING THE YEAR
with the Pirbright Institute.
TRANSITION TO REMOTE WORKING AND
COVID-19 SAFE WORKING
SEAMLESS
and uninterrupted
CONTINUED
CORPORATE GOVERNANCE
improvements.
6
ECO Animal Health Group Plc | Annual Report 2019/20
Marc Loomes, CEO of ECO Animal
Health Group plc, commented:
“
These results reflect a solid
recovery in our key markets,
particularly in the second
half of the year and we have
continued our investment
at record levels in new
product development. We
are proud of the Group’s
ability to seamlessly adapt
to safe working during the
Coronavirus pandemic.
We are confident that our
development programmes
will deliver exciting new
products which will augment
the natural growth from
current products and sustain
long term growth. For the
year ahead we expect to
report profitable growth and
to perform in line with the
market expectations.
“
The information contained within this announcement is deemed by the Group to constitute inside information as stipulated under the Market Abuse
Regulations (EU) No. 596/2014 (“MAR”). Upon the publication of this announcement via a Regulatory Information Service (“RIS”), this inside information is
now considered to be in the public domain.
7
ECO GLOBAL OFFICES
8
ECO Animal Health Group Plc | Annual Report 2019/20
SALES IN MORE THAN
70 COUNTRIES
Head Office
•• New Malden, London
Regional Offices
••
••
Southgate, London
Princeton, USA
•• Wilmington, USA
•• Ontario, Canada
•• Queretaro, Mexico
••
••
Sao Paulo, Brazil
Buenos Aires, Argentina
•• Dublin, Ireland
••
••
••
••
••
••
Shanghai, China
Zhejiang, China
Johannesburg, South Africa
Tokyo, Japan
Kuala Lumpur, Malaysia
Bangalore, India
9
This has been a challenging year for our business. The com-
bination of the ASF outbreak in Asia and the USA trade war
with China particularly impacted our business in the first half
of the year, although this was partly offset by very strong
performance in other parts of the world. Performance in the
second half of the year saw substantial recovery in revenues
from the USA and China. The net result was revenue ahead
of the prior year but below our internal budget.
This has been a challenging year for our business.
The combination of the ASF outbreak in Asia and
the USA trade war with China particularly impacted
our business in the first half of the year, although
this was partly offset by very strong performance in
other parts of the world. Performance in the second
half of the year saw substantial recovery in revenues
from the USA and China. The net result was revenue
ahead of the prior year but below our internal
budget.
The ECO Board is confident that our R&D portfolio
has the potential to deliver major value to our
shareholders and so despite the lower than budget
top line revenue, we decided to maintain the
budgeted increased investment in R&D to keep our
portfolio progressing towards commercialisation.
This has resulted in a reduction in our immediate
profits in the 2019-20 year, but we are confident this
will be more than offset by the growth in long term
value of the company through progression of our
R&D portfolio.
We have decided not to pay a dividend for the
financial year 2019-20 in order to maintain cash
reserves at a prudent level, particularly in the light
of the economic uncertainty arising from the
COVID-19 pandemic, and to build value by continued
investment in key R&D programs.
The Board places the highest priority on good
corporate governance. We have taken several
actions in this important area during the year:
•• We appointed new auditors and undertook a
major revision of the application of accounting
standards across our business and we are now
confident that our approach is fully compliant
and reflects best practice.
1010
ECO Animal Health Group Plc | Annual Report 2018/19CHAIRMAN’S STATEMENTFOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2019/20 •• We recruited a new, highly experienced
CFO and have significantly expanded and
strengthened the finance team. We have
also established an internal audit capability.
We have worked with a major city advisor to
thoroughly review our key codes and policies
and procedures and to institute training
programs where needed.
We made significant changes at Board level
during the year including the addition, shortly
after the year end, of a new and highly
experienced Non-Executive Director. The
board now has a good base of experience and
skills to lead the Company from the current
period of challenge and change through its next
stage of development and value-based growth.
We are disappointed that the release of our
annual results was delayed due to the scale
of work needed for the audit combined
with the restrictions in working associated
with COVID-19, but believe it was essential
to enable completion of an extensive and
thorough review of our accounting policies and
statements with our new auditors.
This is my first statement as Chairman, having
succeeded Richard Wood in August 2019; I am
grateful for his leadership and implementing
various change initiatives.
I started my report by noting that is has been a
challenging year for the Company. I am hugely
grateful for how the Board, Executive and
wider ECO team have risen to the challenges,
delivered a strong performance considering
the conditions and have kept motivation and
energy to keep ECO moving and developing
value. Finally, I sincerely thank our shareholders
for their patience and much valued strong
support through this period.
Current trading and prospects
Performance in the current financial year ending
31 March 2021 has been strong with the strength
seen in both our Chinese and US markets towards
the end of the last financial year continuing
into the current financial year. In October 2020,
we announced that the revenue performance
in the first six months of the current financial
year was “significantly ahead of management
expectations and the prior year”. We also advised
that notwithstanding the historical second
“
The Board places the highest priority on good
corporate governance. We have taken several
actions in this important area during the year.
“
NET CASH
AT YEAR
END OF
£9.8m
half weighting to the Group’s revenue, if these
revenue trends continued through the second
half of the financial year the Board expected that
the Group’s full year revenue for the year ending
31 March 2021 would exceed market expectations.
This resulted in an upgraded market expectation
both for revenue and profitability
On 24 November 2020 we confirmed that
strong trading had continued during November
and, being mindful of the continuing global
uncertainties and four months remaining until
the end of the financial year, we were confident
of meeting the upgraded market expectations.
On 21 January 2021 we issued a positive trading
update, confirming Group revenues and EBITDA
were expected to be significantly ahead of
market expectations for the year ending
31 March 2021. We noted that the strength in the
Chinese market, supported by the rebuilding of
pig herds and the high price for pork, continued
through the third quarter and the outlook for
the final quarter sales continued these strong
trading trends.
We look forward to the rest of this financial
year and our reporting prospects for 2021 with
continuing optimism.
Dr Andrew Jones
Chairman
3 February 2021
1111
CHIEF EXECUTIVE’S REPORT
FOR THE YEAR ENDED 31 MARCH 2020
Global revenue grew by 7% to £72.1 million illustrating the value of ECO’s
global footprint, with sales generated in more than seventy countries, in
the face of significant headwinds, and the commoditised nature of pork
and poultry production.
I am pleased to report that ECO demonstrated
considerable fortitude during a particularly
challenging year for the Company. The impact
of African Swine Fever (ASF) in China which
then spread into neighbouring territories,
the ongoing tensions between Washington
and Beijing and the onset of the COVID-19
pandemic presented significant challenges to
the business. The determination, dedication
and resilience of our employees combined with
the value of our product offering delivered
a strong second half performance during the
year ended 31 March 2020 with results for the
full year being in line with the adjusted market
expectations.
Operational Review
Global revenue grew by 7% to £72.1 million
illustrating the value of ECO’s global footprint,
with sales generated in more than seventy
countries, in the face of significant headwinds,
and the commoditised nature of pork and
poultry production.
Sales of Aivlosin®, our patented antimicrobial
which is used under veterinary prescription
for the treatment of economically important
diseases in pigs and poultry, increased by 16%,
accounting for 84% of total revenue.
Sales of the smaller Ecomectin® anti-parasitic
range at £4 million, increased by 7% and
represented 6% of the Group revenue.
Sales of all other products were £7.5 million
(2019 – £11.4 million) and mainly comprised a
range of supportive antimicrobial products for
pigs in China.
1212
The China revenue from external customers
declined by 17% reflecting a year of two
remarkably different periods. In December 2019,
we reported for the six month period ended
30 September 2019 (“Interims”) that the
well-publicised effects of the ASF outbreak in
China provided significant headwinds in our
largest market whist noting encouraging signs
for the second half of the financial year with
a reported reduction in the rate of new ASF
outbreaks in China and an indication of some
restocking of pig herds by certain high value
producers, including some of our customers.
These early encouraging signs were supported
by rapidly rising pork prices resulting in a strong
second half (“H2”) with revenue ahead of the
prior year. Our Chinese subsidiary has focused
on the respiratory health of replacement
breeding sows whose numbers at the major
producers have increased rapidly in response
to the pork shortage and very high pork
prices. The high value of these sows and their
offspring has enabled the subsidiary to secure
the business of an increasing number of key
accounts.
Revenue in Japan rose by 16%, driven again
by growth in the swine business to large
producers.
North American revenue from external
customers increased by 10% reflecting the
growing importance of Aivlosin®’s low yet
effective dose rate and short treatment
duration in medication protocols as
veterinarians and producers adhere to
responsible use of antimicrobial guidelines.
In the USA, revenue was 22% higher, reflecting
a strong H2 performance. The first half had
been marred by China-USA trade tensions
which had left US pig producers with limited
ability to capitalise on the anticipated export
market created by the pork shortage in China
which led to overproduction of pigs with
depressed prices and margins. The strong H2
was marked by better pork prices linked to
global supply shortages brought about by ASF
in China, an increase in commercial activities
by a strengthened sales and technical team
during the autumn and winter months armed
with adjusted customer incentive programmes
for the year 2020. Canadian revenue fell by
11% largely as a result of restrictions imposed
by China on Canadian pork imports. These
restrictions were lifted but the poor first half
performance was not fully recovered in the
second half of the financial period.
Latin America revenue rose strongly by
17%, with the Brazilian and the Mexican
subsidiaries up 80% and 23% respectively,
reflecting the benefits of ECO’s key account
management approach and the development
of strong partnerships with local third party
distributors in these two key markets. Argentina
delivered a record result and important
tenders were again won in Cuba although these
results were tempered by challenging market
conditions in Central America and other Latin
American countries such as Columbia and Peru.
In South and Southeast Asia, revenue was
75% higher. Thailand was the best performing
market with Aivlosin® on all major account
approved product lists resulting in both swine
and poultry revenue growth. New business
was won in Malaysia resulting in almost a
doubling of sales over the prior year. These two
outstanding performances were moderated
by extremely challenging conditions in
India, where the poultry market contracted
significantly amidst a transition to a more
consolidated integrated market with higher
ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 quality standards and away from an informal
market characterised by small producers, and
in Vietnam and The Philippines, both affected
by ASF.
for laying birds. The Aivlosin® approval for high
value breeding chickens will, like the commercial
layer indication, be rolled out to the multi-million
dollar international poultry markets.
European revenue declined by 4%. Aivlosin®
sales were strong in key markets such as Spain
and Poland although overall revenue into
continental markets fell slightly.
Sales in the United Kingdom, which represent
just over 2% of global revenue, rose 25%, across
all products, led by strong Aivlosin® sales during
an outbreak of swine dysentery.
In Russia, an increasingly active exporter
of meat, revenue was affected by disease
outbreaks in swine and in poultry although
market share gains were made with the most
important customers. The previously reported
delays to the inspection of manufacturing
facilities and laboratories by the Russian
authorities have been resolved.
Sales in the Rest of the World declined by half
a million pounds to £1.2million reflecting in
equal parts a declining presence in South Africa
and softer demand in Middle East and
North Africa.
Product Research and
Development
The Company’s early stage research and
proof of concept development activities are
outsourced to leading research institutions and
universities with later stage full development
work managed in-house. This model mitigates
the significant costs associated with in-house
laboratories and owned research functions.
Pipeline
ECO is building a significant product portfolio
pipeline with a mix of well-established concepts
and novel, highly competitive technologies,
and approaches with the emphasis on vaccines
and other new products to complement our
existing antimicrobial business. The pipeline is
focused on providing solutions to respiratory and
gastrointestinal (gut) diseases of major economic
importance in pigs and poultry. Two worldwide
exclusive research partnerships with The
Pirbright Institute, United Kingdom were signed
in September 2019 to develop novel poultry
vaccines against respiratory and systemic viral
diseases in commercial chicken flocks globally.
Several additional new proprietary concepts and
third-party opportunities entered ECO’s product
development screening programme during the
year. New product development expenditure in
the year rose by 17% to £10.9 million (2019: £9.3
million) and is being continued at a significant
level in 2020/21. This will ensure that we have
several mid and late stage projects able to deliver
early revenues from 2022/23.
COVID-19 Impact
ECO transitioned smoothly to home working
during the final weeks of the year building
on the new ways of communicating with
customers developed during the ASF outbreak
and without losses of efficiency. Outsourced
manufacturing and the Group’s supply chain
operated smoothly through the year end.
Product Approvals
Brexit
Two Aivlosin® for poultry marketing
authorisations were received. The first, from the
European Medicines Agency (EMA), allowed ECO
to market Aivlosin® 625 mg/g Water Soluble
Granules in Europe for the treatment and
metaphylaxis (control) of respiratory infections
caused by Mycoplasma gallisepticum in breeding
chickens, whilst the second allows the use of
the same Aivlosin® formulation in chickens laying
eggs for human consumption, with a zero day
drug withdrawal period for eggs in Indonesia
the most important market in Southeast Asia
ECO’s EU marketing authorisations have been
transferred to the European subsidiary, ECO
Animal Health Europe Limited registered in
Dublin, Republic of Ireland and all our Brexit
contingency plans are in place. The financial
and operational impact of Brexit is expected
to be minimal, particularly given the recently
announced trade deal between the UK and the
EU. ECO’s sales to the EU (excluding the UK)
represented 8% of total revenue for the year.
People
I would like to thank all our employees for their
extraordinary levels of energy, engagement, and
professionalism in addressing the challenges
of the year. Individually and collectively their
ability to innovate and to adapt combined with
sheer hard work underpins these results and
ECO’s prospects.
Marc Loomes
Chief Executive Officer
3 February 2021
NORTH AMERICA
REVENUE
ROSE BY 10%
LATIN AMERICAN
REVENUE
ROSE BY 17%
SOUTH & SOUTH EAST
ASIA REVENUE
ROSE BY 75%
1313
FINANCE DIRECTOR’S REPORT
FOR THE YEAR ENDED 31 MARCH 2020
During the year ended 31 March 2020, ECO recorded its highest second
half revenue weighting to date being 60% of the full year revenue.
previously and to review the implementation
of IFRS across the Group. In a number of areas,
technical non – conformance with IFRS was
identified and in other areas, interpretation
of the relevant standard was considered to
have been incorrect. As a result, in our interim
report, released in December 2019, we published
extensive prior year restatements, describing
the nature of the adjustments and their financial
effect. Those restatements form part of these
Financial Statements and have been audited for
the first time. The principles of the prior year
restatements are as previously described and fall
into the following categories:
•• Accounting for revenue in accordance
with IFRS15 – revenue recognition and
accounting for sales discounts (note 3.1)
•• Accounting for expenditure on research
and development – in particular the portion
of expenditure which should be capitalised
under IAS38 (note 3.2)
•• Accounting for our Joint Arrangements in
the USA and Canada under IFRS11 (note 3.3)
•• Accounting for bonus payments on an
accruals basis (note 3.4)
•• Accounting for leases under IFRS16 (note 3.5)
•• Accounting for foreign exchange (note 3.6)
•• Accounting for Free Goods Incentive
(note 3.7)
•• Accounting for share based payments (note
3.8 and 3.9(Company only))
The notes to these accounts describe these
changes in detail.
Introduction
I was delighted to join ECO in September 2019 as
Group Finance Director.
It has been a significant year of change for the
Group. In addition to the many commercial
challenges faced by the Group during the
year such as African Swine Fever in China,
USA-China trade tensions and, in the latter
part of the financial period, the advent of the
COVID-19 pandemic, we have continued our
journey of improvements in governance. These
improvements have been previously signalled
and were introduced in last year’s Annual
Report. During the year ended 31 March 2020
we appointed new external auditors (this is
their first audit report on ECO), we established
a new internal audit function, overhauled
much of the control environment around the
group – in particular around financial controls
and processes and, with the assistance of
external professional advisors, moved the
governance agenda forward, particularly in
relation to the group leadership and the Board.
The financial control environment has been
significantly strengthened – specifically in
relation to custodianship of assets, banking and
cash. These actions protect the business and
individuals working within the business with
customary segregation of duties and multiple
authorisations. From a finance and governance
point of view we are now well positioned
to support the strong growth the Group is
experiencing and driving.
Prior Year Restatements
One of the results of the changes described in
my introductory comments was to consider
the accounting policies adopted by the Group
1414
Audit
As stated earlier this was the first audit of the
group performed by BDO. This also coincided
with a period of remote working and lock-down
amidst COVID-19 affecting the world. This
added some distinct challenges to the audit task.
EXPENDITURE
IN R&D £10.9m
ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 The first and most obvious challenge was that
except in China where COVID-19 was ahead of the
initial European and US impact, the auditors were
unable to physically attend our year end stock
takes. Attendance at stock takes is a fundamental
audit test. The Institute of Chartered Accountants
in England and Wales suggests that auditors
seek alternative means of satisfying themselves
in the event of being unable to attend stock
takes. Notwithstanding that the Group’s stock
is held at third party warehouses (and third party
certification of quantities on hand was provided by
these warehouses) and there was no indication that
the valuation of inventory was incorrect, the audit
opinion is limited in scope regarding inventory. The
stock take was attended in China and therefore
this limitation in scope qualification is in respect of
stock held elsewhere in the group and amounted
to 82% of the stock value (£14million).
The effect of the prior year restatements,
described above, was to reduce profitability in
the year ended 31 March 2019. Accordingly, our
new auditors considered that the materiality
threshold to which our previous auditors worked
(£757,000) was no longer appropriate and took
a decision to reduce it. As a result, BDO have
performed a re-audit of the statement of financial
position at 31 March 2019. A significant balance
within this statement of financial position is the
net book value of Intangible Assets representing
the accumulated capitalised and amortised costs
historically incurred by the Group. These costs
are in the main related to the development and
commercialisation of Aivlosin® and Ecomectin®,
the Group’s main families of marketing
authorisations. The capitalised net book value
of these intangible assets at 31 March 2020 was
£22.9 million and the revenue during the year
ended 31 March 2020 derived from Aivlosin® and
Ecomectin® was £64.6 million; the net book value
of these assets was therefore only about one
third of the annual revenue derived from their
usage. However, in order to verify the original
costs within the net book value of these assets
our auditors required evidence of costs dating
back to 2004. The Group retains invoices and
records from third parties for seven years in line
with statutory practice but, unfortunately, we
were unable to provide some support for the
audit sampling requests prior to this. In addition,
for expediency, it was decided that provision of
evidence to support the audit would be confined
to the trading periods being audited. As a result,
BDO has further limited the scope of their audit
opinion in respect of Intangible assets. The net
book value at 31 March 2020 relating to costs
capitalised more than seven years previously
(and therefore the element of audit sampling not
able to be supported by physical invoices) was
£8.4 million.
Trading
During the year ended 31 March 2020, ECO
recorded its highest second half revenue
weighting to date being 60% of the full year
revenue. This compares to an equivalent second
half weighting in the year ended 31 March 2019
of 55%. Year on year the second half of this
financial year was 18% greater than the prior year
reversing a shortfall at the half year and resulting
in an overall revenue improvement for the year
ended 31 March 2020 of 7% compared with the
year ended 31 March 2019. The primary driver
of this strong second half performance was a
recovery in China (from the effects of African
Swine Fever, described in our Chief Executive’s
report) and strong performance in the USA. A
geographical analysis of revenue is as follows:
Revenue Summary
China and Japan
North America (USA and Canada)
South and South East Asia
Latin America
Europe
Rest of World and UK
Year ended 31 March
2020
(£’m)
2019
(£’m)
Restated
% change
2019 to 2020
23.1
11.6
14.2
12.6
7.6
3.0
72.1
26.8
10.5
8.1
10.8
7.9
3.2
67.3
(14%)
10%
75%
17%
(4%)
(6%)
7%
1515
Revenue from China in the second half of
the year was £14.4 million compared to the
equivalent six months ended 31 March 2019 of
£12.4 million underlining the recovery in that
market. Trade with India (included within Asia
in the above analysis) softened towards the end
of the financial year, however the rest of the
region including Indonesia, Malaysia, Thailand
and the Philippines continued the trend set
in the first half of the year resulting a year on
year increase in Asia of 75% becoming the
Group’s second largest segment this year. The
thawing in trade tensions between the USA and
China resulting in strengthening swine market
conditions in the second half of the year is also
evident in the second half revenue from the
USA of £5.8 million (2019 - £3.6 million). Latin
America, and in particular Brazil, continued to
benefit from pig exports to China, resulting in
buoyant commodity prices and a consequent
strong market for the Group’s products. Europe
benefitted from pork exports to China, in
particular from Spain.
Gross margins at 46% in the year ended 31 March
2020 (2019: 47%) were reasonably consistent and
represented a strong recovery from poor first half
margins (43%) – this being associated in the main
with improvements in the USA.
Overheads, at £28.3 million were significantly
greater in the year ended 31 March 2020
compared with the year ended 31 March 2019
(£21.8 million). The greatest contributors to this
increase were expenditure on Research and
Development, employment costs and foreign
exchange movements. Expensed research
and development expenditure increased from
£5.8 million in the year ended 31 March 2019 to
£8.8 million in the year ended 31 March 2020.
This increase of £3.0 million reflects the nature
of the earlier stage projects being undertaken
(and therefore expensed to the income
statement) particularly in respect of vaccine
development as well as an overall increase of
17% in the cash expenditure in R&D. Expensed
employment costs increased from £9 million in
the year ended 31 March 2019 to £10 million in
the year ended 31 March 2020. Whilst the staff
numbers reduced from an average of 217 in 2019
to 204 in 2020, the amount of capitalised in
house labour in research and development also
fell resulting in the greater charge to the income
statement. The foreign exchange loss in 2020
amounted to £0.5 million whereas a gain of £0.7
million was recorded in 2019.
Total cash expenditure on research and
development in the year was £10.9 million (2019:
£9.3 million). This expenditure was expensed
to the extent that it related to projects at the
research phase and capitalised in accordance
with IAS38 to the extent that it related to
projects in the later stage (development
phase) of the project life-cycle. The total cash
expenditure in R&D is analysed below.
EBITDA is considered by the Board and
the Group leadership team to represent a
key performance measure; the removal of
amortisation (which is a significant annual
non-cash charge to profits) and depreciation
provides a good indication of the underlying
trading performance of the business. The
EBITDA margin (EBITDA expressed as a
percentage of revenue in the period) was 11.6%
in the year ended 31 March 2020 compared
with 18.5% in the year ended 31 March 2019.
This reduction arises in part from the small
reduction in gross margin (1%) as well as the
increased investment in R&D, referred to
previously.
The Group continues to benefit from a
low effective tax rate. In the year ended
31 March 2020 the effective tax rate for the
Group was 19.8% (2019 – 12.3%). The historical
low effective tax rate is largely a result of
the significant R&D investment on which the
Group receives tax credits. These tax credits
continue but in 2020 a prudent assessment has
been taken of the likely taxes due in foreign
jurisdictions carrying a higher tax rate than
the UK and no account has been taken of the
likely benefit that will accrue from “patent box
claims”. Historic tax losses result in zero tax
payable in the year. Discussions with HMRC
will commence concerning the tax treatment
of the prior year restatements; the accounting
treatment to expense previously capitalised
R&D investment may result in a reduction in
prior year taxable profits. No benefit of this
tax re-computation has been recognised in this
Annual Report.
The consolidated cash position in the Group
has declined from £16.9 million at 31 March
2019 to £11.9 million at 31 March 2020. This
consolidated cash position at 31 March 2020
includes £5.3 million (2019 - £4.0 million) which
is held in the Group’s subsidiary in China. A
portion of this cash is repatriated from China
once per annum by dividend declaration; the
Group’s share which is received in the UK is 51%.
The cash generated from operations was
23% lower in the year ended 31 March 2020
at £5.5 million (2019 - £7.1 million) which fell
less than the lower profitability due to better
working capital management. From operating
cash, dividends of £8.4 million were paid in
September 2019 and investment of £2.1 million
in capitalised development costs, together with
income tax paid of £1.1 million, acquisitions of
tangible fixed assets (£0.8 million) and other
sundry cash movements (£0.1 million) resulted
in an overall net cash draw down of £7.0 million
and the lower cash balance at 31 March 2020.
Year ended 31 March
2020
£000’s
2019
£000’s
(Restated)
8,775
2,115
10,890
5,868
3,477
9,345
Research expenditure – included in administrative expenses
Development expenditure – capitalised in intangible assets
Total cash expenditure (excluding employment costs)
1616
FINANCE DIRECTOR’S REPORT (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 FY 19
FY 20
FY 19
FY 20
Gross Margin (%)
47.3%
46.3%
50%
40%
30%
20%
10%
0%
EBITDA (£’m)
12.5
8.4
FY 19
FY 20
EPS (Pence)
10.86
Key performance indicators
A summary of the KPI’s is as follows:
Revenues (£’m)
67.3
72.1
90
75
60
45
30
15
0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
18
15
12
9
6
3
0
Research & Development (£’m)
10.9
9.3
8.8
5.8
3.5
2.1
Expensed R&D
Capitalised R&D Total R&D cash spend
FY 19
FY 20
Cash balances (£’m)
16.9
9.8
14
12
10
8
6
4
2
0
12
10
8
6
4
2
0
FY 19
FY 20
FY 19
An explanation of the various trends in the KPIs above is included in the CEO’s and Finance Director’s reports.
Post balance sheet event
There have been no material post balance sheet events to note.
Christopher Wilks
Finance Director
3 February 2021
3.82
FY 20
1717
18
ECO Animal Health Group Plc | Annual Report 2019/20
ECO Animal Health strives to provide best in class, scientifically proven
ethical solutions to optimise the health, productivity and wellbeing of
pigs and poultry. Our vision is to achieve this responsibly, working in
partnership with veterinarians, animal health professionals and livestock
producers bringing value to all by improving animal health around the
world.
The business strategy is to generate shareholder value by achieving the
maximum sales potential and profit from the existing product portfolio
whilst investing in Research and Development (R&D) for new products,
particularly vaccines, and seeking to in-license new products. We also
seek to diversify by acquisition. The Company will continue to invest in
skilled people.
of the search for new products in collaboration
with leading universities and research institutions
where an exclusive position with worldwide
commercial rights can be obtained for any
invention made.
Licensing and acquisition
ECO seeks to both license-in new products for
pigs and poultry and to diversify by acquisition
to complement our organic growth and provide
enhanced product portfolio breadth in core
markets.
Skilled people
ECO has highly professional, experienced and
committed staff throughout the business. Our
strategy is to build on this core strength and to
develop an organisational culture that attracts
and rewards top talent in a company that offers
challenges and opportunities for growth.
Growth of existing
product portfolio
ECO prioritises sales and development activities
for existing products through ECO operating
companies in key growth markets, principally
China, North America, South and Southeast Asia
and selected Latin American countries. Third
party distributors are used in smaller markets
to contain costs, recognising that this approach
does lead to margin sacrifice for ECO. The cost
base is managed to reflect achievable growth
rates particularly when individual markets
experience slowdowns. In all markets, Key
Account management frameworks are adopted
with major producers. The primary competitive
targets for our portfolio are branded, well
established, first generation products,
concentrating on the additional value added by
our products.
Focus on investment in R&D
ECO’s increase in R&D investment is focused on
several late, mid and early stage projects which
collectively provide a balanced mix of well-
established concepts and novel technologies
and approaches. This investment in R&D Staff
and the pipeline will lead to further approvals
for Aivlosin® in key markets, an acceleration and
broadening of the introduction potential for
vaccines in pigs and poultry and to an expansion
ECO HAS PROVED
TO BE
HIGHLY
ADAPTABLE
IN A CHANGING WORLD
1919
STRATEGIC REPORTFOR THE YEAR ENDED 31 MARCH 2020 STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2020
Principal Risks and Risk management
The Group has an established process for the identification and management of risk, working within the governance framework. Ultimately, the management
of risk is the responsibility of the Board of Directors, working through the business leadership team.
The Board’s role in risk management includes promoting a culture that emphasises integrity at all levels of business operations and setting the overall policies
for risk management and control. As stated earlier in the Chief Financial Officer’s report specific action has been taken to strengthen financial controls in
order to ensure that the risk of financial impropriety is reduced to the fullest extent possible.
During the year the principal risks affecting the Group were comprehensively reviewed. Each identified risk was considered for likelihood of arising and
consequent impact. Careful consideration was given to identifying any other emerging risks. The risks were reviewed on a quarterly basis by the Board of
Directors.
Each risk area continues to have priority controls allocated to it that are the responsibility of the Executive Directors to manage and review during the
financial year. This process inherently manages risk by ensuring the principal risks are being mitigated by prioritised business activity.
The principal risks are listed on the following pages in order of significance by category. We have made this assessment by reference to the likelihood of
each risk occurring and assessing the potential severity of impact it would have on the business from high to low. We have also assessed the future trend
of each risk as far as we can predict. As there are a range of impacts in all areas which are mitigated to a high degree, the mitigations in the form of control
structures are shown next to each identified risk.
Strategic risk
TABLE KEY: H = HIGH M = MEDIUM L = LOW
Risk
Likelihood
Controls
Impact
Forward Trend
High reliance on one supplier
for key products.
Reliance placed on key
directors, senior managers
and staff members.
High dependency on a single
product
Potential threat from
Generic Producers
Disease impact on growth
(African Swine Fever;
Coronavirus)
M
M
M
M
M
New API manufacturing plant built, commissioned and approved in China.
Business Interruption insurance with a target of 6 months strategic safety
stock in place. Investing in supply chain dual supply capacity.
NomCom – succession plans being expanded
New RemCom policies being implemented - Performance management,
structured Bonus and LTIP for staff and executive Director’s. Salary
benchmarking and staff development.
Innovation fund and development pipeline of new products – vaccines
and other products. Generic defence plans.
The current year’s short term R&D budget reduction as a result of
Covid-19 to focus on core projects
Generic defence strategy – combining strong regulatory and legal stance
in country with patent and trademark infringement enforcement.
Experienced international and local management teams. Global
organisation driving strategy in other geographical territories. Strategy to
increase focus on poultry. Remote working capabilities established and
proven
H
H
H
M
M
2020
ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 Operational risk
Risk
Likelihood
Controls
Impact
Future Trend
Brexit – logistics delays
Operational activities result
in environmental pollution.
Failure to achieve/maintain
Good Manufacturing
Practice and quality
standards
Risk of trial failure impeding
registration and approval of
pipeline products.
Continuity of IT services.
Risk of business interruption
due to fire, flood, explosion,
natural disaster impacting
ECO premises.
Risk of corporate
manslaughter.
Seasonal and unforecasted
demand impact on supply
chain responsiveness.
New EU Veterinary
Regulations entering into
force
(End 2021/Start 2022)
M
L
M
M
M
L
L
M
M
European legal entity established and marketing authorisations
transferred. Pharmacovigilance, Site of Quality Control Testing and Site
of Batch Release arrangements in place. Financial Q4 European business
fulfilled ahead of Brexit day.
Virtual supply chain – use of third parties limits our own exposure.
Internal audits of third party facilities. Staff training.
Regular competent authority inspections. Independent and internal QA
function. Audits of third party facilities. Track record of successful audits.
Multidisciplinary team to integrate marketing authorisations with change
control processes and artwork for labels.
High calibre staff recruited. Use of only reputable and well established
laboratories and subcontractors.
Regular replenishment of R&D pipeline to counter effect of attrition.
Retained IT consultancy monitor, investigate and improve the IT
infrastructure. Servers hosted on Azure cloud based system with
multiple daily back-ups to a second remote server. Active monitoring
and correction of system issues. Roll out of laptop encryption.
Business risk insurance cover. Business continuity plan. Cloud based
servers with immediate backup restoration. High level of staff with
remote working capability.
Team had demonstrated during the global Coronavirus pandemic that
can operate remotely with the same level of efficiency. Safety stocks in
strategic markets.
Maintain adequate health and safety procedures and insurances. Only
responsible for one manufacturing plant, all other facilities are third
party contracted services.
Forecasting Project, Implementation of MRP on the SAGE ERP system,
monthly Regional S&OP meetings, increased manufacturing capacity in
USA, strategic review of lead times/responsiveness and the value benefit
of last minute customisation
Maintain proactive approach to understanding new requirements Ensure
measures in place to maintain compliance
L
H
H
M
H
L
M
M
L
2121
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2020
Financial risk
Risk
Likelihood
Controls
Impact
Future Trend
Enhanced corporate governance. Implementing robust systems and
controls. Keep international cash balances to a minimum. Daily/weekly
monitoring of all bank account cash balances with explanations for
material increases and depletions of balances. Change overseas local
bank accounts to international banks with internet access. Appointment
of Internal Auditor.
Strong firewalls in place. Regular back up of data on duplicate servers.
Continual review and strengthening of controls and security.
Cashflow and working capital management. Close monthly monitoring of
budget to actual results. Robust credit control in place.
Monitoring of exchange rates and report in constant currency.
Operationally transact in multiple currencies which are held and switched
when appropriate. In house treasury function to hedge when necessary.
Daily monitoring of bank balances. Spread cash deposits over a number
of stable and internationally recognised banks.
Our global teams will continue to strengthen relationships and business
with key customers and accounts.
M
H
H
M
M
L
Fraud and depletion of
company funds.
Cyber attack
Insufficient funding for
business growth
Currency
Risk of bank deposits being
lost through collapse of bank
Recession in major regions in
the world (EU, NA, LATAM)
Coronavirus effects to linger
into 2021 in major economies
in the world.
L
M
M
M
M
H
Dr Andrew Jones
Chairman
3 February 2021
2222
ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 CORPORATE GOVERNANCE REPORT
FOR THE YEAR ENDED 31 MARCH 2020
A strong business requires strong governance
“
During the year and in the period since
year-end, we have made some important
changes to our governance systems
“
In the sections that follow, we set out our
governance structures, along with an overview
of how the Company complies with the
Principles of the QCA Code and the Board
Committee reports.
Your support as Shareholders is vital to the
success of the Company and we intend to
remain responsive to shareholder’s views and
to engage with you so that the Company will
deliver on its and your objectives.
Thank you for you continued support.
Yours sincerely
Dr Andrew Jones
Chairman
3 February 2021
Chairman’s introduction to
governance
Dear Shareholders
I am pleased to introduce this section on
governance, which describes the activities of
the Board and its Committees during 2019-20
and in the period since the end of the year and
how we have ensured governance provides a
pivotal part in the strategic development and
day-to-day running of this business.
Ensuring strong systems of good
governance
During the year and in the period since year-
end, we have made some important changes to
our governance systems, including:
•• Appointment of a new auditor and
conducting a review of key accounting
policies. This resulted in the accounting
restatements announced in our interim
results last December.
•• A thorough review, with the assistance of
external advisors, of all our key governance
policies and processes to ensure they are
fully up to date and reflect best practice.
This was followed by externally led training
sessions for the board and the Executive
Leadership Team (“ELT”).
•• Update of the Remuneration Policy and
Schemes for Executive Directors and
ELT, including the addition of a deferred
element to the annual bonus and the
introduction of Malus and Clawback
provisions. The new remuneration plans
are to be presented for approval by
shareholders at a general meeting to follow
the AGM in March 2021.
••
Board changes implemented during the
year have resulted in an independent non-
executive board and the appointment of a
highly experienced new Finance Director.
We have also strengthened the skills and
experience on the Board Committees.
•• We are pleased to report that we have
established an Internal Audit function to
underpin the Audit Committee’s role in
monitoring internal controls throughout the
organisation.
As an AIM quoted company, our governance
framework is underpinned by the AIM Rules
and the Quoted Companies Alliance (QCA)
Corporate Governance Code 2018 (the ‘QCA
Code’). In addition to the QCA Code, we
monitor developments and guidance in the
UK Corporate Governance Code, applicable
to main market listed companies, to keep
abreast of matters which we feel could also
be embedded as best practice as part of a
progressive approach. We also review the
Investment Association guidelines and seek to
comply with these where applicable.
2323
24
24
ECO Animal Health Group Plc | Annual Report 2019/20
17
Board of Directors
Andrew Jones
Marc Loomes
Christopher Wilks
Chairman
Appointed 1 December 2017
Year of Birth 1960
Chief Executive
Appointed 1 December 2005
Year of Birth 1961
Finance Director
Appointed 3 September 2019
Year of Birth 1964
Marc joined ECO Animal Health in 2004,
became MD in 2005 and CEO in 2010.
Marc, a qualified veterinarian and Member
of the Royal College of Veterinary
Surgeons, has extensive international senior
management experience of the animal
health and crop protection industries
obtained with blue chip multi-national
companies in South Africa, Germany,
Switzerland and the UK.
He brings the ability to balance strategic
vision and operational delivery to the
business.
Andrew has over 32 years of experience in
international life science-based businesses
including Syngenta AG., Arysta Lifesciences
Inc. and Phoqus Pharmaceuticals Plc.
During this time, he worked in product
development, international sales and
marketing, merger and acquisition and
general management.
He currently runs his own consulting
Company, Trioza Limited, which provides
strategic advice to the animal health,
crop protection and seeds sectors and is
Chairman of Downland Marketing Ltd a UK
based animal health distribution group.
Andrew has a BSc degree and PhD in
agricultural biology.
Andrew brings substantial strategic
marketing and business development
experience and skills to the business.
Chris has considerable experience in the fields
of both finance and science. Chris began his
career after graduating from the University
of Durham with a BSc in Applied Physics and
Electronics. Initially he joined Marconi Space
Systems, applying his degree skills to the
design of power systems for spacecraft. He
then trained as a Chartered Accountant at
Arthur Young (now EY), and after qualifying as
a Chartered Accountant in audit, he became
a manager in its Corporate Finance team. Mr
Wilks is a Fellow of the Institute of Chartered
Accountants in England and Wales.
He is also currently a non-executive director
(and Chair of the Audit Committee) of
Kromek Group plc, an AIM listed worldwide
supplier of radiation detection technology
and was previously Chief Financial Officer
of Signum Technology Limited, a leading
group of specialised engineering businesses
operating in the safety and critical service
flow control sector, which he co-founded.
Prior to Signum Technology, Mr Wilks
was Chief Financial Officer at Sondex plc,
a specialist manufacturer of technical
instruments for the oil and gas industry.
17
2525
Anthony (Tony) Rawlinson
Frank Armstrong
Independent Non-Executive Director
Appointed 1 January 2015
Year of Birth 1957
Independent Non-Executive Director
Appointed 1 May 2020
Year of Birth 1957
Tony is a Chartered Accountant with over
30 years corporate finance experience
advising smaller quoted companies. After
spending 14 years at Henry Ansbacher &
Co and Strand Partners, he co-founded
Dowgate Capital Advisers in 2001 and
led its growth and development. He was
also Chairman of its AIM quoted parent
Company, Dowgate Capital, which was
sold to a competitor in a recommended
transaction in 2009. In 2010 he co-founded
Cairn Financial Advisers LLP, a Nominated
Adviser to a number of AIM companies and
a corporate advisory firm. Tony retired
from Cairn in November 2020.
Frank is a medical doctor, a Fellow of
the Royal College of Physicians and a
Fellow of the Faculty of Pharmaceutical
Medicine. His career has been in R & D.
He is currently Non-Executive Chairman
of Faron Pharmaceutical Oy (AIM), Non-
Executive Chairman of Caldan Therapeutics
Ltd, a Non-Executive Director of Newcells
Biotech Ltd and a Member of the Court
of the University of Edinburgh. He has
previously held Non-Executive roles in listed
companies with Summit Therapeutics (AIM
and NASDAQ), Redx Pharma (AIM), Mereo
Biopharma (AIM and NASDAQ) and Juniper
Therapeutics (NASDAQ). He started his
career at ICI Pharma/Zeneca Pharma before
moving to Bayer AG where he became head
of worldwide product development.
2626
CORPORATE GOVERNANCE REPORT (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 Attendance at meetings
All Committee and Board meetings held in the year were quorate. Director’s attendance during the year ended 31 March 2020 was as follows;
Board
Audit Committee
Remuneration
Committee
Nomination
Committee
Number of formal meetings held
Andrew Jones
Marc Loomes
Chris Wilks (appointed 3 September 2019)
Tony Rawlinson
Richard Wood (resigned 22 August 2019)
Kevin Stockdale (resigned 19 August 2019)
Julia Trouse (resigned 19 August 2019)
Brett Clemo (retired 19 September 2019)
16
16
16
13
16
3
3
3
5
2
2
2
3
3
3
1
2
1
2
2
Compliance with the Principles of the QCA Code
The Company’s shares are traded on the AIM market of the London Stock Exchange and as such, the Company is subject to the continuing requirements of
the AIM Rules for Companies. As stated in the Chairman’s introduction, the Board has adopted the QCA’s Corporate Governance Code. The following table
summarises how we apply the ten principles of the QCA Code, further detail is provided on our website:
QCA Principle
Explanation
1
To establish a strategy and business model which promote long-term
value for shareholder
2
To seek to understand and meet shareholder needs and expectations
3
To take into account wider stakeholder and social responsibilities and
their implications for long-term success
The Board meets annually to review the strategy for the Group. The
strategic plan and business model are reviewed by the Executive
Leadership Team on an ongoing basis with relevant operational and
management updates being reported to demonstrate delivery and
progress. Decisions of the Board are made in line with the strategic
plan and business model for the Group.
Further details of the strategy can be found in the Strategic Report.
The Directors are committed to open communication with the
Group’s shareholders to ensure that they clearly understand its
business, strategy and performance. The Board actively seeks dialogue
with its shareholders via investor roadshows, one-to-one meetings
and regular reporting. The Board believes that open communication
with investors and analysts is the best way to ensure it understands
what is expected of the Group in order to allow it to drive its business
forward.
The Board values the opinions of key stakeholders in the business and
regularly seeks to ensure that the views of its employees, suppliers,
customers and partners are known and where relevant to the success
of our business they are acted upon.
2727
QCA Principle
Explanation
4
5
6
7
To embed effective risk management, considering both opportunities
and threats, throughout the organisation
To maintain the Board as a well-functioning, balanced team led by the
Chair
To ensure that between them the Directors have the necessary up-to-
date experience, skills and capabilities
To evaluate Board performance based on clear and relevant
objectives, seeking continuous improvement
8
To promote a culture that is based on ethical values and behaviours
To maintain governance structures and processes that are fit for
purpose and support good decision-making by the Board
To communicate how the Company is governed and is performing
by maintaining a dialogue with shareholders and other relevant
stakeholders
9
10
2828
The Board, assisted by the Audit Committee, is responsible for
overseeing management’s activities in identifying, evaluating and
managing the risks facing the Group and records them on the Group
risk register. Where these risks are not ones which the Board is
prepared to take, these are avoided, eliminated as far as possible
and/or transferred to insurers. The management of both risks and
opportunities feeds into the decision-making process.
Further details of our risk management, risks and internal; controls can
be found in the Strategic Risk section of the Strategic Report.
The Board keeps under review its current balance and composition
in order to ensure that it has a sufficiently wide range of skills and
experience to enable it to pursue its strategic goals and address
anticipated issues in the foreseeable future. Led by the Chair,
deliberations are not dominated by one person or any group. The
Board is supported by the Audit, Remuneration and Nominations
Committees.
Further details of the role of the board and how it operates can be
found in the Chairman’s introduction to governance and the Board
Committee reports that follow this section.
The Nominations Committee reviews at least annually the balance
and composition of the Board and its Committees to ensure the skill
and experience needed for successful operation are in place. Update
training is undertaken periodically and a comprehensive training
course was attended by all Directors and senior managers during the
Summer of 2020.
The Chairman evaluates the performance of the Board through a
combination of questionnaires and one-to-one meetings with each
Director. This process offers Directors an opportunity to discuss
their contribution in terms of their skills and experience as well as
identifying improvements or development to enhance the capabilities
of the Board as a whole.
The Board aims to lead by example and make decisions that are in the
best interest of the Group as a whole. Our culture is underpinned by
a clear set of values, which guide decision making at all levels in the
business. The Board reviews and approves the Group’s policies which
are then implemented and communicated internally and externally to
those who are expected to adhere to them.
The Board, led by the Audit Committee, has recently undertaken
a major review of its governance and remuneration framework to
ensure that the Group’s governance structures remain appropriate and
are fit for purpose. This framework sets out leadership and embeds
delegated responsibilities to enable informed and confident decision-
making.
The Board ensures that all stakeholders across the business are
actively engaged through the relevant areas of responsibility. This
includes making sure that the business as a whole upholds its values
and monitors behaviour for acceptability.
CORPORATE GOVERNANCE REPORT (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 Leadership and the Board
The Role of the Board
The Board comprises two Executive Directors
and three Non-Executive Directors (including the
Chairman). The Board considers the Chairman
and the two current Non-Executive Directors to
be independent in judgement and character.
••
The Board is responsible for providing effective
leadership to promote the long term success of
the Company. There is a formal list of matters
reserved for the Board, which may only be
amended by the Board. The key responsibilities
of the Board include:
••
••
setting the Company’s vision and strategy;
ensuring the necessary financial and
human resources are in place to support
implementation of the strategy;
•• maintaining the policy and decision-making
process through which the strategy is
implemented;
••
providing entrepreneurial leadership within
a framework of good governance and risk
management;
•• monitoring performance against key
financial and non-financial indicators;
responsibility for risk management and
systems of internal control; and
••
••
meets with the Non- executive Directors
on their own together at several times a
year. Shareholders have an opportunity to
engage with the Chairman and the Board at
the Company’s AGM.
The Chief Executive Officer (CEO), Marc
Loomes, is responsible for the day-to-day
running of the business which includes
implementation of the strategy. He is
supported by an Executive Leadership Team
(ELT) who have management responsibility
for the business operations and support
functions. Relevant matters are reported to
the Board by the CEO and, as appropriate,
the Chief Financial Officer and other
members from the ELT.
The role of our Non-Executive Directors is to:
••
••
••
••
••
••
provide oversight and scrutiny of the
performance of the Executive Directors;
constructively challenge to help develop
and execute on the agreed strategy;
satisfy themselves as to the integrity of
the financial reporting systems and the
information they provide;
satisfy themselves as to the robustness of
the internal controls;
ensure that the systems of risk management
are robust and defensible; and
review corporate performance and the
reporting of performance to shareholders.
setting values and standards in corporate
governance matters.
Board Committees
Division of Responsibilities
The responsibilities of both the Chairman and
CEO are clearly defined and understood:
••
The Chairman, Andrew Jones, has primary
responsibility for leading the Board,
facilitating the effective contribution
of all members and ensuring that it
operates effectively in the interests
of the shareholders. In addition, he
maintains a strong focus on governance
to ensure good practice is embedded
in the day to day operations with good
flows in communication and reporting.
He maintains a regular dialogue with the
CEO to ensure the business receives the
support from the Board necessary to
progress the strategy. The Chairman also
The Board has delegated and empowered three
Committees: a Remuneration Committee,
a Nominations Committee and an Audit
Committee. Each Committee has written
terms of reference set by the Board, which
are reviewed annually and are available on
the Company’s website. Membership of each
Committee is determined by the Board on
the recommendation of the Nominations
Committee. Each Committee Chair reports
to the Board on the activities considered and
determined by the relevant Committee. A
summary of the Committees’ responsibilities and
their work during the year can be found in the
reports from the Committees appearing later in
this section.
Board activities
The Board held seven scheduled meetings during
the year at which it considered all matters of a
routine nature, structured through clear agenda
setting, written reports and presentations from
both internal members of staff as well as external
advisors and consultants. In addition, there were
ten ad-hoc meetings of the Board to deal with
non-routine business.
Board support, meeting management and
attendance
The Board and its Committees meet regularly
on scheduled dates. In leading and controlling
the Company, the Directors are expected to
attend all meetings and their attendance for the
financial year 2019-20 is shown in the Corporate
Governance section of this report, immediately
before the Compliance with the Principles of the
QCA Code.
The Company Secretary plays a vital role
in ensuring good governance, assisting
the Chairman. Procedures are in place for
distributing meeting agendas and reports so
that they are received in good time, with the
appropriate information. Ahead of each Board
meeting, the Directors each receive reports
which include updates on strategy, finance,
including management accounts, operations,
commercial activities, business development, risk
management, legal and regulatory, people and
infrastructure and on investor relations.
The Directors may have access to independent
professional advice, where needed, at the
Company’s expense.
Board Effectiveness
The Board conducts an assessment of
effectiveness each year through a questionnaire in
a process led by the Chairman. The questionnaire
provides Directors with the opportunity to
express their views on a variety of topics
including: board leadership, effectiveness and
accountability. The detailed findings of the
evaluation are reviewed and actions generated.
In addition, the Chairman has regular one-to-one
meetings with Directors.
2929
Internal controls are in place which are intended
to provide reasonable assurance of the
custodianship of assets, the recognition and
measurement of liabilities, the maintenance of
proper accounting records and the reliability of
financial information used within the business.
This control framework has significantly improved
during the course of the last year and continues
to evolve to support the needs of the business,
the business environment and the geographies in
which the business operates. Further description
of these changes are referred to in the Audit
Committee Report.
The Group finance team manages the financial
reporting process to ensure that there is
appropriate control and review of the financial
information including the production of timely
financial information for Board meetings as
well as for annual and half-yearly financial
reporting responsibilities. Group Finance is
supported by the operational finance team
throughout the Group, who have responsibility
and accountability for providing information in
compliance with the policies, procedures and
internal best practices.
The Board has issued a Code of Conduct to all
staff which reinforces the importance of a robust
internal control framework throughout the Group.
The Board recognises that an open and honest
culture is key to understanding concerns within
the business and to uncovering and investigating
any potential wrongdoing.
The Code of Conduct sets out the procedure
whereby staff may raise concerns in matters
of financial reporting or any other matter
of concern with management and directly
with the Chairman of the Audit Committee
to ensure independent investigation and
appropriate follow up action. In addition to
this “Whistleblowing” policy, new policies have
been issued in relation to anti-bribery and
corruption, fraud, modern slavery, share dealing
in ECO securities, the use of social media and
business travel arrangements. These policies
are communicated directly to all members of
staff by email, are re-enforced through periodic
training and are available on the Group’s intranet
site.
Although the Board itself retains the ultimate
power and authority in relation to decision
making, the Audit Committee meets at least
twice a year with external auditors to review
specific accounting, reporting and financial
control matters. The Committee also reviews
the interim and final accounts and has primary
responsibility for making a recommendation on
the appointment, reappointment and removal of
external auditors.
Section 172 Statement
Under s172 of the Companies Act 2006,
Company Directors have a duty to act in good
faith that is likely to promote the success of the
Company. This duty is for the benefit of the
members as a whole, having regard to the likely
consequences of decisions for the long-term. In
addition, the Directors’ duty must have regard
to:
a. The interests of the company’s employees
b. The need to foster the company’s business
relationships with suppliers, customers and
others
c. The impact of the company’s operations on
the community and the environment
d. The desirability of the company maintaining
a reputation for high standards of business
conduct, and
e. The need to act fairly as between members
of the company.
As set out in The Corporate Governance
report, the Directors have met many times
during the year ended 31 March 2020.
Discussion topics at each meeting included
Research and Development, Health safety and
environment, Investor feedback, staff welfare
concerns, customer and supplier feedback and
capital investment. Key decisions during the
Financial Year ended 31 March 2020 included
the membership of the Board of Directors,
Investment levels in New Product Development,
Governance changes, investment in the
refurbishment of the Group’s main UK office
in London and the Group’s response to the
COVID-19 global pandemic towards the end of
the financial year.
Re-election of Directors
All directors are put forward for re-election on
a three-year rotational basis as set out in the
articles of association of the Company, taking
into account the performance of each Director.
Stakeholder engagement
The Board and its Committees recognise that
to meet its responsibilities to shareholders and
other stakeholders.
The Company communicates with shareholders
through the Annual Report and Accounts,
regulatory announcements, the AGM as
well as meetings with existing or potential
new shareholders. Annual reports as well as
other regulatory announcements and related
information are all available on the Company’s
website. The Company’s broker also publishes
research from time to time.
A list of the Company’s major shareholders can
be found in the investor section of our website
which is regularly updated following formal
notifications of movements to the Company.
The Company maintains regular communication and
dialogue with other stakeholders such as employees,
customers, suppliers and regulators to understand
their needs and concerns and factors these
requirements into its decisions and activities.
Annual General Meeting (‘AGM’)
This year’s AGM will take place on 4th March
2021 at 1.30pm. This will take the form of a
closed meeting and the notice, proxy voting card
and Chairman’s letter is posted to shareholders
today.
Internal controls
There is a clearly defined delegation of
authority from the Board to the Executive
Leadership Team, with appropriate reporting
lines to individual Executive Directors. There are
procedures for the authorisation of Research
and Development, capital expenditure and other
investments. Board review of progress in these
investment initiatives, together with “milestone”
achievement assessment is a regular feature of
the Board agenda.
3030
CORPORATE GOVERNANCE REPORT (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 The office improvements have helped reduce
the energy footprint of the Group. In addition,
the Group is considering other ways to reduce its
environmental impact; the Group’s business model
(largely outsourced manufacturing and research)
is low impact. The Group has successfully traded
through the “lockdown” period, utilising to a much
greater extent electronic communications and
these tools will continue to be exploited further
helping with the Group’s carbon footprint.
Going concern
After making appropriate enquiries, the Directors
have, at the time of approving the financial
statements, formed a judgement that there is a
reasonable expectation that the Company and
Group have adequate resources to continue in
operational existence for the foreseeable future.
For this reason, the Directors continue to adopt
the going concern basis in preparing the financial
statements.
This conclusion is based on a review of the
resources available to the Group, taking account
of the Group’s financial projections together with
available cash and committed borrowing facilities.
In reaching this conclusion, the Board has
considered the magnitude of potential impacts
resulting from uncertain future events or changes
in conditions, the likelihood of their occurrence
and the likely effectiveness of mitigating actions
that the Directors would consider undertaking.
These decisions have been described further in
the various reports from the Chairman, Chief
Executive and Committee Chairs. In each case
employee impact, supplier and customer benefit
and shareholder interests have weighed upon
decisions made. The decision described in the
Chief Executive’s report to continue expenditure
in Research and Development at the planned level
despite a shortfall in revenue (compared with
budget) weighed the long term benefit of future
increased revenue and cashflow against the short
term reduction in profitability and available funds
for distribution. The decision to not pay a dividend
this year was a consequence and was considered to
be beneficial to shareholders, customers, suppliers
and staff over the medium to long term.
Shareholder engagement this year has been
frequent. The top 10 investors represent 62.8%
of the Company shares and investor meetings,
investor calls and a “fireside chat” together
with regular trading updates throughout the
year assisted with communication. Both of the
Company’s stockbrokers provide feedback from
shareholders and this feedback is discussed at the
next available Board meeting.
The Group employed an average of 196 people
during the financial year ended 31 March
2020. All company announcements were
simultaneously circulated to all members of
staff. Communications of note during the year
included key new product announcements, new
members of staff and retirements, new procedures
and governance processes and towards the end
of the year the arrangements for remote and
safe working during the Coronavirus pandemic.
In addition all members of staff were invited to
technical webinars, product launch discussions and
presentations.
Although completed during the “lockdown”
the Group’s main UK office in Southgate was
refurbished at a cost of £750,000 in response to
the need to provide a more modern, comfortable
and inviting environment for the staff based there.
We look forward to re-occupying the office when
it is safe and welcoming staff, customers and
suppliers to the new and improved work place.
3131
Audit Committee Report
Dear Shareholder
The committee may, if it requires, call for
information from the Executive Management
team and consult with the external and internal
advisers and auditors directly.
The Audit Committee comprises Tony Rawlinson
(Chairman), Dr Andrew Jones and Dr Frank
Armstrong who joined the committee on 1 May
2020. Richard Wood was a member of the
committee for part of the financial year, joining it
on 7 March 2019 and leaving it when he stepped
down from the board on 22 August 2019.
All committee members are considered by
the board to be independent directors of the
Company and to have appropriate skills and
expertise to enable them to carry out their role
effectively.
The committee meets at least twice a year
linked to the timing of the Company’s half year
and full year results and also meets on an ad
hoc basis. During the financial year under review
the committee held 2 formal meetings and
numerous ad hoc meetings. All meetings, formal
or otherwise were attended by all members of
the committee.
Terms of reference of the Audit
Committee
The terms of reference of the committee are set
out on the Company’s website.
The committee operates within terms of
reference approved by the board, including:
considering the appointment of external
auditors;
reviewing the relationship with external
auditors;
reviewing the financial reporting and
internal control procedures;
reviewing the management of financial
matters and focusing upon the
independence and objectivity of the
external auditors;
reviewing the consistency of accounting
policies both on a year to year basis and
across the Group; and
internal audit remit and activities.
••
••
••
••
••
••
3232
Committee Report
On behalf of the Board, I am pleased to present
the 2020 Audit Committee Report.
The Committee has had a very busy year on a
number of fronts.
We completed the appointment of BDO as the
Group’s new statutory auditor in September
2019, the same month in which our new Finance
Director, Chris Wilks, joined the Company.
Following these appointments, a review of the
historical accounts was initiated which identified
a number of previous errors in the application
of accounting policies which resulted in the
accounts for the year ended 31 March 2019 being
restated. These restatements were reported on
in the Company’s interims accounts for the 6
months ended 30 September 2019 published on
31 December 2019 and are further commented
on in the Finance Director’s report above.
The Company’s Finance Director, Chris Wilks
has built a mainly new, skilled and enlarged
finance team to meet the Group’s current and
anticipated requirements.
As indicated in last year’s report, the Audit
Committee initiated the formation of a new
internal audit function and to this end, hired our
new head of Internal Audit, Caitlin Pennington,
who joined us in January 2020. We formulated
and agreed an Internal Audit Charter and an
Internal Audit Manual. The task of reviewing
controls has been impaired by the travel
restrictions imposed by Covid-19 but despite
this, significant progress has been made liaising
with overseas management remotely and
mapping out control systems and procedures
in key overseas territories pending site visits
when possible. Once travel restrictions are lifted,
overseas site visits will be commenced.
As mentioned in the Chairman’s overview above,
the committee initiated a review of all key
corporate governance areas during the year.
Working with external legal advisers, practices
and procedures have been updated and revised
documents have been circulated to staff and
externally led training sessions held.
Last year we reported that we were reviewing
and documenting the Company’s financial
controls and procedures and that this was
work in progress. Work on this was slowed
during the summer of 2019 due to the number
of Board changes and the appointment of the
new auditors and finance team, but significant
progress was made in early 2020 following
publication of the interims. As well as work
done on overseas territories as reported above,
key UK financial systems and internal controls
have been reviewed, updated as required and
documented. Specific regard has been paid to
custodianship of assets, including bank account
signatories and controls. A rolling programme to
test internal controls is being initiated by Internal
Audit
The Audit Committee has been working closely
with the Company’s new auditors, BDO ensuring
that their familiarisation routines went smoothly.
The Audit Committee has also worked closely
with BDO on the 2020 audit. In relation to the
accounts the committee has focused and is
satisfied with regards to the following matters:
••
••
••
••
that key judgements made in preparing the
annual accounts are appropriate;
that significant accounting policies have
been correctly applied;
that the going concern statement has been
made after due and careful consideration;
and
that the annual report has been
fairly presented and is balanced and
understandable.
Audit Committee has been closely monitoring
the progress of the 2020 audit and are very
disappointed by the delay in the publication
of the accounts. As mentioned above in the
Finance Director’s report, the reduction in 2019
profits arising from the prior year restatements
resulted in a reduced audit materiality threshold
for those accounts and the need to reaudit 2019
balances down to the new threshold. This has
placed a heavy burden on all concerned but
the outcome is positive in that a very thorough
review has been carried out by the new teams.
Also as mentioned in the Finance Director’s
report, the audit report contains two limitations
of scope in respect of non attendance at some
of our year end stock takes and also intangible
CORPORATE GOVERNANCE REPORT (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 assets. The former is due to the Covid 19
pandemic preventing the auditors attending
stocktakes. The latter is mainly due to the
Company not retaining audit evidence of some
costs incurred many years ago to support the
intangibles balance. Older records would not
have been required in normal circumstances but
arose from the reduced materiality threshold
referred to above.
We are grateful to Chris Wilks and his finance
team for their hard work and expertise during
this year of significant change. We also thank the
BDO audit team and our external legal advisers
for their advice and assistance.
Tony Rawlinson
Audit Committee Chairman
3 February 2021
Remuneration Committee Report
Committee report
A revised remuneration structure is being
proposed by the committee and is explained
further below.
The Remuneration Committee comprises
Tony Rawlinson (Chairman), Dr Andrew Jones
and Dr Frank Armstrong. During the year until
22 August 2019 the Remuneration Committee
chairman was Dr Andrew Jones. Dr Jones stepped
down as committee chairman at the time he
was appointed Non-executive Chairman of the
Board. Richard Wood was also a member of the
committee until 22 August 2019 when he stepped
down from the Board. Dr Frank Armstrong joined
the committee on 1 May 2020.
Role of the Remuneration
Committee
On behalf of the Board and Shareholders,
the Remuneration Committee reviews and
determines the pay, benefits and other terms
of service of the Company’s Executive Directors
and the Executive Leadership Team (“ELT”). The
committee also keep under review the broad
pay strategy with respect to all other Company
employees.
Remuneration Policy
During the year the committee conducted a
review of the remuneration policy objectives, the
updated objectives are:
••
••
••
••
to develop remuneration packages which
motivate the senior management team and
support the delivery of business objectives in
the short, medium and long-term;
to ensure the alignment of the interests of
the senior management team with those of
long-term shareholders;
to encourage executives to operate within
the risk parameters set by the board; and
to ensure that the Company can recruit
and retain high-quality executives through
packages which are fair and attractive, but
not excessive.
Strategic alignment
The Remuneration Committee’s aim, at each level
of performance, as in previous years, is that the
rewards that can be earned provide a proper level
of incentive and are appropriate for a Company
of comparable size and complexity at each level
of performance. To this end, the committee
considers appropriate goals from time to time
which it believes will best ensure delivery of the
Board’s short and long term objectives and ensure
alignment with stakeholder interests.
Remuneration in practice
The basic structure of remuneration during the
2020 financial year under review was unchanged
from 2019 in that the components comprised
a basic salary, discretionary bonus (where
appropriate) and (also where appropriate) an
award of market priced share options from the
Company’s established Executive Share Option
Plan (“ESOP”).
Executive directors also benefit from private
medical and critical illness insurance. In addition,
all Executive Directors are covered under the
Company’s life assurance policy.
The Group makes contributions to auto
enrolment defined contribution pension schemes
for the benefit of staff, executive directors and
senior management. The assets of the scheme
are held separately from the Group and are
independently administered by insurance
companies. The Group also operates a legacy
defined benefit scheme in the UK under the Auto
enrolment regulations. Further information on
these pension arrangements is set out in note 23
to these accounts.
In September 2019, the committee conducted
a benchmark review of the structure and levels
of remuneration of Executive Directors using
publicly available surveys. As a result of this review
3333
the base salary of Marc Loomes, the Company’s
Chief Executive Officer, was increased and his
potential annual bonus payment reduced with the
aim of rebalancing remuneration structure to align
it more closely to current market standards.
During the financial year, Kevin Stockdale,
Julia Trouse, Brett Clemo and Richard Wood
stepped down from the board. No ex gratia
payments were made to these former directors
who were paid in accordance with their contracts
up to their respective termination dates. Brett
Clemo provided some manufacturing and
supply chain consultancy services to the Group,
Directors Remuneration
following his retirement from the Board and
the termination of his employment. Clemo
Consultancy Limited provides consultancy
services to the Group according to specific areas
of engagement and expertise. An agreed hourly
rate is charged and the hours incurred in providing
the services are itemised on the invoice.
bonus based on their particular contributions
during the year rather than on any predetermined
profit (normally EBITDA) or other basis as in
previous years. The lower levels of bonus paid
reflect the reduced profits in the period but,
despite this, strong achievement of strategic and
personal objectives.
Dr Frank Armstrong was appointed to the board
as a Non executive director on 1 May 2020.
Due to the unique and unforeseen circumstances
which arose in 2020, senior management have,
where appropriate, been rewarded with a cash
No awards of options were made in respect of
the financial year out of the existing approved or
unapproved executive share option plans.
The aggregate remuneration payable to the Directors in respect of the period was as follows:
Salary or Fees
Other
Pension
Bonus
Total
Remuneration
Share Based
Payments
Total
2020
2019
2020
2019
2020
2019
2020 2019R*
2020 2019R*
2020
2019
2020 2019R*
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
294
129
69
50
38
33
99
46
222
-
25
16
99
85
117
4
3
1
-
-
1
5
1
-
2
-
-
-
1
12
1
-
10
13
-
-
1
2
-
-
10
-
-
-
1
5
-
-
40
50
-
-
-
-
-
-
213
-
-
-
46
46
70
-
347
193
69
50
40
40
100
46
447
-
25
16
147
148
188
4
38
-
-
-
9
9
14
-
191
-
-
4
53
53
103
-
385
193
69
50
49
49
114
46
638
-
25
20
200
201
291
4
M. Loomes
C. Wilks
A Jones1
A Rawlinson1
J Trouse
K Stockdale
B Clemo
R Wood
Notes
* The 2018/19 bonus values have been restated to include the amount accrued for the financial year and related to performance in the financial year, not as
previously reported, the amount paid in the year. The adjustments for the financial year 2018/19 were reductions of £129,000, £37,000, £37,000 and £80,000
for M. Loomes, J. Trouse, K. Stockdale and B. Clemo, respectively.
1. Andrew Jones and Tony Rawlinson were each awarded an ex gratia payment of £10,000 in respect of significant additional work done in the year.
Directors’ interests
Details of share options held by Directors as at 31 March 2020 and 2019 are set out below:
Option Price
(pence per share)
31-Mar-20
31-Mar-19
545.0
435.0
312.5
435.0
312.5
265.0
200.5
3,900
400,000
350,000
150,000
250,000
250,000
60,000
3,900
400,000
350,000
150,000
250,000
250,000
60,000
M D Loomes
B Clemo
3434
CORPORATE GOVERNANCE REPORT (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 120,000
50,000
150,000
120,000
50,000
75,000
7,962
8,051
Option Price
(pence per share)
31-Mar-20
31-Mar-19
K Stockdale
J Trouse
435.0
312.5
265.0
435.0
312.5
265.0
-
-
-
-
-
-
Details of shareholdings of Directors who served during the year are as follows:
B Clemo and family
K Stockdale and family
Others
Marc Loomes has an interest in 200,000
existing ordinary shares pursuant to the grant
of an option over these shares by persons
connected with Peter Lawrence, the former
Chairman of the Company. These shares will
vest with Mr Loomes providing he continues to
be employed by the Company for three years
from the date of grant of the option.
Proposed remuneration plans
In order to provide the incentives needed to
meet current and future business objectives, the
Remuneration Committee have decided that
the existing senior management remuneration
structure should be updated. To this end,
a circular containing revised remuneration
proposals is today being sent to shareholders
along with this Annual Report. A General
Meeting is being convened immediately
following the Annual General Meeting in order
to present these proposals to shareholders and
seek their approval for them.
The key elements of the proposals are as follows:
Annual bonus scheme (“ABS”)
••
The new ABS will apply to both executive
directors and the Executive Leadership Team;
•• Maximum and on-target awards will, as
previously, be kept in line with those of
comparable companies as shown in recent
AIM remuneration surveys. On target
awards are set at 60% of base salary and
maximum possible awards are capped at
100% of base salary;
-
-
to 35% linked to growth in profit before
tax, 35% linked to ROCE with the 30%
remainder linked to the achievement of
personal targets set by the committee. The
committee may change these objectives
from year to year. The proposed personal
objectives for the CEO and FD in the
current year are focused around corporate
governance targets, implementing agreed
initiatives set out in the Board’s corporate
strategy plan, communicating to investors
and certain near term internal objectives.
Remcom believes that the broader focus
under the proposed scheme will ensure
all aspects (profits and balance sheet) are
focused upon;
•• Annual awards under the ABS will include a
deferred element (33 % of the award) to be
settled which will vest after 3 years subject
to malus provisions in the year of the award
and clawback provisions during the 3 year
vesting period for the deferred element.
Long term incentives
••
The Company’s existing ESOP under which
employees may be awarded market priced
options will be complemented with a new
long term incentive plan (LTIP) for senior
management which will allow for awards of
nil cost options. This is being done with the
aim of reducing shareholder dilution and
moving the Company towards compliance
with the Investment Association
Remuneration guideline limiting dilution
to 10% over 10 years. The new LTIP will
also introduce focused vesting conditions
designed to strengthen alignment with
shareholders’ interest and will introduce
malus and clawback provisions;
••
Performance assessments will be split as
•• Vesting of awards under the new LTIP will
be over a 3 year period and will be subject
to achievement of performance conditions.
25% of any award will be linked to an adjusted
EBITDA target, a further 25% linked to R&D
targets and the balance of 50% based on
a comparison of the Company’s TSR to an
absolute TSR growth target set by Remcom
over the vesting period.
•• On target awards are set at 50% of base
salary.
••
LTIP awards will be subject to malus
(during the vesting period) and clawback
(in the 3 years following vesting) provisions.
•• All other staff will continue to be eligible
to be awarded market priced options. The
terms of the ESOP are being amended to
allow for any future gains to be settled in
shares or cash (at the committees’ discretion)
depending on what it considers to be in the
Company’s best interests.
Share ownership
Executive directors will be given share ownership
targets to achieve over time. These targets will be
in line with market guidance (125% of basic salary
for the CEO and 100% of salary for the FD). These
target holdings will be expected to build up as
soon as possible with the aim of achieving the
target over a three year period.
Other considerations
Inevitably unanticipated situations arise with
regard to remuneration structures which
can produce anomalous outcomes. Remcom
therefore has discretionary powers to deal
with any such situations to ensure appropriate
outcomes arise.
3535
Overview
Nomination Committee Report
Activities during the year
The Nomination Committee comprises all the
Non-Executive Directors and the CEO.
The Committee met two times during the year.
During the year Andrew Jones succeeded
Richard Wood as Chairman of the Company
in November 2019, and Chris Wilks joined the
Board, in September 2019, as CFO.
The Committee considered the need for a
third Non-executive Director. It concluded
that in line with best practice a majority Non-
executive Board would further contribute
to the governance improvements described
elsewhere in this Annual Report. Furthermore,
the Committee concluded that additional skills
to complement those of the existing Directors
– particularly in relation to R&D programme
management and commercialisation should
be sought. After an intensive search process
the Committee was delighted to be able to
recommend that Dr Frank Armstrong should be
appointed to the Board of Directors and that
became effective shortly after the year end on
1 May 2020.
In addition, Kevin Stockdale and Julia
Trouse resigned as Directors in August 2019.
Brett Clemo retired from the Board in
September 2019.
During the year the Committee also reviewed
the work carried out within the business on
succession planning, talent development and
leadership at the senior management level
as well as undertaking a Board performance
review. The Committee managed the induction
process for new Directors.
Dr Andrew Jones
Chairman
3 February 2021
Main responsibilities
The main responsibilities of the Committee are
as follows;
••
Regularly reviewing the structure, size and
composition (including the skills, knowledge,
experience and diversity) of the Board.
•• Giving full consideration to succession
planning.
••
••
••
••
Keeping under review the leadership needs
of the organisation.
Being responsible for identifying and
nominating for the approval of the Board,
candidates to fill Board vacancies as and
when they arise.
Reviewing the results of the Board
performance evaluation process that relate
to the composition of the Board.
Formulating plans for succession for both
Executive and Non-Executive Directors.
•• Nominating membership of the Audit and
Remuneration Committees.
••
The re-election by shareholders of Directors
under the annual re-election provisions and
of the retirement by rotation provisions in
the Company’s Articles of Association.
•• Any matters relating to the continuation in
office of any Director at any time including
the appointment or removal of any Director
to Executive or other office.
The Nomination Committee is also responsible
for the Board’s policy on diversity. The Board
recognises the benefits of diversity. Diversity of
skills, background knowledge, international and
industry experience and gender, amongst many
other factors, will be taken into consideration
when seeking to appoint new Directors to the
Board. Notwithstanding the foregoing, all Board
appointments will always be made on merit.
The proposals are designed to bring the
Company into line with best remuneration
practice and improve alignment of senior
management and shareholder interests, thereby
supporting future value creation.
Further details of the proposals are set out
in the letter to shareholders contained in the
circular to shareholders dated 4 February 2021.
Other Information
All Executive Directors are employed under
service agreements.
Remuneration of the Non-Executive Directors
is determined by the Chairman and the Chief
Executive Officer. The Non-Executive Directors
are not entitled to annual bonuses, employee
benefits or participation in the LTIP. However,
they may be awarded ex gratia payments in the
event that their workloads are significantly in
excess of their contractual obligations.
The Chairman’s remuneration is determined
by Remuneration Committee in conjunction
with the Chief Executive Officer. However, the
Chairman is not entitled to vote on the matter.
The Executive Directors are employed under rolling
service contracts. The services of all Executive
Directors may be terminated by the Company
or the individual giving 12 months’ notice, or
immediately in the event that the director is not
re-elected by shareholders at an AGM.
Non-Executive Directors are retained under
Letters of Appointment. Non-executive
director appointments may be terminated
by either the Company or the individual
giving 3 months’ notice, or immediately in the
event that the director is not re-elected by
shareholders at an AGM.
The Executive Directors’ service agreements
and the Non-executive directors’ appointment
letters are normally available for inspection
by shareholders at the Company’s registered
office. However, due to the events surrounding
Covid 19 and the revised format of the AGM,
these will not be available at the 2020 AGM.
Tony Rawlinson
Remuneration Committee Chairman
3 February 2021
3636
CORPORATE GOVERNANCE REPORT (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 The Directors present their report and financial statements for the year ended 31 March 2020.
Directors
The following Directors have held office since 1 April 2019:
Andrew Jones
Anthony Rawlinson
Marc Loomes
Senior Non-Executive Director and Non-executive
Chairman with effect from 22 August 2019
Non-Executive Director
Chief Executive
Christopher Wilks (appointed 3 September 2019)
Finance Director
Kevin Stockdale (resigned 19 August 2019)
Finance Director
Brett Clemo (retired 19 September 2019)
Executive Director
Julia Trouse (resigned 19 August 2019)
Executive Director
Richard Wood (resigned 22 August 2019)
Non-Executive Chairman
Principal activities
Substantial shareholdings
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 46.
The profit for the year after tax was £4.2 million
(2019 restated: £8.8 million). The Company has
paid a dividend of Nil per share (2019 – 6.0p)
making a total for the year of Nil (2019: 12.70p,
including a special distribution of 3.5p per share).
Future Developments
Name
AXA Framlington Investment
Managers
P A Lawrence and family
Danske Bank Asset Management
Chelverton Asset Management
Schroder Investment Management
Soros Fund Management
Canaccord Genuity Wealth
Management
Artemis Investment Management
The likely future development of the business is
covered in the Chairman’s Statement and in the
Strategic Report.
BlackRock
Amati Global Investors
At 12 November 2020, the Company had been notified of the following
holdings of 3% or more of its issued share capital.
No. of
ordinary
shares
9,121,931
6,958,954
4,299,062
4,000,000
3,603,793
3,579,294
2,963,166
2,897,015
2,725,489
2,267,248
%
13.50
10.30
6.36
5.92
5.33
5.30
4.39
4.29
4.03
3.36
3737
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 MARCH 2020 DIRECTORS’ REPORT (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2020
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 at the date of
approval of this report are aware;
(a) there is no relevant audit information of
which the Company’s auditors are unaware,
and
(b) they have taken all the steps that they
ought to have taken as Directors in order
to make 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
Dr Andrew Jones
Chairman
3 February 2021
Group research and development
activities
Auditors
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. The Group remains committed to
obtaining further authorisations of its Aivlosin®
products in other key territories and for
additional disease applications, while at the same
time expanding its product offering to include
vaccines and other biologicals relevant to the
swine and poultry markets.
Directors’ insurance
The Company maintains Directors’ and Officers’
liability insurance for the benefit of its Directors
which remained in place at 31 March 2020 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 2.6
and 32 to the financial statements respectively.
Internal financial controls
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
N+1 Singer were the Company’s nominated
advisor and stockbroker at the year end.
Peel Hunt is joint broker. The closing share
price on 31 March 2020 was 220p per share
(2019: 440.0). During the year the average
share price was 318.8 p (2019: 481.41p).
3838
The auditors BDO LLP are being proposed for
reappointment at the forthcoming Annual
General Meeting of the Company.
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 accounting
standards in conformity with the requirements
of the Companies Act 2006. 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 international accounting
standards in conformity with the
requirements of the Companies Act 2006
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.
ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 INDEPENDENT AUDITOR REPORT
TO THE MEMBERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEAR ENDED 31 MARCH 2020
Qualified opinion
We have audited the financial statements of
ECO Animal Health Group Plc (the ‘Parent
Company’) and its subsidiaries (the ‘Group’)
for the year ended 31 March 2020, which
comprise the consolidated statement of
comprehensive income, the consolidated and
company statements of financial position,
the consolidated and company statements
of changes in equity, the consolidated and
company statements of cashflow and notes to
the financial statements, including a summary of
significant accounting policies.
The financial reporting framework that has
been applied in the preparation of the financial
statements is applicable law and international
accounting standards in conformity with the
requirements of the Companies Act 2006
and, as regards the Parent Company financial
statements, as applied in accordance with the
provisions of the Companies Act 2006.
In our opinion, except for the possible effects of
the matters described in the basis for qualified
opinion section of our report:
•
•
•
•
the financial statements give a true and
fair view of the state of the Group’s and of
the Parent Company’s affairs as at 31 March
2020 and of the Group’s profit for the year
then ended;
the Group financial statements have been
properly prepared in accordance with
international accounting standards in
conformity with the requirements of the
Companies Act 2006;
the Parent Company financial statements
have been properly prepared in accordance
with international accounting standards
in conformity with the requirements of
the Companies Act 2006 and as applied
in accordance with the provisions of the
Companies Act 2006; and
the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006.
Basis for qualified opinion
for the China locations, (“non-China Group
inventories”) held at 31 March 2020 due to
restrictions and control measures arising as a
result of the COVID 19 pandemic. We were
unable to satisfy ourselves by alternative means
concerning the non-China Group inventories
quantities held at 31 March 2020, which are
included in the consolidated statement of
financial position at a value of £14,003,000
(representing 82% of total inventory) by using
other audit procedures. Consequently, we were
unable to determine whether any adjustment to
this amount was necessary.
If any adjustment to the non-China Group
inventories quantities and derived values were
to be required, there would be an impact
on recorded cost of sales, recorded tax
amounts, results recorded in the statement of
comprehensive income, inventory values and
total assets less total liabilities values recorded in
the statement of financial position.
b)
Verification of capitalised distribution
rights, drug registrations, patents and
license costs (together referred to as
“capitalised development costs”) (Group)
Given the issues connected to the recording of
capitalised development costs that resulted in a
prior year adjustment (as described in note 3.2 to
the financial statements), we requested access
to supporting information for all development
costs originally capitalised in the statement of
financial position. Historic accounting records
for periods prior to 2013 were not required
to be retained by the Group; certain sample
accounting records and explanations for
periods between 2013 and 1 April 2018, were not
made available due to the impracticable time
estimated to be required by the Directors, after
commencing and carefully assessing the scope
of the exercise. As a result, we were unable to
obtain sufficient appropriate audit evidence
concerning the net carrying value of capitalised
development costs, as restated, totalling
£21,726,000 at 1 April 2018.
Consequently, we were unable to determine
whether any adjustment to this amount, related
amortisation and deferred tax liabilities thereon,
were necessary, either in respect of the current
year to 31 March 2020, or the opening balances
at 31 March 2019.
a) Physical inventory observations (Group)
We were not able to observe the counting of
physical inventories around the Group, except
For the same reasons described above, we
were unable to audit the prior year adjustment
described in note 3.2 to the financial statements.
We were not able to audit the adjustment to
the net carrying value of historically capitalised
costs, totalling £18,207,000, recorded as a prior
year adjustment, as of 1 April 2018.
If any adjustment to the capitalised
development costs were to be required, there
would be an impact on recorded amortisation
recognised in administrative expenses, related
deferred tax charges/credits, results recorded
in the statement of comprehensive income,
intangible asset carrying values, deferred tax on
related timing differences and total assets less
total liabilities values recorded in the statement
of financial position.
We conducted our audit in accordance with
International Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities
under those standards are further described in
the Auditor’s responsibilities for the audit of
the financial statements section of our report.
We are independent of the Group and the
Parent Company in accordance with the ethical
requirements that are relevant to our audit of the
financial statements in the UK, including the FRC’s
Ethical Standard as applied to listed entities, and
we have fulfilled our other ethical responsibilities
in accordance with these requirements. We
believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for
our qualified opinion.
Conclusions relating to going
concern
We have nothing to report in respect of the
following matters in relation to which the ISAs
(UK) require us to report to you where:
•
•
the Directors’ use of the going concern basis
of accounting in the preparation of the
financial statements is not appropriate; or
the Directors have not disclosed in the
financial statements any identified material
uncertainties that may cast significant doubt
about the Group’s or the Parent Company’s
ability to continue to adopt the going concern
basis of accounting for a period of at least
twelve months from the date when the
financial statements are authorised for issue.
3939
INDEPENDENT AUDITOR REPORT (CONTINUED)
TO THE MEMBERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEAR ENDED 31 MARCH 2020
Key audit matters
Key audit matters are those matters that, in our
professional judgment, were of most significance
in our audit of the financial statements of the
current period and include the most significant
assessed risks of material misstatement
(whether or not due to fraud) we identified,
including those which had the greatest effect
on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts
of the engagement team. These matters were
addressed in the context of our audit of the
financial statements as a whole, and in forming
our opinion thereon, and we do not provide a
separate opinion on these matters.
In addition to the matters described in the basis
for qualified opinion section of our report, we
have determined the matters described below
to be the key audit matters to be communicated
in our report.
KEY AUDIT MATTER
HOW WE ADDRESSED THE KEY AUDIT
MATTER IN THE AUDIT
Revenue recognition and discount
accounting
The Group’s revenue recognition policy is included
within the accounting policies in note 2 and the
components of revenue are set out in note 4.
The Group’s revenue is a key performance indicator for
the market upon which the results of the Group will be
assessed.
The Group has one main source of revenue representing
direct sales of animal pharmaceutical products into UK,
European and global markets. The Group recognises
revenue at the point its performance obligation is
met, which is generally on delivery of product to the
customer, but may occur at different points in the
revenue cycle dependent on contractual terms.
Prior period errors were identified in the Group’s original
revenue recognition policies, and application thereof, as
explained in note 3.
Given the potential for misstatement of revenue
whether due to fraud or error, the inherent judgements
and estimates involved in revenue recognition and cut-
off assessments, as well as the identified misstatements
in the prior period, we considered revenue recognition a
significant risk of material misstatement in the financial
statements.
We reviewed the revenue recognition policy applied by
the Group and considered its compliance with IFRS 15
‘Revenue from Contracts with Customers’. Our work
included review of management’s identification of
performance obligations and assessment of contractual
terms to determine when these performance
obligations were met, both throughout the year and
around year-end.
We tested a sample of the Group’s revenue transactions
to verify that revenue was accurately recorded in the
correct accounting period. This testing was performed
through review of contracts, invoices and delivery notes
and agreement to the recognition of revenue in the
accounting system.
Certain revenue arrangements include the offering
of volume and other discounts to customers. We
reviewed management’s assessment of the value of
these discounts at year end, reviewed contractual terms
and re-performed calculations for a sample of accrued
balances.
Where the Directors identified errors in prior periods,
we reviewed the underlying support for adjustments
proposed, testing to supporting documents such as
delivery and shipment details and agreed the correct
application of IFRS 15 in respect of these adjustments.
Key Observations
Based on the work performed, and following the
restatements explained in note 3, we consider that
revenue has been recognised in accordance with the
Group’s revenue recognition accounting policy and the
requirements of IFRS 15.
4040
ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 KEY AUDIT MATTER
HOW WE ADDRESSED THE KEY AUDIT
MATTER IN THE AUDIT
Intangible assets – Capitalised
development expenditure
The Group’s accounting policy for intangible assets is
included within the accounting policies in note 2 and the
components of intangible assets are set out in note 12.
The Group’s policy is to capitalise development
expenditure in accordance with IAS 38. During the
period, the Directors reviewed past capitalised
development expenditure and identified misstatements
in prior periods as a result of the Group capitalising items
which did not meet the criteria of IAS 38.
As a result of the errors identified, there was a significant
audit risk that past capitalised expenditure was not
appropriately capitalised and capitalised costs, in respect
of projects not yet available for use, are impaired.
Given the potential for misstatement of capitalised
development expenditure, as well as the identified
misstatements in the prior period, we considered
development expenditure capitalisation a key audit
matter.
We reviewed the Directors’ narrative re-assessment of
the appropriateness of intangible assets capitalised in
the past, against the Group’s revised accounting policy
included in note 2.8.
Where management concluded that past costs were
appropriately capitalised, for all periods up to 31 March
2019, we sampled those costs and planned to agree the
cost to underlying supporting documentation and to
management’s assessment of whether the cost met
the criteria of IAS 38 at the point of capitalisation. We
performed the same procedures on capitalised costs for
the year ended 31 March 2020.
We also sampled amortisation entries during the period
1 April 2018 to 31 March 2020, to ensure amortisation
commenced in the correct period and over the useful
life in accordance with Group policy. We reviewed
the useful lives applied, for appropriateness, by
corroborating the historical periods during which the
Group’s products have been sold and the periods over
which competitor’s products have been marketed.
Our work was limited for the periods prior to 1 April
2018, where certain information was not available for
review, as set out in the Basis for qualified opinion
section of our report.
Our work was not limited for movements in capitalised
development costs for the period from 1 April 2018 to
31 March 2020.
We reviewed management’s impairment assessment
at 31 March 2020, for capitalised development costs
not yet available for use. We challenged the future
estimated forecast cashflows and whether or not
technical feasibility continued to be highly probable.
Key Observations
We consider the Group’s revised accounting policy to
be appropriate, Our audit scope was limited in respect
of the capitalised development expenditure assets’
carrying value brought forward as of 1 April 2018. We did
not identify anything to suggest that the judgements
applied by management, in respect of capitalisation and
amortisation from 1 April 2018, and their impairment
assessment as of 31 March 2020, were inappropriate.
4141
INDEPENDENT AUDITOR REPORT (CONTINUED)
TO THE MEMBERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEAR ENDED 31 MARCH 2020
KEY AUDIT MATTER
HOW WE ADDRESSED THE KEY AUDIT
MATTER IN THE AUDIT
Unauthorised related party transactions
and subsequent investigation
In response to the Directors’ findings, we included
internal forensic specialists as part of the audit team.
As reported in note 31, during the year ended 31 March
2020 a longstanding former Director and Company
Secretary of the Group withdrew cash from the
Company totalling £25,748 (2019 - £46,920) which was
recorded in the Parent Company and Group’s financial
statements as administrative costs in each year. Further
cash was withdrawn over an extended period starting in
2014, the cumulative amount identified was £322,109 as at
31 March 2020.
These withdrawals were not approved, were outside
the normal course of the Group’s business and were in
excess of contractual remuneration levels.
The Group’s internal audit department identified the
payments and reported their findings to the Board
in April 2020. The Internal Audit department and an
external law firm performed further work to assess the
full extent of the withdrawals.
Repayment of £307,113 was made to the Group in
August 2020.
A significant risk had been identified, that further
unauthorised transactions remain undetected. We
considered this to be a key audit matter.
.
The audit team’s work included review of the
subsequent reports produced, both those of internal
audit and the external law firm, and assessment of the
completeness of their procedures and enquiries.
Following our review of the initially produced findings
reports, we recommended a subsequent extended
scope of work, and procedures were performed by
the external law firm and internal audit department,
supported by senior management. These extended
procedures covered further electronic record
investigation, examination of bank payments over
a period of 7 years and an investigation into the
appropriateness of supplier and payroll payments. These
reports were subsequently reviewed by the audit team,
including forensic audit specialists, which included
re-performance of certain procedures.
Our overall audit approach included testing designed
to identify and detect material misstatements in order
to obtain reasonable assurance about whether the
financial statements as a whole are free from material
misstatement due to fraud.
Key Observations
The results of the extended scope of work, and our
enquiries thereon, did not identify further material
undetected unauthorised transactions. We consider
the accounting for, and disclosure of, the transactions
identified to be appropriate.
4242
ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 KEY AUDIT MATTER
HOW WE ADDRESSED THE KEY AUDIT
MATTER IN THE AUDIT
Prior period errors and opening
balance sheet propriety
As disclosed in note 3, prior period errors were identified
in respect of the following areas:
-
-
-
-
-
-
IFRS 15 Revenue from contracts with customers
IAS 38 Intangible Assets
IFRS 11 Joint Arrangements
Bonuses
IFRS 16 - Leases
Foreign exchange
- Accruals accounting
-
-
-
Share-based payments
Related party transaction disclosures
Taxation
Given the extent of the errors identified in the prior
periods, our audit of the opening balance sheet at
31 March 2019, formed a key part of the audit.
A significant risk of material misstatement was identified
relating to whether:
-
-
-
the assets recorded in the opening balance sheet
exist;
the liabilities in the opening balance sheet were
complete;
both assets and liabilities were accurately recorded;
and
-
all disclosures required were made
Given the extent of prior period errors identified by the
Directors and the audit process, we have re-audited the
opening statement of financial position at 31 March 2019.
To the extent that our scope was not limited in respect
of capitalised development costs, procedures included
the audit of the opening statement of financial position
to current period materiality and, where prior period
errors were corrected, audit of those adjustments. This
included a review of management’s revised assessment,
calculations and disclosures in note 3, by agreement to
supporting documentation and inspection of underlying
evidence on a sample basis.
Our audit procedures were designed to provide
reasonable assurance that the restated opening
statement of financial position is materially correct.
This was required to ensure that the starting point
for the movement between the opening and closing
statements of financial position, reflected by the
income statement and statement of cashflows for the
year ended 31 March 2020, are also materially correct.
Key Observations
Based on the work performed, and except for the
capitalised development cost limitation described in
the Basis for Qualified Opinion section of our report,
we have obtained sufficient assurance on the opening
statement of financial position in order to form our
opinion for the year ended 31 March 2020.
4343
INDEPENDENT AUDITOR REPORT (CONTINUED)
TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEAR ENDED 31 MARCH 2020
Our application of materiality
We apply the concept of materiality both
in planning and performing our audit, and in
evaluating the effect or misstatements. We
consider materiality to be the magnitude by
which misstatements, including omissions,
could influence the economic decisions of
reasonable users that are taken on the basis
of the financial statements. In order to reduce
to an appropriately low level the probability
that any misstatements exceed materiality,
we use a lower level, “performance materiality”,
to determine the extent of testing needed.
Importantly, misstatements below these levels
will not necessarily be evaluated as immaterial, as
we also take account of the nature of identified
misstatements, and the particular circumstances
of their occurrence, when evaluating their effect
on the financial statements as a whole.
The materiality for the Group financial
statements as a whole was set at £250,000. This
was determined by reference to the Group’s
profit before tax and was set at 5%. Profit
before tax is considered the most appropriate
measure in assessing the performance of the
Group given it is an AIM listed PLC and therefore
the number of users and level of interest in
the financial statements is expected to be
higher. Performance materiality was set at 50%
of the Group materiality level, being £125,000.
Performance materiality was set at this level
based on the risks identified in respect of prior
period errors and that this was the first year we
conducted an audit of the Group.
Where financial information from components
was audited separately, component materiality
was set for this purpose at lower levels, varying
between £45,000 and £180,000. Component
performance materiality levels varied between
£22,500 and £90,000.
The materiality for auditing the Parent Company
financial statements, on a standalone basis, was
determined with reference to 1.9% of the Parent
Company’s net assets. Materiality for assessing
the parent company financial statements was
therefore set at £1,450,000 and performance
materiality was set at £725,000.
Materiality applied for group opinion purposes
(component materiality) was limited to an
appropriate proportion of Group materiality,
and set at £45,000 for this purpose; performance
materiality was set at 50% of component
materiality, £22,500.
4444
We agreed with the Audit Committee that we
would report to the committee all individual
audit differences in excess of £5,000. We
also agreed to report differences below this
threshold that, in our view, warranted reporting
on qualitative grounds.
The remaining entities were deemed insignificant
to the Group due to the size of operations
and balances within each entity. Audit work on
these components has been limited to analytical
review and sample revenue cut-off procedures
carried out by the Group audit team.
An overview of the scope of our
audit
Other information
Our Group audit was scoped by obtaining an
understanding of the Group and its environment,
including the Group’s system of internal control,
and assessing the risks of material misstatement
in the financial statements at the Group level.
We obtained an understanding of the
internal control environment related to the
financial reporting process and assessed the
appropriateness, completeness and accuracy
of Group journals and other adjustments
performed on consolidation.
At 31 March 2020, the Group comprised the
Parent Company; one UK trading company,
ECO Animal Health Limited, a two entity sub-
Group in China headed by Zhejang Eco Biok
Animal Health Products Limited; a US joint
operation in Pharmgate Animal Health LLC and
16 other entities.
The Parent, the UK trading entity, the sub-
Group in China and the US joint operation were
deemed to be the significant components of
the Group. Full scope audits were carried out,
for the Parent Company and ECO Animal Health
Limited, by the Group audit team. The audit of
the Pharmgate Animal Health LLC component
was carried out by the Group audit team. The
audit of the sub-Group, headed by Zhejang
ECO Biok Animal Health Products Limited, was
conducted by BDO China under instruction
from and reporting to BDO LLP as the Group
auditor. We received reporting documents from
the component auditor relating to the period
under audit as well as opening balance sheet
procedures; we conducted file reviews of the
underlying audit evidence.
Significant components for the year ended
31 March 2020 comprise 77% of consolidated
Group revenue, 128% of consolidated Group
profit before tax (due to losses in non-significant
components) and 100% of consolidated Group
net assets (due to a combination of net assets
and net liabilities in non-significant components).
The Directors are responsible for the other
information. The other information comprises
the information included in the annual report,
other than the financial statements and our
auditor’s report thereon. Our opinion on the
financial statements does not cover the other
information and, except to the extent otherwise
explicitly stated in our report, we do not express
any form of assurance conclusion thereon.
In connection with our audit of the financial
statements, our responsibility is to read the
other information and, in doing so, consider
whether the other information is materially
inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise
appears to be materially misstated. If we identify
such material inconsistencies or apparent
material misstatements, we are required
to determine whether there is a material
misstatement in the financial statements or a
material misstatement of the other information.
If, based on the work we have performed, we
conclude that there is a material misstatement
of this other information, we are required to
report that fact.
As described in the basis for qualified opinion
section of our report, we were unable to satisfy
ourselves concerning the inventory quantities
held at 31 March 2020 and the intangible assets
carrying value at 31 March 2019 and 31 March
2020. We have concluded that where the other
information refers to these balances or related
balances, it may be materially misstated for the
same reason.
Opinions on other matters
prescribed by the Companies
Act 2006
Except for the possible effects of the matters
described in the basis for qualified opinion
section of our report, in our opinion, based on
the work undertaken in the course of the audit:
••
the information given in the strategic report
and the Directors’ report for the financial
year for which the financial statements are
ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 Responsibilities of Directors
Use of our report
prepared is consistent with the financial
statements; and
••
the strategic report and the Directors’
report have been prepared in accordance
with applicable legal requirements.
Matters on which we are required
to report by exception
Except for the possible effect of the matters
described in the basis for qualified opinion
section of our report, in the light of the
knowledge and understanding of the Group
and the Parent Company and its environment
obtained in the course of the audit, we have not
identified material misstatements in the strategic
report or the Directors’ report.
Arising solely from the limitations on the scope
of our work relating to inventory and intangible
assets referred to above:
As explained more fully in the Directors’
responsibilities statement the Directors are
responsible for the preparation of the financial
statements and for being satisfied that they give
a true and fair view, and for such internal control
as the Directors determine is necessary to
enable the preparation of financial statements
that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the
Directors are responsible for assessing the
Group’s and the Parent Company’s ability to
continue as a going concern, disclosing, as
applicable, matters related to going concern
and using the going concern basis of accounting
unless the Directors either intend to liquidate
the Group or the Parent Company or to cease
operations, or have no realistic alternative but
to do so.
•• we have not obtained all the information
and explanations that we considered
necessary for the purpose of our audit; and
Auditor’s responsibilities for the
audit of the financial statements
•• we were unable to determine whether
adequate accounting records have been
kept by the Parent Company.
We have nothing to report in respect of the
following matters in relation to which the
Companies Act 2006 requires us to report to
you if, in our opinion:
••
••
••
returns adequate for our audit have not
been received from branches not visited
by us; or
the Parent Company financial statements
are not in agreement with the accounting
records and returns; or
certain disclosures of Directors’
remuneration specified by law are not
made.
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from material
misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will
always detect a material misstatement when it
exists.
Misstatements can arise from fraud or error and
are considered material if, individually or in the
aggregate, they could reasonably be expected to
influence the economic decisions of users taken
on the basis of these financial statements.
A further description of our responsibilities for
the audit of the financial statements is located
on the Financial Reporting Council’s website :
www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s report.
This report is made solely to the Parent
Company’s members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so
that we might state to the Parent Company’s
members those matters we are required to state
to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to
anyone other than the Parent Company and the
Parent Company’s members as a body, for our
audit work, for this report, or for the opinions
we have formed.
Ian Oliver
(Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
Reading
United Kingdom
3 February 2021
BDO LLP is a limited liability partnership
registered in England and Wales (with registered
number OC305127).
4545
2020
2019
£000’s
72,106
(38,742)
£000’s
Restated*
67,253
(35,448)
33,364
31,805
105
(28,274)
5,195
112
(142)
(30)
42
42
5,207
(1,032)
4,175
2,582
1,593
4,175
3.82
3.67
35
(21,772)
10,068
127
(124)
3
14
14
10,085
(1,239)
8,846
7,253
1,593
8,846
10.86
10.71
8,362
12,452
Notes
4
5
6
7
7
16
9
26
8
8
6
Revenue
Cost of sales
Gross profit
Other income
Administrative expenses
Profit from operating activities
Finance income
Finance costs
Net finance (cost)/income
Share of profit of associate
Profit before income tax
Income tax charge
Profit for the year
Profit attributable to:
Owners of the parent Company
Non-controlling interest
Profit for the year
Earnings per share (pence)
Diluted earnings per share (pence)
Earnings before Interest, Tax, Depreciation, Amortisation, Share Based Payments
and Foreign Exchange Differences
* Please refer to Note 3 for further details on prior year restatements.
4646
CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 Profit for the year
4,175
8,846
2020
2019
Notes
£000’s
£000’s
Restated*
Other comprehensive income (losses) (net of related tax effects):
Revaluation of freehold property
Foreign currency translation differences
Remeasurement of defined benefit pension schemes
Other comprehensive income (losses) for the year
Total comprehensive income for the year
Attributable to:
Owners of the parent Company
Non-controlling interest
All items listed in other comprehensive income have been recorded directly through reserves
and are shown in the consolidated statement of changes in equity.
The notes on pages 54 to 131 form part of these financial statements.
* Please refer to Note 3 for further details on prior year restatements.
13
23
26
(92)
98
12
18
-
(8)
(36)
(44)
4,193
8,802
2,561
1,632
4,193
7,200
1,602
8,802
4747
CONSOLIDATED STATEMENTOF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 MARCH 2020 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2020
Share
Capital
Share
Premium
Account
Revaluation
Reserves
Other
Reserves
Foreign
Exchange
Reserves
Retained
Earnings
Total
Non-
controlling
Interest
Total
Equity
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
Balance as at 31 March 2018
3,291
58,847
664
2,823
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2,717)
-
-
-
-
34,065
99,690
5,185
104,875
(632)
(632)
33
(599)
(17,153)
(17,153)
(954)
(954)
484
(484)
-
-
-
-
(17,153)
(954)
-
-
-
-
(109)
(109)
(105)
(214)
43
43
2,956
239
41
-
84
239
3,291
58,847
664
106
484
17,732
81,124
5,154
86,278
-
-
-
-
-
-
-
-
-
-
(17)
(37)
(17)
(37)
1
(16)
(12)
(49)
3,291
58,847
664
106
484
17,678
81,070
5,143
86,213
-
-
-
-
81
-
-
-
81
-
-
-
-
3,803
-
-
-
3,803
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,253
7,253
1,593
8,846
(17)
-
(17)
-
-
-
-
-
-
(36)
(17)
(36)
9
-
(8)
(36)
7,217
7,200
1,602
8,802
-
631
173
3,884
631
173
-
-
-
3,884
631
173
(8,485)
(8,485)
(1,643)
(10,128)
(7,681)
(3,797)
(1,643)
(5,440)
3,372
62,650
664
106
467
17,214
84,473
5,102
89,575
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(92)
-
(92)
-
-
-
-
-
-
-
-
59
-
-
59
2,582
2,582
1,593
4,175
-
-
-
12
-
59
(92)
12
-
39
-
-
98
(92)
12
2,594
2,561
1,632
4,193
Adjustment re revenue cut-off
(Note 3.1A)
Adjustment re intangible assets
(Note 3.2)
Adjustment re bonuses (Note 3.4)
Adjustment re foreign exchange
(Note 3.6)
Adjustment re discounts (Note 3.7A)
Adjustment re provisions
(Note 3.7C)
Adjustment re Share based
payments (Note 3.8)
Balance as at 1 April 2018 -
restated
Adjustment on implementation
of IFRS16
Further IFRS16 adjustment
(Note 3.5)
IFRS 16 adjusted balance as at
1 April 2018 - restated
Profit for the year - restated*
Other comprehensive income
Foreign currency differences
Actuarial gains/(losses) on
pension scheme assets
Total comprehensive income for
the year
Transactions with owners
recorded directly in equity
Issue of shares in the year
Share-based payments
Deferred tax on share-based
payments
Dividends
Transactions with owners
Balance as at 31 March 2019 -
restated
Profit for the year
Other comprehensive income:
Foreign currency differences
Revaluation of freehold property
Actuarial gains on pension scheme
assets
Total comprehensive income for
the year
4848
ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2020
Share
Capital
Share
Premium
Account
Revaluation
Reserves
Other
Reserves
Foreign
Exchange
Reserves
Retained
Earnings
Total
Non-
controlling
Interest
Total
Equity
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
5
-
-
-
5
232
-
-
-
232
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
284
237
284
(373)
(373)
-
-
-
237
284
(373)
(7,453)
(7,542)
(7,453)
(7,305)
(968)
(968)
(8,421)
(8,273)
Transactions with owners
recorded directly in equity
Issue of shares in the year
Share-based payments
Deferred tax on share-based
payments
Dividends
Transactions with owners
Balance as at 31 March 2020
3,377
62,882
572
106
526
12,266
79,729
5,766
85,495
The notes on pages 54 to 131 form part of these financial statements.
* Please refer to Note 3 for further details on prior year restatements.
4949
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2020
COMPANY
Share
Capital
Share
Premium
Account
Other
Reserves
Revaluation
Reserves
Retained
Earnings
Total
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
Balance as at 31 March 2018
3,291
58,847
2,823
395
7,189
72,545
Prior year adjustments:
Adjustment re bonuses (Note 3.4)
Adjustment re Share based payments (Note 3.8)
Adjustment re share-based payments (Note 3.9)
-
-
-
-
-
-
Balance as at 31 March 2018 - restated
3,291
58,847
Adjustment on implementation of IFRS 16 (Note
3.5)
IFRS 16 adjusted balance as at 1 April 2018 -
restated
-
-
3,291
58,847
Profit for the year - as reported
Prior year adjustments:
Adjustment re bonuses (Note 3.4)
Adjustment re IFRS 16 (Note 3.5)
Adjustment re share options (Note 3.9)
Profit for the year – as restated
Other comprehensive income:
Actuarial gains/(losses) on pension scheme assets
Total comprehensive income for the year
Transactions with owners recorded directly in
equity
Issue of shares in the year
Share-based payments
Adjustment re share-based payments (Note 3.8)
Dividends
Transactions with owners
-
-
-
-
-
-
-
81
-
-
-
81
Balance as at 31 March 2019 - restated
3,372
Loss for the year
Other comprehensive income:
Revaluation of freehold property
Actuarial gains on pension scheme assets
Total comprehensive loss for the year
-
-
-
-
-
-
-
-
-
-
-
3,803
-
-
-
3,803
62,650
-
-
-
-
-
(2,717)
-
106
-
106
-
-
-
-
-
-
-
-
-
-
-
-
106
-
-
-
-
-
-
-
395
-
395
-
-
-
-
-
-
-
-
-
-
-
-
395
-
(92)
-
(92)
(172)
2,807
1,324
11,148
(7)
(172)
90
1,324
73,787
(7)
11,141
73,780
15,041
15,041
71
(3)
154
71
(3)
154
15,263
15,263
(36)
15,227
(36)
15,227
-
631
(5)
(8,485)
(7,859)
18,509
3,884
631
(5)
(8,485)
(3,975)
85,032
(151)
(151)
-
12
(139)
(92)
12
(231)
5050
ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 STATEMENT OF CHANGES IN EQUITY (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2020
Share
Capital
Share
Premium
Account
Other
Reserves
Revaluation
Reserves
Retained
Earnings
Total
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
Transactions with owners
Issue of shares in the year
Share-based payments
Deferred tax on share-based payments
Deferred tax on property revaluations
Dividends
Transactions with owners
5
-
-
-
-
5
232
-
-
-
-
232
-
-
-
-
-
-
-
-
-
(1)
-
(1)
Balance as at 31 March 2020
3,377
62,882
106
302
The notes on pages 54 to 131 form part of these financial statements.
*Please refer to Note 3 for further details on prior year restatements.
-
284
(63)
-
(7,453)
(7,232)
11,138
237
284
(63)
(1)
(7,453)
(6,996)
77,805
5151
STATEMENTS OF FINANCIAL POSITION (CO. NUMBER: 01818170)
AS AT 31 MARCH 2020
Group
Company
2020
2019
2018
2020
2019
2018
Notes
£000’s
£000’s
Restated*
£000’s
Restated*
£000’s
£000’s
Restated*
£000’s
Restated*
Non-current assets
Intangible assets
Property, plant and equipment
Investment property
Right of use assets
Investments
Amounts due from subsidiary Company
Total non-current assets
Current assets
Inventories
Trade and other receivables
Income tax recoverable
Other taxes and social security
Cash and cash equivalents
Total current assets
TOTAL ASSETS
Current Liabilities
Trade and other payables
Borrowings
Income tax payable
Other taxes and social security
Lease liabilities
Dividends
Current liabilities
Net current assets / (liabilities)
Total assets less current liabilities
Non-current liabilities
Deferred tax
Lease liabilities
TOTAL ASSETS LESS TOTAL LIABILITIES
EQUITY
Issued share capital
Share premium account
Revaluation reserve
Other reserves
Foreign exchange revaluation reserve
Retained earnings
Shareholders' funds
Non-controlling interests
Total equity
12
13
14
15
16
18
17
18
20
21
22
22
19
22
25
27
27
26
41,439
2,426
305
1,658
166
-
41,009
2,144
200
1,675
116
-
39,656
1,866
200
-
98
-
45,994
45,144
41,820
17,264
28,353
1,265
652
11,877
59,411
105,405
(14,486)
(2,032)
(940)
-
(342)
(50)
(17,850)
41,561
87,555
(636)
(1,424)
85,495
3,377
62,882
572
106
526
12,266
79,729
5,766
85,495
19,477
23,333
827
462
16,863
60,962
106,106
18,654
15,219
343
1,160
20,343
55,719
97,539
(13,363)
(10,983)
-
(128)
(108)
-
(42)
(11,261)
44,458
86,278
-
-
-
(816)
(533)
(330)
(49)
(15,091)
45,871
91,015
-
(1,440)
89,575
3,372
62,650
664
106
467
17,214
84,473
5,102
89,575
-
622
305
25
20,032
59,295
80,279
-
55
-
36
177
268
80,547
(567)
(2,001)
-
-
(24)
(50)
(2,642)
(2,374)
77,905
(95)
(5)
-
769
200
57
20,077
59,988
81,091
-
46
14
145
4,236
4,441
85,532
-
716
200
-
20,077
47,650
68,643
-
213
22
518
4,959
5,712
74,355
(296)
(428)
-
-
(90)
(36)
(49)
(471)
3,970
85,061
-
(29)
-
-
(98)
-
(42)
(568)
5,144
73,787
-
-
86,278
77,805
85,032
73,787
3,291
58,847
664
106
484
17,732
81,124
5,154
3,377
62,882
302
106
-
11,138
77,805
-
3,372
62,650
395
106
-
18,509
85,032
-
3,291
58,847
395
106
-
11,148
73,787
-
86,278
77,805
85,032
73,787
Approved by the Board and authorised for issue on 3 February 2021.
Dr Andrew Jones, Chairman.
* Please refer to Note 3 for further details on prior year restatements.
The notes on pages 54 to 131 form part of these financial statements.
5252
ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2020
Cash flows from operating activities
Profit/(loss) before income tax
Adjustment for:
Finance income
Finance cost
Foreign exchange gain/(loss)
Depreciation
Amortisation of right-of-use assets
Revaluation of investment property
Amortisation of intangible assets
Pension payments
Share of associate's results
Impairment of investments
Share based charge
Dividends received
Group
2020
2019
Restated*
Company
2020
2019
Restated*
Notes
£000’s
£000’s
£000’s
£000’s
5,207
10,085
(151)
15,272
7
7
13
15
12
23
16
16
24
(112)
142
62
334
389
(64)
1,685
(59)
(42)
-
284
-
(127)
124
(504)
340
380
(55)
1,745
(59)
(14)
-
631
-
(895)
30
-
17
32
(64)
-
-
-
45
114
(77)
Operating cash flows before movements in working capital
7,826
12,546
(949)
Change in inventories
Change in receivables
Change in payables
Cash generated from operations
Finance costs
Income tax
Net cash from operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment
Disposal of property, plant and equipment
Purchase of intangibles
Finance income
Dividends received
Net cash (used in)/from investing activities
Cash flows from financing activities
Change in borrowings
Proceeds from issue of share capital
Interest paid on lease liabilities
Principal paid on lease liabilities
Dividends paid
Net cash (used in)/from financing activities
Net (decrease) in cash and cash equivalents
Foreign exchange movements
Balance at the beginning of the period
Balance at the end of the period
2,212
(5,209)
662
5,491
(17)
(1,076)
4,398
(767)
-
(2,115)
112
-
(823)
(7,416)
2,828
7,135
-
(862)
6,273
(566)
5
(3,098)
127
-
(2,770)
(3,532)
2,032
237
(125)
(364)
(8,421)
(6,641)
(5,013)
27
16,863
11,877
-
3,884
(139)
(338)
(10,121)
(6,714)
(3,973)
493
20,343
16,863
-
962
253
266
(30)
-
236
(1)
-
-
895
77
971
2,001
237
(13)
(38)
(7,453)
(5,266)
(4,059)
-
4,236
177
13
13
12
7
22
20
A net cash reconciliation has been provided in note 22.
The notes on pages 54 to 131 form part of these financial statements. *Please refer to Note 3 for further details on prior year restatements
(917)
-
-
17
15
(55)
-
(59)
-
-
305
-
14,578
-
(11,472)
(103)
3,003
(2)
(13)
2,988
(2)
-
-
938
-
936
-
3,884
(22)
(31)
(8,478)
(4,647)
(723)
-
4,959
4,236
5353
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2020
1. General information
ECO Animal Health Group plc (“the Company”) and its subsidiaries (together “the Group”) manufacture and
supply animal health products globally.
The Company is traded on the AIM market of the London Stock Exchange and is incorporated and domiciled
in the UK. The address of its registered office is 78 Coombe Road, New Malden, Surrey, KT3 4QS.
2.
Summary of significant accounting policies
2.1
Basis of preparation
The Group has presented its annual report and accounts in accordance with international accounting
standards in conformity with the requirements of the Companies Act 2006, IFRIC interpretations and the
Companies Act 2006 applicable to companies reporting under IFRS.
The preparation of financial statements, in conformity with international accounting standards in conformity
with the requirements of the Companies Act 2006, requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Although these estimates are based on
management’s best knowledge of the amount, event or actions, actual results ultimately may differ from
those estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that period
or in the period of the revision and future periods if the revision affects both current and future periods.
Further details of estimates and judgements are provided in note 2.30.
The principal accounting policies of the Group are set out below and have been applied consistently in
dealing with items which are considered material in relation to the Group’s financial statements.
Going Concern
After making appropriate enquiries, the Directors have, at the time of approving the financial statements,
formed a judgement that there is a reasonable expectation that the Company and Group have adequate
resources to continue in operational existence for the foreseeable future. For this reason, the Directors
continue to adopt the going concern basis in preparing the financial statements.
This conclusion is based on a review of the resources available to the Group, taking account of the Group’s
financial projections together with available cash and committed borrowing facilities. The Directors have
performed a reverse stress test on the business, by considering what quantum of revenue and gross margin
reduction would be required to exhaust all available funds within 12 months of the date of approving the
accounts. The Directors concluded that the likelihood of such a reduction was remote, and therefore that no
material uncertainty exists with respect of going concern.
2.2 Adoption of new and revised standards
The following new standards, amendments and interpretations for existing standards have been published
and are mandatory for accounting periods beginning after 1 January 2019 (unless otherwise stated) and have
been applied in preparing these consolidated financial statements. These did not result in any material
changes.
IFRS 9 – Financial Instruments (amendments)
IFRIC 23 – Uncertainty over income tax
IAS 28 – Investments in associates and joint ventures
IAS 19 – Employee benefits
•
•
•
•
5454
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 The following amendments to existing standards and interpretations will be effective and adopted for period
ended 31 March 2021 and the adoption of these amendments to existing standards and interpretations are
not expected to have a material impact on the financial statements of the Group:
•
•
•
•
•
IFRS 3 Business combinations – Definition of a business
IAS 1 Presentation of financial statements, and IAS 8 Accounting policies, changes in accounting estimates
and errors – Definition of material
IFRS 11 – Joint Arrangements
IAS 12 – Income Taxes
IAS 23 – Amendments under 2015-2017 Cycle of Annual Improvements
The following new standards, amendments and interpretations for existing standards have been published
that are mandatory for accounting periods beginning after 1 January 2020 (unless otherwise stated) and have
not been applied in preparing these consolidated financial statements.
•
IFRS 9, IAS 39 and IFRS 17 - Interest rate benchmark reform
The Directors do not expect that the adoption of the Standards and Interpretations listed above will have a
material impact on the financial statements of the Group in future periods.
Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these
standards until a detailed review has been completed.
2.3
Basis of consolidation
The consolidated financial statements comprise the accounts of the Company and its subsidiaries drawn up
to 31 March 2020.
An entity is classed as a subsidiary of the Company when as a result of contractual arrangements, the
Company has the power to govern its financial and operating policies so as to obtain benefits from its
activities.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group.
The cost of an acquisition is measured, as the fair value of the assets given, equity instruments issued
and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and contingent
liabilities assumed in a business combination are measured initially at their fair values at the acquisition date,
irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of
the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is
less than the fair value, the difference is recognised directly in the income statement.
Accounting policies of subsidiaries have been changed where material to ensure consistency with the policies
adopted by the Group. Although the subsidiaries in Brazil and China and the joint operations in the USA and
Canada all have December year ends, the Group uses management accounts to the end of March to prepare
the Group accounts.
Subsidiaries are wholly consolidated from the date on which control is transferred to the Group. They are
deconsolidated from the date that control ceases.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are
eliminated on consolidation.
2.4 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting to the chief operating
decision-maker. The chief operating decision-maker who is responsible for allocating resources and assessing
performance of the operating segments has been identified as the Board.
5555
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 2.5
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of
the primary economic environment in which the entity operates (“functional currency”). The consolidated
financial statements are presented in Pounds Sterling, which is the Company’s functional and the Group’s
presentation currency.
(b) Transactions and balances
Monetary assets and liabilities denominated in foreign currencies are translated into Pounds Sterling at the
rates of exchange ruling at the date of the financial statements.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing
at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at period end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement within administrative expenses.
Foreign exchange gains and losses that relate to borrowing and cash and cash equivalents are presented in the
income statement within administrative expenses.
(c) Group companies
The results and financial position of all Group entities that have a functional currency different from the
Group’s functional and presentation currency are translated into the Group’s functional and presentation
currency as follows;
•
•
assets and liabilities for each Statement of financial position presented are translated at the closing
exchange rate at the date of the Statement of financial position;
income and expenses for each income statement are translated at average exchange rates unless this aver-
age is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction
dates, in which case the income and expenses are translated at the rate on the dates of the transaction;
and
•
all resulting exchange differences are recognised through other comprehensive income as a separate
component of equity.
When a foreign operation is partially disposed or sold, exchange differences that were recognised in
equity are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value
adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing exchange rate.
2.6
Financial instruments
Financial assets
The Group’s financial assets comprise mainly trade and other receivables and cash and cash equivalents in
the consolidated statement of financial position. These financial assets arise principally from the provision of
goods to customers and are measured at amortised cost.
Impairment provisions for current and non-current trade receivables are recognised based on the simplified
approach within IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses.
During this process, the probability of the non-payment of the trade receivables is assessed. This probability
is then multiplied by the amount of the expected loss arising from default to determine the lifetime
expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions
are recorded in a separate provision account with the loss being recognised within Administrative expenses
in the consolidated income statement. On confirmation that the trade receivable will not be collectable, the
gross carrying value of the asset is written off against the associated provision.
Impairment provisions for receivables from related parties and loans to related parties are recognised based
on a forward looking expected credit loss model. The methodology used to determine the amount of the
provision is based on whether there has been a significant increase in credit risk since initial recognition of
the financial asset. For those where the credit risk has not increased significantly since initial recognition of
the financial asset, twelve month expected credit losses along with gross interest income are recognised. For
5656
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 those for which credit risk has increased significantly, lifetime expected credit losses along with the gross
interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit
losses along with interest income on a net basis are recognised.
Financial liabilities
The Group’s financial liabilities comprise mainly trade and other payables and bank overdrafts in the
consolidated statement of financial position. These financial liabilities are initially recognised at fair value and
subsequently measured at amortised cost in accordance with IFRS 9.
2.7 Goodwill
Goodwill arising on the acquisition of an entity represents the excess of the costs of acquisition over the
Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity
recognised at the date of acquisition.
Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated
impairment losses. Goodwill is not subject to amortisation but is tested for impairment annually.
Negative goodwill arising on an acquisition is recognised directly in the income statement. On disposal of a
subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination
of the profit or loss recognised in the income statement on disposal. Goodwill arising before the date of
transition to IFRS, on 1 April 2004, has been retained at the previous UK GAAP amounts, subject to being
tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not
been reinstated and is not included in determining any subsequent profit or loss on disposal.
2.8 Other intangible assets
IAS 38 – Intangible Assets includes guidance on the accounting for Research and Development expenditure.
Such an intangible asset is a resource that is controlled by the entity as a result of past events (for example,
purchase or self-creation) and from which future economic benefits (inflows of cash or other assets) are
expected. The three critical attributes of an intangible asset are:
•
identifiability
• control (power to obtain benefits from the asset)
•
future economic benefits (such as revenues or reduced future costs)
Identifiability: an intangible asset is identifiable when it:
•
•
is separable (capable of being separated and sold, transferred, licensed, rented, or exchanged, either
individually or together with a related contract) or
arises from contractual or other legal rights, regardless of whether those rights are transferable or separa-
ble from the entity or from other rights and obligations.
Development expenditure – whether purchased or self-created (internally generated) is an example of an
intangible asset, governed under IAS 38.
Recognition criteria: IAS 38 requires an entity to recognise an intangible asset (at cost) if, and only if:
•
it is probable that the future economic benefits that are attributable to the asset will flow to the entity;
and
•
the cost of the asset can be measured reliably.
IAS 38 includes additional recognition criteria for internally generated intangible assets.
Expenditure on the research phase of an internal project is expensed as incurred. Expenditure in the
development phase of an internal project is capitalised if the entity can demonstrate:
(a) the technical feasibility of completing the intangible asset so that it will be available for use or sale.
(b) its intention to complete the intangible asset and use or sell it.
5757
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 (c) its ability to use or sell the intangible asset.
(d) how the intangible asset will generate probable future economic benefits. Among other things, the entity
can demonstrate the existence of a market for the output of the intangible asset or the intangible asset
itself or, if it is to be used internally, the usefulness of the intangible asset.
(e) the availability of adequate technical, financial and other resources to complete the development and to
use or sell the intangible asset.
(f) its ability to measure reliably the expenditure attributable to the intangible asset during its development.
The probability of future economic benefits must be based on reasonable and supportable assumptions
about conditions that will exist over the life of the asset.
Initial recognition: research and development costs
• Charge all research cost to expense.
•
Development costs are capitalised only after technical and commercial feasibility of the asset for sale or
use have been established. This means that the entity must intend and be able to complete the intangible
asset and either use it or sell it and be able to demonstrate how the asset will generate future economic
benefits.
If an entity cannot distinguish the research phase of an internal project to create an intangible asset from the
development phase, the entity treats the expenditure for that project as if it were incurred in the research
phase only.
If recognition criteria are not met
If an intangible item does not meet both the definition of and the criteria for recognition as an intangible
asset, IAS 38 requires the expenditure on this item to be recognised as an expense when it is incurred.
The Group context of IAS 38
Since the early start-up stages of the business, the Group has and continues to invest significant expenditure
in research and development into new animal treatments and therapies. This has resulted in a significant
family of pharmaceutical treatments for pigs and poultry. Branded as Aivlosin, this product has developed
over 20 years into treatments for multiple respiratory and intestinal infections – each of which have separate
regulatory and marketing approvals in each target market. The work to bring Aivlosin from the laboratory
to the commercial farm has moved through the classical phases of pharmaceutical development and the
ECO Animal Health R&D model can be described by the following broad phases:
• The discovery phase – in vitro, in laboratory
• The proof of concept phase – key efficacy trials in small groups of animals
• The exploratory development phase – optimisation of dose, economic validation
• The full development phase – building the data set for dossier submission
• Submission of an application for regulatory approval
• Marketing and regulatory approval granted – commercial revenue begins
The application of the principles of IAS 38 to the above model is to treat expenditure on Research and
Development as an expense until the likely commercial benefits that will flow from the project can be judged
to be highly probable. This means that the technical feasibility (judged by reference to efficacy) must be
certain, the economic feasibility (judged by reference to manufacturing methodology, market intelligence,
overall programme cost) has to be highly probable and the likelihood of gaining regulatory approval must
be judged to be highly probable. The Directors consider that capitalisation will generally commence once a
project enters the full development phase.
In practice, work that is undertaken to build towards regulatory approval for a new treatment claim using
Aivlosin (or other product) or an approval for marketing Aivlosin in a new geographical market can be viewed
as starting at the full development phase and are likely to meet the capitalisation criteria whereas costs in
relation to some of the Group’s more recently announced projects (for example the vaccine collaboration
projects with The Pirbright Institute) would be considered to have not yet met the criteria for capitalisation
and should have therefore been expensed. Such projects’ costs are likely to meet the capitalisation
requirements once they are approved internally to commence the full development phase, subject to careful
consideration of residual technical feasibility/risk.
5858
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 Amortisation of capitalised expenditure is determined with reference to the point at which regulatory
approval is given to the product to which the expenditure relates. For historic periods, the approach adopted
has been to amalgamate the expenditure incurred on all projects relating to the same product, since the last
regulatory approval and then identify the next nearest regulatory approval given for that product in either
the same or a subsequent half-year. Amortisation begins in the half-year following the receipt of regulatory
approval. A full six months of amortisation is charged in the first half-year for which costs are amortised.
Where the Group has capitalised costs which relate to multiple products, a proportional method is adopted
to determined what ratio of costs capitalised to date should be subject to amortisation. This method first
looks at capitalised costs that relate to specific products and identifies the proportion of such costs that are
subject to amortisation at the end of any given half-year period. The ratio thus calculated is then applied to
those costs that relate to multiple products to determine the portion that should be subject to amortisation.
These approaches have been modified where it is possible to allocate an individual capitalised cost to a single
identifiable project. In these cases the start date for amortisation is the half-year following the half-year
period in which the project receives regulatory approval. Where regulatory approval has not been received
for a project, the amortisation has not started.
Amortisation is provided at rates calculated to write off the cost less estimated residual value of each asset
over its expected useful life, as follows:
Aivlosin
5% on cost
Ecomectin
10% on cost
Trade marks and
patents
10% on cost
2.9 Property, plant and equipment and depreciation
Plant and equipment are stated at cost less depreciation. Depreciation is provided at rates calculated to write
off the cost less estimated residual value of each asset over its expected useful life, as follows:
Plant and machinery
10%-20% on cost
Fixtures, fittings and
equipment
10%-20% on cost
Motor vehicles
25% on cost
Freehold land and buildings valuations are measured as
a level 3 recurring fair value measurement. The property
is professionally valued by a qualified surveyor at least
once every three years. Surpluses (which are not reversals
of previous deficits) arising from the periodic valuations
are taken to other comprehensive income, and deficits
(which are not reversals of previous surpluses) are taken
to the income statement within administrative expenses.
Depreciation is provided at a rate calculated to expense the
valuation less estimated residual value over the remaining
useful life of the building at a rate of 2% per annum on a
straight line basis. Land is not depreciated.
2.10
Impairment of non-financial assets
The carrying amounts of the Group’s assets are reviewed at each year end, to determine whether there is
any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated in
order to determine the impairment loss if any. The recoverable amount is the higher of its fair value and its
value in use. For intangible assets with an indefinite useful life or not available for use, an impairment test is
performed at each year end.
In assessing value in use, the expected future cashflows from the asset are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset. An impairment loss is recognised in the income statement whenever the carrying
amount of an asset or its cash-generating unit exceeds its recoverable amount.
A previously recognised impairment loss for costs other than goodwill is reversed if the recoverable amount
increases as a result of a change in the estimates used to determine the recoverable amount, but not to an
amount higher than the carrying amount that would have been determined (net of depreciation) had no
impairment loss been recognised in prior years and no reversal of impairment losses recognised on goodwill.
5959
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020
2.11
Investment property
Investment property is property held either to earn rental income or for capital appreciation or for both,
but not for sale in the ordinary course of business, use in the production or supply of goods or services or
for administrative purposes. Investment property is measured at fair value as a level 3 recurring fair value
measurement.
The property is professionally valued by a qualified surveyor at least once every three years. Surpluses
and deficits arising from the periodic valuations are taken to the income statement within administrative
expenses.
2.12
Investments in subsidiaries
An investment in a subsidiary is where the Group own a controlling interest in an entity. Non-current asset
investments are stated at fair value. They are recognised or derecognised on the date when the contract for
acquisition or disposal requires the delivery of that investment.
Investments in subsidiaries are stated at cost less impairment in the Parent Company’s statement of financial
position.
An impairment is recognised in profit or loss when there is objective evidence that the asset is impaired and
is measured as the difference between the investment’s carrying amount and the present value of estimated
future cashflows discounted at the effective interest rate adjusted for a risk premium. Impairment losses
are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related
objectively to an event occurring after the impairment was recognised, subject to the restriction that
the carrying amount of the investment at the date the impairment is reversed shall not exceed what the
amortised costs would have been had the impairment not been recognised.
2.13
Joint Arrangements
A joint arrangement is a contractual arrangement whereby the Group and other parties undertake an
economic activity that is subject to joint control; that is, when the strategic financial and operating policy
decisions relating to the activities require the unanimous consent of the parties sharing control.
The group classifies its interests in joint arrangements as either:
–
Joint ventures: where the group has rights to only the net assets of the joint arrangement
–
Joint operations: where the group has both the rights to assets and obligations for the liabilities of the
joint arrangement.
In assessing the classification of interests in joint arrangements, the Group considers:
–
The structure of the joint arrangement
–
The legal form of joint arrangements structured through a separate vehicle
–
The contractual terms of the joint arrangement agreement
–
Any other facts and circumstances (including any other contractual arrangements).
The Group has interests in joint operations. The Group recognises its share of the assets, liabilities, income,
expenses and cashflows of joint operations combined with the equivalent items in the consolidated financial
statements on a line by line basis.
2.14
Investments in Associates
An associate is an entity in which an investor has significant influence but not control or joint control.
Significant influence is defined as “the power to participate in the financial and operating policy decisions
but not to control them”.
The Group reports its interests in associates using the equity method of accounting. Under this method, an equity
investment is initially recorded at cost (subject to initial fair value adjustment if acquired as part of the acquisition
of a subsidiary) and is subsequently adjusted to reflect the Group’s share of the net profit or loss of the associate. If
the Group’s share of losses of an associate equals or exceeds its “interest in the associate”, the Group discontinues
recognising its share of further losses. If the associate subsequently reports profits, the investor resumes
recognising its share of those profits only after its share of the profits equals the share of losses not recognised.
6060
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 2.15 Leasing
The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract
conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Group applies a single recognition and measurement approach for all leases under IFRS 16, as applied
from the transition date of 1 April 2018, except for short-term leases and leases of low-value assets.
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease, which is the date
the underlying asset is available for use. Right-of-use assets are measured at cost, less any accumulated
depreciation and impairment losses, and adjusted for any re-measurement of lease liabilities. The cost of
right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease
payments made at or before the commencement date, less any lease incentives received. Right-of-use assets
are depreciated on a straight-line basis over the lease term.
If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the
exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.
The right-of-use assets are also subject to impairment. Refer to the accounting policies in the section 2.10.
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value
of the lease payments to be made over the lease term. The lease liabilities include the present value of the
following lease payments:
•
•
•
•
•
fixed payments (including in-substance fixed payments), less any lease incentives receivable;
variable lease payments that are based on an index or a rate, initially measured using the index or rate as
at the commencement date;
amounts expected to be payable by the Group under residual value guarantees;
the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and
payments of penalties for terminating the lease, if the lease term reflects the Group exercising that
option.
Lease payments to be made under reasonably certain extension options are also included in the
measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily
determined, the lessee’s incremental borrowing rate is used, being the rate that the individual lessee would
have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a
similar economic environment with similar terms, security and conditions. In addition, the carrying amount
of lease liabilities is re-measured if there is a modification, a change in the lease term, a change in the lease
payments (for example, changes to future payments resulting from a change in an index or rate used to
determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
The Group is exposed to potential future increases in variable lease payments based on an index or rate,
which are not included in the lease liability until they take effect. When adjustments to lease payments
based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use
asset.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss
over the lease period to produce a constant periodic rate of interest on the remaining balance of the liability
for each period.
Extension and termination options
Extension and termination options are included in a number of property and equipment leases across
the Group. These are used to maximise operational flexibility in terms of managing the assets used in the
Group’s operations. The majority of extension and termination options held are exercisable only by the
Group and not by the respective lessor.
6161
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term leases, being those leases
that have a lease term of twelve months or less from the commencement date and do not contain a
purchase option. The Group also applies the recognition exemption to leases of which the underlying asset
is of low value, comprising assets below the Group’s capitalisation threshold. Lease payments on short-term
leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.
Practical expedients
The Group used a number of practical expedients when applying IFRS 16 to leases previously classified as
operating leases under IAS 17.
In particular, the Group applied:
• not to reassess whether a contract is, or contains, a lease at the date of initial application;
•
•
application of a single discount rate to a portfolio of leases with reasonably similar characteristics;
exclusion of initial direct costs from the measurement of the right-of-use asset at the date of initial application;
• hindsight to determine the lease term;
•
•
exclusion of low-value leases – leases for which the underlying assets are below the Group’s capitalisation
threshold; and
exclusion of short-term leases – leases with lease term ending within twelve months of the date of initial
application.
2.16
Inventories
Inventories are valued at the lower of cost and net realisable value. Cost is determined using the historical
batch price of the principal raw materials and the historical average cost for other ingredients and other
product costs. The cost of finished goods comprises raw materials, packaging costs and sub-contracted
manufacturing costs. Net realisable value is the estimated selling price in the ordinary course of business, less
any costs which would be incurred in completing the goods ready for sale..
2.17 Trade receivables
Trade receivables are initially measured at fair value and are subsequently measured at amortised cost
using the effective interest rate method. Trade receivables are presented net of discounts or other variable
consideration adjustments earned, where the expectation and intention is to settle the balance net.
Impairment provisions are recognised based on the simplified approach in accordance with IFRS 9 using
a provision matrix in the determination of the lifetime expected credit losses. See impairment section in
section ‘2.6 Financial instruments’ for more details.
2.18 Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held on call with banks, other short-term highly
liquid investments with original maturities of three months or less. Bank overdrafts are shown within
borrowings in current liabilities in the statement of financial position.
2.19 Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences a residual interest in the
assets of the Group after deducting all of its liabilities.
2.20 Bank borrowings and loans
Interest-bearing bank loans and overdrafts are recorded as the proceeds received, net of direct issue costs
(which equate to fair value). Finance charges including premiums payable on settlement or redemption and
direct issue costs are accounted for on an amortised cost basis in profit or loss using the effective interest
rate method and are added to the carrying amount of the instrument to the extent that they are not settled
in the period in which they arise.
6262
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 2.21 Trade payables
Trade payables are initially measured at fair value and are subsequently measured at amortised cost using the
effective interest rate method.
2.22 Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event and it is
probable that the Group will be required to settle the obligation. Provisions are measured at the Directors’
best estimate of the expenditure required to settle the obligation outstanding at the year end and are
discounted to present value where the effect is material.
2.23 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the
ordinary course of the Group’s activities. Revenue is shown net of value added tax, returns, rebates and
discounts and after eliminating sales within the Group. Transaction price is determined by the contract
and variable consideration relating to discounts, free goods or volume rebates have been constrained in
estimating contract revenue that is highly probable by using the most likely amount method.
The Group’s contracts for delivery of goods are less than 12 months, there are no warranties within its sales
contracts.
Revenue is recognised when the performance obligation is fulfilled and the amount can be measured
reliably. The performance obligation is fulfilled when control of the goods passes to the customer, which
is normally in accordance with Incoterms or receipt by customer. No goods are dispatched on a sale or
return basis. Distributors trade on their own account and not as agents.
The Group also receives interest, royalty income. The amounts are small and are recognised on an accruals
basis.
2.24 Pensions
Defined Contribution Scheme
The pension costs charged against operating profits represent the amount of the contributions payable to
the schemes in respect of the accounting period.
Defined Benefit Scheme
The regular cost of providing retirement pensions and related benefits is charged to the income statement
over the employees’ service lives on the basis of a constant percentage of earnings. The present value of
the defined benefit obligation less the fair value of the plan assets is disclosed as an asset or liability in
the statement of financial position in accordance with IAS 19. The disclosure of a net defined benefit asset
is limited to the present value of any economic benefit available in the form of refunds from the plan or
reductions in future contributions to the plan.
Actuarial gains or losses are recognised through other comprehensive income.
2.25 Share-based payments
The Group issues equity-settled share options to certain employees in exchange for services from those
employees. Equity-settled share options are measured at fair value (excluding the effect of non-market based
vesting conditions) at the date of grant.
The fair value determined at the grant date of such equity-settled share options is expensed on a straight-
line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest and
adjusted for the effect of non-market based vesting conditions (with a corresponding movement in equity).
Fair value is measured by use of the Black-Scholes model. The expected life used in the model has been
established based on management’s best estimate of the effects of non-transferability, exercise restrictions
and behaviour considerations.
6363
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 Further details of the inputs to the Black-Scholes model can be found in note 24 to the accumulating share
based payment charges in reserves . Share-based payment charges are credited to retained earnings only;
subsequent to the prior year adjustment explained in note 3, the share-based payment reserve account
balance is subsumed within retained earnings.
2.26 Taxation
Tax expense for the period comprises current and deferred tax.
Current tax, including UK corporation tax and foreign tax is provided at amounts expected to be paid (or
recovered) using the tax rates and laws that have been enacted or substantially enacted by the year end. Tax
expenses are recognised in profit or loss or other comprehensive income according to the treatment of the
transactions which give rise to them.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the
tax basis of assets and liabilities and their carrying amount in the financial statements.
Deferred income tax is determined using tax rates (and laws) that have been enacted, or substantially
enacted, by the date of the statement of financial position and are expected to apply when the related
deferred tax asset is realised or deferred tax liability is settled.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be
available against which the temporary differences can be utilised.
IFRIC 23 Uncertainty over Income Tax Treatments
IFIRC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in
circumstances in which there is uncertainty over income tax treatments. The interpretation requires:
•
•
•
The Group to determine whether uncertain tax treatments should be considered separately, or together
as a group, based on which approach provides better predictions of the resolution;
The Group to determine if it is probable that the tax authorities will accept the uncertain tax treatment;
and
If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based
on the most likely amount or expected value, depending on whichever method better predicts the res-
olution of the uncertainty. The measurement is required to be based on the assumption that each of the
tax authorities will examine amounts they have a right to examine and have full knowledge of all related
information when making those examinations.
2.27 Equity
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or
options are shown in equity as a deduction, net of tax, from the proceeds.
Amounts arising on the restructuring of equity and reserves to protect creditor interests are credited to the
capital redemption reserve.
Amounts arising from share-based payment expenses recorded in the Group’s results are recorded within
retained earnings.
The cost of its own shares bought into treasury by the Company is debited to retained earnings as required
by the Companies Act 2006. A subsequent sale of these shares would result in this entry being wholly or
partly reversed with any profit on the sale being credited to Share Premium.
Amounts arising from the revaluation of non-monetary assets and liabilities held in foreign subsidiaries, and
joint operations are held within the foreign exchange revaluation reserve.
Amounts arising from revaluations of assets not taken through the income statement or other
comprehensive income are held within the Revaluation reserve.
6464
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 2.28 Non-controlling (minority) interest
For each business combination, the Group elects to measure any non-controlling interest in the acquiree
either at fair value or at their proportionate share of the acquiree’s identifiable net assets. Changes in the
Group’s interest in a subsidiary that do not result in a loss of control are accounted for as transactions with
owners in their capacity as owner. Adjustments to non-controlling interests are based on a proportionate
amount of the net assets of the subsidiary. No adjustments are made to goodwill and no gain or loss is
recognised in the statement of profit or loss.
2.29 Dividend distribution
Dividends are recorded when they become a legal obligation of the Company. For final dividends, this will be
when they are approved by the shareholders at the AGM. For interim dividends, this will be when they have
been paid.
2.30 Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will,
by definition, seldom equal the related actual results. The estimates and assumptions that have a significant
risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year are:
• Capitalisation and impairment review of intangible assets
The Group assesses development costs incurred for capitalisation in accordance with the requirements
of IAS38 and the Group’s accounting policy described in Note 2.8. The stage of development and
assessment of technical and commercial feasibility, in particular, require the use of judgements and
estimates in consultation with the new product development team.
The Group tests annually whether intangible assets with indefinite life, not yet available for use or
have suffered any impairment. Other intangible assets are reviewed for impairment when an indication
of potential impairment exists. Impairment provisions are recorded as applicable based on Directors’
estimates of recoverable values.
The recoverable amounts of the Cash Generating Units (CGU’s) to which intangible assets are allocated
are determined from value in use calculations. The key assumptions for the value in use calculations are
those regarding discount rates, growth rates and the estimated remaining useful life of the asset. The
Group also reviews and quantifies the tax implications related to any recognised impairments and these
are included within tax calculations as appropriate.
Further details of the impairment reviews performed can be found in note 12 of the financial statements.
•
Income taxes
The Group is subject to income taxes predominantly in the United Kingdom but also in other
jurisdictions.
Significant estimates are required in determining the provision for income taxes. There are some
transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises
assets and liabilities based on estimates of the final agreed position.
Where the final tax outcome of these matters is different from the amounts that were initially recorded,
such differences will impact the income tax and deferred tax provisions in the period in which such
determination is made.
Deferred tax assets on timing differences are recognised to the extent by which future profits will be
generated to utilise the underlying costs or losses to which they relate.
• Pension scheme
The Group maintains one defined benefit pension scheme which has been accounted for according to
the provisions of IAS 19. Although the assumptions were determined by a qualified actuary, any change in
those assumptions may materially impact the financial position and results of the Group. Details of the
assumptions used can be found in note 23 of the financial statements.
6565
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020
• Share-based payments
The charge to the Income Statement in respect of share-based payments has been externally calculated
using management’s best estimates of the amount of options expected to vest and various other inputs
to the Black-Scholes valuation model, as disclosed in note 24. Variations in those assumptions in the
model may have a material impact on the Group’s results and financial position at the time of valuation.
•
Leases – estimating the incremental borrowing rate
Where the Group cannot readily determine the interest rate implicit in the lease, it uses its incremental
borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have
to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset
of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects
what the Group ‘would have to pay’, which requires estimation when no observable rates are available or
when they need to be adjusted to reflect the terms and conditions of the lease.
In practice, the Group considered the following aspects in the assessment of IBR. Once decided, the IBR
will remain unchanged unless there are modifications in lease terms or changes in the assessment of an
option to purchase the underlying asset.
-
-
-
A base rate that reflects economic environment and the term of the lease. This is mainly derived from
the yield of a government bond issued by the country in which the Group has in scope leases. Where
the term of the lease does not conform with the maturity period of the bond, the Group considered
other available information such as yields on the bonds with the nearest maturity period, or the yield
curve published by the country’s treasury department. Considering there is often a difference in the
cash flow profile between a lease and government bond, the Group has decided to reduce the base
rate by 0.05% to 0.10%.
Financing factors that reflect the lessee companies’ risk premium on borrowing. Management
considered the financial strength and credit risk of lessee companies and estimated the credit spread
to be in the range of 1.50% to 5.00%.
Asset factors that reflect the quality of hypothetical security. Depending on the location and type
of underlying assets, the Group expects the quality of security in this hypothetical borrowing
transaction to vary. For example, the right to use a warehouse in rural areas may provide less relevant
security compared to commercial office in a major city’s central business district. Based on the
Group’s assessment, the asset factor ranges between -0.45% to -0.50%.
At 31 March 2020, the Group used a weighted average discount rate of 7.10% (2019 restated: 7.84%).
Property
Vehicle
Other
Weighted average
2019
Restated*
Transition
date 1 April
2018
5.8%
29.0%
4.0%
7.84%
5.9%
29.0%
4.0%
7.03%
2020
5.9%
29.0%
4.0%
7.10%
*Please refer to Note 3 for further details on prior year restatements.
•
Fair value measurement
A number of assets and liabilities included in the Group’s financial statements require measurement, and/
or disclosure of, fair value.
6666
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20
The fair value measurement of the Group’s financial and non-financial assets and liabilities utilises market
observable inputs and data as far as possible. Inputs used in determining fair value measurements are
categorised into different levels based on how observable the inputs used in the valuation technique
utilised are (the ‘fair value hierarchy’):
-
-
-
Level 1 : Quoted prices in active markets for identical items (unadjusted)
Level 2 : Observable direct or indirect inputs other than Level 1 inputs
Level 3 : Unobservable inputs (i.e. not derived from market data).
The classification of an item into the above levels is based on the lowest level of inputs used that has a
significant effect on the fair value measurement of the item.
The Group measures a number of items at fair value.
-
-
-
-
-
Revalued land and buildings (note 13)
Investment property (note 14)
Pension and other post-retirement benefit commitments (note 23)
Share-based payments (note 24)
Initial recognition of Financial instruments (note 32)
For more detailed information in relation to the fair value measure of the items above please refer to the
applicable notes.
3.
Prior year restatements
The following corrections to the application of the Group’s accounting policies to comply with International
Financial Reporting Standards have been made as restatements of prior period financial statements for the
correction of errors in accordance with IAS 8.
3.1
IFRS 15 Revenue from Contracts with Customers
The Group adopted IFRS 15 – Revenue from Contracts with Customers with effect from 1 April 2018. It was
noted in the consolidated financial statements of the Group for the year ended 31 March 2019 that the effect
of adoption of this standard was immaterial to the Group.
IFRS 15 provides a single, principles-based five step model to be applied to all sales contracts, based on
the transfer of control of goods and services to customers. It replaced the separate guidance in IAS 11 for
Construction Contracts and IAS 18 for Revenue. Under IAS 18, the guiding principle for determining when
revenue should be recognised was to establish when the transfer of risk and reward of ownership in the
goods had passed to customers. IFRS 15 requires a determination of when transfer of control has passed to
customers in order to establish when revenue can be recognised.
IFRS 15 (and IAS 18) also requires that sales discounts, commissions, rebates and other sales incentives
provided to customers are accounted for as an offset to Revenue.
6767
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020
3.1A Revenue recognition
Historical Treatment
Revised treatment and impact
Revenue has been recognised when
goods have been dispatched from the
Group’s warehouses and factories (third
party owned facilities). Historically
certain revenue recognition has occurred
prior to satisfying the performance
obligation.
Having reference to the contractual trading terms with
customers, the shipping and transportation methods,
Incoterms guidance and other GAAP guidance the moment
when control is judged to have passed to the customer
was in most cases later than the date that the goods left
the warehouse. Accordingly, some revenue previously
incorrectly recorded shortly before the relevant period end
was moved to the subsequent month and the subsequent
accounting period.
The associated cost of sale was similarly moved to the
subsequent accounting period.
The carrying value of Trade Debtors and Inventory at
the relevant Statement of financial position date was
consequently adjusted. A retained earnings adjustment
reflects the cumulative value of net profit so adjusted in
the financial period.
3.1B Sales Discounts
Historical Treatment
Revised treatment and impact
Sales incentives provided to customers
comprising volume rebates, discounts
and commissions have historically been
incorrectly accounted for as a cost of
sale.
These allowances have been set off against revenue in the
relevant period and cost of sale appropriately adjusted.
Trade receivables are presented net of discounts or other
variable consideration adjustments earned, where the
expectation and intention is to settle the balance net.
There is no impact on gross profit or net profit.
3.2
IAS 38 – Intangible Assets
Historical Treatment
Revised treatment and impact
Certain costs relating to the Research and
Development team including regulatory
affairs were incorrectly capitalised and
amortised over a period of 10 or 20 years.
Amortisation commenced immediately
from the date the costs were capitalised.
Historical costs have been considered in the light of the
ECO Animal Health R&D model. IAS 38 (and IAS 36 in
respect of amortisation) have been applied to each year
and where expenses meet the criteria for capitalisation
such costs have remained as capitalised intangible assets ,
as explained in more detail in note 2.8. Development costs
for projects not yet generating sales are subject to annual
impairment reviews. Development costs are amortised
over their useful economic lives starting from the half
year after regulatory approval is obtained to commence
product sales, which is the best estimate of when the asset
is available for use.
All other expenses incurred in research, development,
technical and regulatory affairs and technical support to
the organization have been expensed.
The impact has been to increase the Research and
Development expense (and reduce the amortisation) in the
Income Statement in each year and to reduce the value of
capitalised intangible assets on the Statement of financial
position.
6868
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 3.3
IFRS 11 – Joint Arrangements
IFRS 11 – Joint Arrangements defines an arrangement of which two or more parties have joint control. A joint
arrangement has the following characteristics:
• The parties are bound by a contractual arrangement.
• The contractual arrangement gives two or more of those parties joint control of the arrangement.
A joint arrangement is either a joint operation or a joint venture. The classification of a joint arrangement as a
joint operation or a joint venture depends upon the rights and obligations of the parties to the arrangement.
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have
rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called
joint operators. A joint venture is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the arrangement. Those parties are called joint venturers.
In assessing the relationship between the Group and its commercial collaborator in the USA and Canada
management has considered the nature of the commercial arrangements, the legal agreement between the
parties and other contractual arrangements.
Historical Treatment
Revised treatment and impact
The joint arrangements with Pharmgate
in the USA and Canada have historically
been correctly classified as joint
operations. Accordingly, the Group has
correctly included in into its income
statement the revenue and cost of
sale, together with any sales incentives
provided to customers, for sales
of Aivlosin in those territories. The
Group has correctly brought 50% of
all administrative costs into its income
statement. However, the Group has
incorrectly included 50% of each amount
held in the Statement of Financial
Position of the joint operation’s legal
entities into the Group’s own Statement
of financial position totals, being 50% of
tangible fixed assets, 50% of trade and
other receivables, 50% of cash and 50%
of trade and other payables.
The Group has rights and obligations over the individual
assets and liabilities in the Statement of financial
position. Management considers that the nature of
the commercial arrangements and the control that
the Group has over the trade receivables and trade
payables indicates that the joint arrangement should
be also treated as a joint operation in the statement
of financial position. The historical Income statement
treatment correctly reflects that of a joint operation but
on the Statement of financial position the Group should
incorporate those assets and liabilities over which it
has rights and obligations. Accordingly, the Group has
restated past Statements of Financial Position to include
the Group’s own trade debtors (for Aivlosin sales) and
related payable balance, together with 50% of any
assets and liabilities pertaining to shared overheads (for
example prepayments and accruals of administrative
expenses).
There is no change to the net assets position of the
group and the remaining balance of the specific assets
and liabilities to be brought into the Group statement of
financial position is either cash or a payable to the joint
operation. Accordingly, together with trade receivables
and payables, the cash/payable to the joint operation
balance in the Group’s Consolidated Statement of Financial
Position has changed.
6969
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 3.4 Bonuses
An entity may have no legal obligation to pay a bonus. Nevertheless, in some cases, an entity has a practice
of paying bonuses. In such cases, the entity has a constructive obligation because the entity has no realistic
alternative but to pay the bonus.
Historical Treatment
Revised treatment and impact
Bonuses paid to Directors and Employees
in the Group are discretionary, however
no assessment was previously performed
as to whether a constructive obligation
to pay bonuses was present at each year
end. As a result the Historical treatment
of Bonuses has been to account for them
as an expense in the period in which they
are paid – normally in October of each
year.
Bonuses have been paid in each financial period.
Notwithstanding that the bonuses are subject to
management and Remuneration Committee discretion,
they are customarily paid and the amount paid is
considered by reference to individual performance and
Group performance in the preceding financial period.
Accordingly, it is considered that in accordance with IAS 19
a constructive obligation to pay bonuses has been created
at 31 March 2018 and 2019 and the correct accounting
treatment is to accrue for these bonuses in the year in
which the employment services were received. All periods
presented were adjusted.
3.5
IFRS 16 – Leases
Management reviewed the Group’s existing list of identified leases under IFRS 16 and reassessed the
reasonableness of key inputs used in calculating the lease liabilities and right-of-use assets. Comparing the
results, material differences have been identified in the following four areas:
•
•
•
•
Leases for two properties and three vehicles have been identified where the Group has only capitalised
50% of the actual lease payments in its original IFRS 16 calculation when 100% is required to be capitalised.
Leases for one property, one vehicle and two pieces of equipment have not been captured by the
original assessment.
Two contracts have been incorrectly identified as leases as they do not meet the definition of lease
under IFRS 16.
The IBR for all identified leases was originally estimated at 4%. The Group re-estimated its incremental
borrowing rate for each class of leases based on consideration over the economic, financing and asset
factors. Please see Note 2.30 Critical accounting estimates and judgements for more details. The weight-
ed average IBR based on the Directors’ reassessment is 7.03% on transition at 1 April 2018, and 7.84% as at
31 March 2019.
Property
Vehicle
Other
Weighted average
Transition
date 1 April
2018
5.9%
29.0%
4.0%
7.03%
2019
5.8%
29.0%
4.0%
7.84%
Because of the findings above, the Directors consider it necessary to provide a corrected reconciliation
between the lease commitment under IAS 17 and the Group’s opening lease liabilities on transition date.
7070
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 Operating lease commitments at 31 Mar 2018 under IAS 17 - restated
Recognition exemption for short-term leases
Extension and termination options reasonably certain to be exercised
Adjusted lease commitments at 31 Mar 2018 before discount
Discount on lease commitment
Lease liabilities recognised at 1 Apr 2018
of which are:
Current lease liabilities
Non-current lease liabilities
The following table gives details of the amounts introduced into the Group Statement of financial position
at 1 April 2018, the IFRS16 transition date, split by category of asset.
£000’s
2,910
(36)
549
3,423
(945)
2,478
782
1,696
Right-of-use assets introduced
Cost
Accumulated Depreciation
Net book value
Lease liabilities introduced
Adjustment to opening reserves
Property
£000’s
Restated
Vehicles
£000’s
Restated
Other
£000’s
Restated
Total
£000’s
Restated
2,224
(395)
1,829
(1,885)
(56)
144
(44)
100
(110)
(10)
22
(6)
16
(17)
(1)
2,390
(445)
1,945
(2,012)
(67)
The effect of IFRS 16 “Leases” on net profit for the year ended 31 March 2019 was a reduction in reported
profit of £90,000 and the effect on net assets as at 31 March 2019 was a reduction of £157,000.
3.6 Foreign exchange
IAS 21 – The Effects of Changes in Foreign Exchange Rates requires the accumulated foreign exchange gains or
losses from the translation of foreign operations on consolidation to be presented as a separate component
of equity. Previously this foreign exchange reserve was included in and presented as part of the Group’s
retained earnings. It was separately disclosed in the notes.
Additionally, the Group has corrected how the foreign exchange gains and losses on its consolidated income
statement are presented. Previously they were spread across multiple captions, such as revenue, cost of sales
and finance expenses. With this change the overall foreign exchange impact on translation in the income
statement is only presented as part of administrative expenses.
3.7A Free Goods Incentive
Zhejiang ECO Biok Animal Health Products Limited (hereafter “ECO BIOK”) offers to its customers goods with
nominal price (hereafter “free goods”) in December each year, based on a percentage of the year-to-date
sales to the customer. To qualify for the free goods incentive, the customer will need to meet their annual
sales target, which is set upfront in an annual contract at the beginning of each calendar year.
Historically, ECO BIOK assess whether each of the in-scope customers meet their annual target in December
each year and ship out the free goods before the end of that month. The cost to ECO BIOK, as a result of
this incentive, was recorded in the entity’s cost of sales, at the value of the inventory that are shipped out as
free goods.
7171
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 Under IFRS 15, this free goods incentive is viewed as a material right given to customers for future purchases
at a discounted price. Therefore, an element of the consideration received on normal sales throughout the
year should be allocated to this future performance obligation to provide free goods, which should be in
turn recognised as revenue only when the free goods are delivered.
Based on historical data and contractual terms management was able to establish which customers were
expected to meet their annual sales targets, the actual percentage against reported sales to be used in the
calculation of free goods and confirm the correct amount of contract liabilities to be recognised at the
previous year ends. The year-on-year movements of the contract liabilities are reflected in the relevant year’s
revenue line.
3.7B Bonus accrual
Historically, ECO BIOK has accrued for its staff bonus in December, in respect of the calendar year then
ended, with payment in January or February, prior to the Chinese New Year. At the Group’s March year-end
no bonus accrual was calculated on a pro rata basis, for the anticipated next December bonus. This was
incorrect as, in accordance with IAS 19 the correct accounting treatment is to accrue for these bonuses in the
corresponding year-end. The restatement has recalculated the year-end accrual to the correct level, which is
calculated based on a proportion of the actual paid amount for the year.
3.7C Other prior year adjustments
ECO BIOK incorrectly recognised, at 31 March 2018 and 31 March 2019, accruals for its national promotion
conference planned for December each year. The restatement has released the overstated accrual.
3.7D Related party transactions disclosure
Certain related party transactions disclosures were not made in 31 March 2019 financial statements. The
required disclosures, including 31 March 2019 comparative amounts, have been made in note 31.
3.8
Share-based payments
The Company and Group has adopted a change in policy to combine the previously reported reserve for
share-based payment into retained earnings. The updated accounting policy is included in note 2.24.
Historically the Group has not recognised a deferred tax asset on the expected future tax deduction in
respect of share options held at the statement of financial position date. The prior year results have been
restated to recognise a tax asset on share options, capped at a level for which there is a right of offset against
the deferred tax liability arising on other temporary differences.
3.9 Share-based payments expense – Company only
Historically no separate accounting has been recorded for share based payment charges that related to
options issued to employees of subsidiaries of ECO Animal Health Group PLC – the company. The share
based payment charge has historically been incorrectly recognised in full in the company income statement.
Intercompany agreements exist which give the company the ability to recharge share-based payment charges
to its subsidiary companies. Accordingly when the Directors have reassessed the company accounting
for share based payments, they have determined that the expense should be recharged and a related
intercompany receivable asset recognised.
Whilst not impacting the consolidated results, the company share based payment charge in the company
income statement has decreased and the amounts due from subsidiary companies in the company statement
of financial position have increased.
3.10
Impact of restatements of the financial statements
The following tables summarise the impact of adopting the changes, as described above in notes 3.1 to 3.9
on the Group’s consolidated financial statements. Prior year adjustments impacting the Company only
profit/loss for the year ended 31 March 2019 are presented in the Company Statement of Changes in Equity.
References to the specific changes to which those adjustments relate are presented in the table headings
as required.
7272
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 s
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8181
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020
Impact on the Company statement of financial position as at 31 March 2019
Non current assets
Intangible assets
Property, plant and equipment
Investment property
Right of use assets
Investments
Amounts due from subsidiary Company
Current assets
Inventories
Trade and other receivables
Income tax recoverable
Other taxes and social security
Cash and cash equivalents
Total assets
As reported
Adjustment
Note 3.4
Adjustment
Note 3.5
Adjustment
Note 3.8
Adjustment
Note 3.9
Restated
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
-
769
200
30
20,077
58,510
79,586
-
46
-
145
4,236
4,427
84,013
-
-
-
-
-
-
-
-
-
14
-
-
14
14
-
-
-
27
-
-
27
-
-
-
-
-
-
27
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,478
1,478
-
-
-
-
-
-
1,478
-
769
200
57
20,077
59,988
81,091
-
46
14
145
4,236
4,441
85,532
8282
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 As reported
Adjustment
Note 3.4
Adjustment
Note 3.5
Adjustment
Note 3.8
Adjustment
Note 3.9
Restated
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
Current liabilities
Trade and other payables
Borrowings
Income tax
Other taxes and social security
Amounts due under leases
Dividends
Total assets less current liabilities
Non current liabilities
Deferred tax
Amounts due under leases
(181)
-
-
(90)
(16)
(49)
(336)
83,677
(85)
(12)
(115)
-
-
-
-
-
(115)
(101)
-
-
Total assets less total liabilities
83,580
(101)
Equity
Capital and reserves
Issued share capital
Share premium account
Revaluation reserve
Other reserves
Foreign exchange revaluation reserve
Retained earnings
Shareholders' funds
Non-controlling interests
Total equity
3,372
62,650
395
3,342
-
13,821
83,580
-
83,580
-
-
-
-
-
(101)
(101)
-
(101)
-
-
-
-
(20)
-
(20)
7
-
(17)
(10)
-
-
-
-
-
(10)
(10)
-
(10)
-
-
-
-
-
-
-
-
85
-
85
-
-
-
(3,236)
-
3,321
85
-
85
-
-
-
-
-
-
-
1,478
-
-
(296)
-
-
(90)
(36)
(49)
(471)
85,061
-
(29)
1,478
85,032
-
-
-
-
-
-
1,478
-
1,478
3,372
62,650
395
106
-
18,509
85,032
-
85,032
8383
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 Impact on the Company statement of financial position as at 31 March 2018
Non current assets
Intangible assets
Property, plant and equipment
Investment property
Right of use assets
Investments
Amounts due from subsidiary Company
Current assets
Inventories
Trade and other receivables
Income tax recoverable
Other taxes and social security
Cash and cash equivalents
Total assets
As reported
Adjustment
Note 3.4
Adjustment
Note 3.8
Adjustment
Note 3.9
Restated
£000’s
£000’s
£000’s
£000’s
£000’s
-
716
200
-
20,077
46,326
67,319
-
213
-
518
4,959
5,690
73,009
-
-
-
-
-
-
-
-
-
22
-
-
22
22
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,324
1,324
-
-
-
-
-
-
1,324
-
716
200
-
20,077
47,650
68,643
-
213
22
518
4,959
5,712
74,355
8484
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 As reported
Adjustment
Note 3.4
Adjustment
Note 3.8
Adjustment
Note 3.9
Restated
£000’s
£000’s
£000’s
£000’s
£000’s
Current liabilities
Trade and other payables
Borrowings
Income tax
Other taxes and social security
Amounts due under leases
Dividends
Total assets less current liabilities
Non current liabilities
Deferred tax
Amounts due under leases
(234)
(194)
-
-
(98)
-
(42)
(374)
72,635
(90)
-
-
-
-
-
-
(194)
(172)
-
-
Total assets less total liabilities
72,545
(172)
Equity
Capital and reserves
Issued share capital
Share premium account
Revaluation reserve
Other reserves
Foreign exchange revaluation reserve
Retained earnings
Shareholders' funds
Non-controlling interests
Total equity
3,291
58,847
395
2,823
-
7,189
72,545
-
72,545
-
-
-
-
-
(172)
(172)
-
(172)
-
-
-
-
-
-
-
-
90
-
90
-
-
-
(2,717)
-
2,807
90
-
90
-
-
-
-
-
-
-
1,324
-
-
-
(428)
-
-
(98)
-
(42)
(568)
73,787
-
-
1,324
73,787
-
-
-
-
-
-
1,324
1,324
-
1,324
3,291
58,847
395
106
-
11,148
73,787
-
73,787
8585
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 Impact on the Company statement of cash flows for the year ended 31 March 2019
As reported
Adjustment
Note 3.4
Adjustment
Note 3.5
Adjustment
Note 3.9
Restated
£000’s
£000’s
£000’s
£000’s
£000’s
Profit before income tax
15,050
71
Adjustment for:
Finance income
Finance cost
Depreciation
Amortisation of right-of-use assets
Revaluation of freehold property
Pension payments
Share based charge
Operating cash flow before movement in working capital
Change in inventories
Change in receivables
Change in payables
Cash generated from operations
Finance costs
Income tax
Net cash from operating activities
Cash flows from investing activities
Acquisition of property plant and equipment
Disposal of property plant and equipment
Purchase of intangibles
Finance income
Net cash from investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Interest paid on lease liabilities
Principal paid on lease liabilities
Dividends paid
Net cash (used in)/from financing activities
Net decrease in cash and cash equivalents
Foreign exchange movements
Balance at the beginning of the period
Cash and cash equivalents at the end of the period
8686
(937)
-
19
-
(55)
(59)
631
14,649
-
(11,644)
(39)
2,966
(2)
(13)
2,951
(2)
-
-
938
936
3,884
1
(17)
(8,478)
(4,610)
(723)
-
4,959
4,236
-
-
-
-
-
-
-
71
-
-
(79)
(8)
-
-
(8)
-
-
-
-
-
-
-
-
-
-
(8)
-
-
(8)
(3)
20
-
(2)
15
-
-
-
30
-
-
15
45
-
-
45
-
-
-
-
-
-
(23)
(14)
-
(37)
8
-
-
8
154
15,272
-
-
-
-
-
-
(326)
(172)
-
172
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(917)
-
17
15
(55)
(59)
305
14,578
-
(11,472)
(103)
3,003
(2)
(13)
2,988
(2)
-
-
938
936
3,884
(22)
(31)
(8,478)
(4,647)
(723)
-
4,959
4,236
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20
4.
Segment information
Management has determined the operating segments based on the reports reviewed by the Board to make
strategic decisions. The Board considers the business from a geographical perspective. Geographically,
management considers the performance in the Corporate/UK, China and Japan, North America, South and
South East Asia, Latin America, Europe and the Rest of the World.
Revenues are geographically allocated by the destination of customer.
The performance of these geographical segments is measured using Earnings before Interest, Tax,
Depreciation and Amortisation (“EBITDA”), adjusted to exclude share based payments expenses.
Corporate/
U.K.
China &
Japan
North
America
S & SE Asia
Latin
America
Europe
Rest of
World
Total
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
3,507
(1,739)
27,085
(3,937)
22,297
(10,662)
25,303
(11,128)
19,540
(6,939)
14,549
(6,959)
2,378
(1,189)
114,659
(42,553)
1,768
23,148
11,635
14,175
12,601
7,590
1,189
72,106
1,768
-
1,768
(15,011)
30,923
23,148
11,635
14,175
12,601
-
-
-
-
7,590
-
23,148
11,635
14,175
12,601
7,590
6,499
31,417
4,196
17,212
6,266
7,968
2,286
12,355
2,951
4,585
1,032
157
1,189
636
945
71,949
157
72,106
7,823
105,405
2,835
(1,418)
34,400
(7,613)
18,678
(8,135)
19,034
(10,943)
13,972
(3,193)
15,519
(7,616)
3,466
(1,733)
107,904
(40,651)
1,417
26,787
10,543
8,091
10,779
7,903
1,733
67,253
1,417
-
1,771
(1,771)
21,630
26,787
10,543
8,091
10,779
-
-
-
-
7,903
-
26,787
10,543
8,091
10,779
7,903
6,443
24,982
2,242
12,492
2,293
14,757
1,133
15,978
2,234
12,523
1,576
157
1,733
535
3,744
67,096
157
67,253
13,109
106,106
Year ended 31 March 2020
Total segment revenue
Inter-segment revenue
Revenue from external
customers
Sale of goods
Royalties
Adjusted EBITDA
Total Assets
Year ended 31 March 2019
(All 2019 figures have been
restated)
Total segment revenue
Inter-segment revenue
Revenue from external
customers
Sale of goods
Royalties
Adjusted EBITDA
Total Assets
8787
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 Goodwill and other intangible assets are initially allocated to the geographical segments on the basis of the
proportion of sales achieved by each segment.
Adjusted EBITDA includes (Gain)/Loss on foreign exchange transactions.
A reconciliation of adjusted EBITDA for reportable segments to profit before tax is provided as follows:
Adjusted EBITDA for reportable segments
Depreciation
Amortisation of right of use assets
Revaluation of freehold property
Revaluation of investment property
Amortisation
Share-based payment charges
Profit before tax on continuing activities
Product Revenues
Aivlosin
Ecomectin
Others
Total
Contract Balances
Within one year or on demand
At 1 April
Amounts included in contract liabilities that was recognised as
revenue during the period
Cash received in advance of performance and not recognised
as revenue during the period
At 31 March
*Please refer to Note 3 for further details on prior year adjustments
2020
£000’s
7,823
(334)
(389)
-
64
(1,685)
(284)
5,195
2020
£000’s
60,686
3,951
7,469
72,106
2020
£000’s
847
(847)
594
594
2019
£000’s
Restated
13,109
(340)
(380)
55
-
(1,745)
(631)
10,068
2019
£000’s
Restated*
52,212
3,686
11,355
67,253
2019
£000’s
Restated*
289
(289)
847
847
The Group recognised contract liabilities of £594,000 at 31 March 2020 (2019: restated £847,000). The Group
does not hold any long term sales contracts and any rebates, discounts or free goods incentives are settled
and recognised as revenue within the next accounting period. Contract balances are reported within trade
and other payables on the Statement of Financial Position.
8888
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20
5.
Other income
Management charges
Sundry income
6. Result from operating activities
2020
£000’s
7
98
105
2019
£000’s
30
5
35
Result from operating activities is stated after charging/(crediting)
Cost of inventories recognised as an expense
Employee benefits expenses
Amortisation of intangible assets (note 12)
Depreciation (note 13)
Amortisation of right of use assets (note 15)
Revaluation of freehold property
Revaluation of investment property (note 14)
Gain/(Loss) on foreign exchange transactions
Research and development
Impairment losses on trade receivables
Fees payable to the Company's auditor for the audit of the parent Company and Group annual accounts
Fees payable to the Company's auditor and its associates for the audit of the Company's subsidiaries
*Please refer to Note 3 for further details on prior year adjustments
Fees payable to the Company’s auditor for the audit of the parent Company and Group annual accounts, for
the year ended 31 March 2020, were £414,000 (2019: £18,000), and fees payable to the Company’s auditor and
its associates for the audit of the Company’s subsidiaries were £460,000 (2019: £66,000).
2020
£000’s
2019
£000’s
Restated
38,381
9,968
1,685
334
389
-
(64)
(539)
8,775
139
54
47
35,337
8,969
1,745
340
380
(55)
-
657
5,868
64
18
66
8989
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 2020
£000’s
2019
£000’s
Restated
5,195
334
389
(64)
1,685
284
7,823
539
8,362
10,068
340
380
(55)
1,745
631
13,109
(657)
12,452
Earnings before interest, tax, depreciation, amortisation and impairment, share-based payments and
foreign exchange differences (adjusted EBITDA)
Profit from operating activities
Depreciation
Amortisation of right of use assets
Revaluation of investment property
Amortisation
Share-based payments
Foreign exchange differences
Management believe that adjusted EBITDA is the most appropriate measure of the Group’s performance as
it is the initial source for all re-investment and for all returns to shareholders. Investors, bankers and analysts
all focus on this important measure of underlying performance because it enables them to make judgements
about the Group’s ability to generate sufficient cash to meet all the re-investment needs of the business
while still providing adequate returns to shareholders. Therefore, adjusted EBITDA has a direct relationship
with the value of the Group and is seen by our investors as a Key Performance Indicator for management.
The following items are adjusted for in the calculation of adjusted EBITDA as defined by the Group.
Item
Rationale for Adjustment
Depreciation and
Amortisation
These items are a result of past investments and therefore, although they
are correctly recorded as a cost of the business, they do not reflect current
or future cash outflows.
Revaluation of
Investment Property
Gains and Losses
on Disposal of Fixed
Assets and Impairment
of Intangibles
Share Based Payments
Foreign Exchange
differences
Additionally, Depreciation and Amortisation calculations are subject to
judgement regarding useful lives and residual values of particular assets and
the adjustment removes the element of judgement.
These are subject to judgement and do not reflect cash flows.
These items are a result of past investments and therefore, although they
are correctly recorded as income or cost of the business, they do not reflect
current or future cash outflows
This item is subject to judgement and will never be reflected in the Group’s
cash flows.
Since the key driver of this figure is the revaluation of monetary assets
denominated in foreign currency at the period end, which may reverse prior
to settlement, taking this figure out of the EBITDA figure removes volatility
from the performance measure. Foreign exchange movements are largely
outside of the Group’s control, so this gives a better measure of the Group’s
progress than statutory profit measures which include them.
9090
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 7.
Finance income/(costs)
2020
£000’s
2019
£000’s
Restated
Finance income
Interest received on short term bank deposits
112
127
Finance costs
Interest paid
Interest paid on lease liabilities
8.
Earnings per share
(18)
(124)
(142)
(30)
(1)
(123)
(124)
3
The calculation of basic earnings per share is based on the post-tax profit for the year divided by the
weighted average number of shares in issue during the year.
2020
Weighted
average
number of
shares
2020
Earnings
2020
Per share
amount
2020
£000’s
000’s
(pence)
2019
Weighted
average
number of
shares
2019
000’s
Earnings
2019
£000’s
Restated
2,582
67,530
-
2,582
2,783
70,313
3.82
(0.15)
3.67
7,253
66,794
-
943
7,253
67,737
Per share
amount
2019
(pence)
Restated
10.86
(0.15)
10.71
Earnings attributable to ordinary
shareholders on continuing operations
after tax
Dilutive effect of share options
Fully diluted earnings per share
Diluted earnings per share takes into account the dilutive effect of share options.
9191
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020
9.
Taxation
Current tax year
Foreign corporation tax on profits for the year
Withholding tax on intercompany dividend
Research and development tax credits claimed in the year
Research and development tax credits - adjustment for prior year
Deferred tax
Origination and reversal of temporary differences
Due to change in effective rate
Income tax charge
Deferred tax recognised through reserves
Origination and reversal of temporary differences
Due to change in effective rate
Factors affecting the tax charge for the year
Profit on ordinary activities before taxation
Profit on ordinary activities before taxation multiplied by the applicable rate of UK corporation tax of 19%
(2019: 19%)
Effects of:
Non deductible expenses
Non chargeable credits
Withholding tax on inter-company dividends
Enhanced allowance on research and development expenditure
Different tax rate for foreign subsidiaries
Reduced effective deferred tax rate
Origination and reversal of temporary differences
Unused tax losses carried forward
Patent box claim
Income tax charge
9292
2020
£000’s
1,520
54
(1,000)
196
187
75
1,032
373
1
374
2020
£000’s
5,207
989
324
(103)
54
(756)
165
76
47
236
-
1,032
2019
£000’s
Restated
1,493
92
(414)
(104)
261
(89)
1,239
(173)
-
(173)
2019
£000’s
Restated
10,085
1,916
1,451
(984)
92
(1,116)
186
(89)
(91)
141
(267)
1,239
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 Applicable tax rate per UK legislation
Effects of:
Non-deductible expenses
Non-chargeable credits
Withholding tax on inter-company dividends
Enhanced allowance on research and development expenditure
Different tax rate for foreign subsidiaries
Reduced effective deferred tax rate
Origination and reversal of temporary differences
Unused tax losses carried forward
Patent box claim
Effective tax rate
Future tax changes
Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2016 (on 6
September 2016). These include reductions to the main rate to reduce the rate to 17% from 1 April 2020. On
11 March 2020 the government announced that the reduction to 17% would not take effect and the prevailing
rate of corporation tax would remain at 19%. Deferred taxes at the Statement of financial position date have
been measured at 19% (2019: hybrid tax rate of 18%). At the year ended 31 March 2020 the Group had unused
overseas tax losses amounting to £3.8 million (2019: £2.0 million) for which no deferred tax asset has been
recognised. These tax losses are not expected to expire.
10. Profit for the financial year
2020
£000’s
2019
£000’s
Restated
Parent Company's profit/(loss) for the financial year
(151)
15,263
The Company has elected to take the exemption under Section 408 of the Companies Act 2006 not to
present the Parent Company income statement.
2020
%
19.00
6.22
(1.98)
1.04
(14.52)
3.17
1.46
0.90
4.53
-
19.82
2019
%
19.00
14.39
(9.76)
0.91
(11.07)
1.85
(0.88)
(0.90)
1.40
(2.65)
12.29
9393
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 11. Dividends
Interim dividend for the year ended 31 March 2019 at 4.0p
per ordinary share (settled 12 April 2019)
Final dividend for the year ended 31 March 2019 at 7.04p
per ordinary share (settled 16 October 2019)
Special dividend for the year ended 31 March 2019 of 3.5p
per ordinary share (settled 9 January 2019)
Interim dividend for the year ended 31 March 2018 at 3.2p
per ordinary share (settled 12 April 2018)
Final dividend for the year ended 31 March 2018 at 6.0p per
ordinary share (settled 17 October 2018)
2020
£000’s
2,698
4,755
-
-
-
7,453
2019
£000’s
-
-
2,350
2,106
4,029
8,485
In light of the economic situation caused by the coronavirus pandemic, the Board of Directors proposes that
no dividend will be paid for the year ended 31 March 2020.
9494
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 12.
Intangible fixed assets
Group
Cost
At 1 April 2018 - as reported
Prior year adjustment
At 1 April 2018 - restated
Additions - as reported
Prior year adjustment
At 31 March 2019 - restated
Additions
At 31 March 2020
Amortisation
At 1 April 2018 - as reported
Prior year adjustment
At 1 April 2018 - restated
Charge for the year - as reported
Prior year adjustment
At 31 March 2019 - restated
Charge for the year
At 31 March 2020
Net Book Value
At 31 March 2020
At 31 March 2019 - restated
At 31 March 2018 - restated
Goodwill
Distribution
rights
Drug
registrations,
patents and
license costs
Total
£000’s
£000’s
£000’s
£000’s
17,930
-
17,930
-
-
17,930
-
17,930
-
-
-
-
-
-
-
-
17,930
17,930
17,930
1,442
-
1,442
-
-
1,442
-
1,442
(831)
167
(664)
(72)
1
(735)
(70)
(805)
637
707
778
74,819
(38,447)
36,372
9,085
(5,987)
39,470
2,115
41,585
(35,729)
20,305
(15,424)
(3,910)
2,236
(17,098)
(1,615)
(18,713)
22,872
22,372
20,948
94,191
(38,447)
55,744
9,085
(5,987)
58,842
2,115
60,957
(36,560)
20,472
(16,088)
(3,982)
2,237
(17,833)
(1,685)
(19,518)
41,439
41,009
39,656
9595
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 The amortisation and impairment charges are included within
administrative expenses in the income statement.
Entity
Date of acquisition
2019 and 2020
Distribution rights are amortised over their estimated useful life of
20 years and reviewed for impairment when any indication of potential
impairment exists. The remaining amortisation period at the date of the
financial statements ranged from 5 to 15 years.
The carrying value of goodwill is attributable to the following cash
generating units:
ECO Animal Health Limited
1 October 2004
Zhejiang Eco Biok Animal Health
Products Limited
1 April 2007
ECO Animal Health Japan Inc
24 December 2009
£000’s
17,359
94
477
17,930
Goodwill acquired in a business combination is allocated at acquisition to the cash generating units (CGU’s)
that are expected to benefit from the business combination.
The recoverable amounts of the CGU’s are determined from value in use calculations. The key assumptions
for the value in use calculations are those regarding discount rates, growth rates and the estimated remaining
useful life of the asset.
The Group prepares cashflow forecasts that cover the two year period after the Statement of financial
position date and then extrapolates them assuming a 3% annual growth rate which is well below the past
performance of the business. The Directors believe that the long-term growth rate assumed does not exceed
the average long-term growth rate for the relevant markets.
Management estimates discount rates using the pre-tax rates that reflect current market assessments of
the time value of money and the risks specific to the CGU’s. In the current year management estimated the
applicable rate to be 8% (2019: 11%). Management considers that there is adequate headroom when comparing
the net present value of the cashflows to the carrying value of goodwill to conclude that no impairment is
necessary this year. On assumptions as at each period end the excess of recoverable amount over carrying
value is over £130 million (2019 restated: £114 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
£119 million (2019 restated: £76 million) more than the carrying value and no impairment would be necessary.
The net book value of Drug registrations, patents and license costs can be broken down as follows:
2020
£000’s
18,009
4,310
553
22,872
2019
£000’s
Restated
17,659
3,993
720
22,372
Aivlosin is a highly effective antibiotic that treats
a range of specific enteric (gut) and respiratory
diseases in pigs and poultry, ensuring a rapid return
to health. In addition to the welfare benefits,
healthy animals gain weight faster, digest food
more efficiently and get to market earlier which all
bring economic benefit to the farmer. Substantial
ongoing product development covering more
formulations, species and diseases is expected
to substantially further increase its revenue
generating potential. The remaining useful life is
from 4 to 20 years.
Aivlosin
Ecomectin
Others
Ecomectin is an endectocide that controls worms, ticks, lice and mange in grazing stock and pigs. The
remaining useful life is 0 to 10 years.
At 31 March 2020 Intangible assets included £7,063,000 (2019 restated: £4,834,000) of assets capitalised that
had not commenced their useful life, of which approximately £4,663,000 (2019: £3,234,000) were Aivlosin
related products. The directors have conducted impairment reviews and no impairment is required. Following
restatement, no impairment indicators have been identified in relation to intangible assets in commercial use.
Drug registrations and licences are amortised over their estimated useful lives of 10 to 20 years, which is
the Directors’ estimate of the time it would take to develop a new product allowing for the Group’s patent
protection and the exclusivity period which comes with certain registrations. All such costs are recorded in
the UK/Corporate reporting segment.
The Directors have assessed the restated carrying value of intangible assets (as set out in note 3.2) for
indicators of value impairment for the years ended 31 March 2019 and 31 March 2020 and have concluded that
no impairment is necessary.
9696
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2020
13. Property, plant and equipment
Group
Land and
Buildings
(freehold)
Leasehold
improve-
ments
Plant and
machinery
Fixtures,
fittings and
equipment
Motor
Vehicles
Total
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
Cost or valuation
At 1 April 2018
Additions
Disposals
Revaluation in the year
Foreign exchange movements
At 31 March 2019
Additions
Disposals
Revaluation in the year
Reclassification
Foreign exchange movements
At 31 March 2020
Depreciation
At 1 April 2018
Charge for the year
Disposals
Revaluation in the year
Foreign exchange movements
At 31 March 2019
Charge for the year
Disposals
Revaluation in the year
Reclassification
Foreign exchange movements
At 31 March 2020
Net Book Value
At 31 March 2020
At 31 March 2019
At 31 March 2018
730
-
-
30
-
760
-
-
(145)
53
-
668
(26)
-
-
26
-
-
(15)
-
13
(7)
-
(9)
659
760
704
-
-
-
-
-
-
555
-
-
-
-
555
-
-
-
-
-
-
-
-
-
-
-
-
555
-
-
1,602
341
(68)
-
11
1,886
40
-
-
(937)
(3)
986
(864)
(171)
63
-
(6)
(978)
(44)
-
-
310
2
1,083
198
-
-
1
1,282
157
(432)
-
648
(5)
1,650
(706)
(154)
-
-
-
(860)
(241)
426
-
(137)
(710)
(812)
276
908
738
838
422
377
61
27
-
-
(6)
82
15
(6)
-
236
(16)
311
(14)
(15)
-
-
1
(28)
(34)
4
-
(166)
11
(213)
98
54
47
The freehold land and buildings at 78 Coombe Road, New Malden was valued at £615,000 as at 31 March
2020 by Colliers International Valuation UK LLP (external independent qualified valuers). The fair value of the
freehold property was determined by applying a 7.5% discount rate to the annual rental value of the property
as determined by local market conditions. The property will continue to be valued on a regular basis.
3,476
566
(68)
30
6
4,010
767
(438)
(145)
-
(24)
4,170
(1,610)
(340)
63
26
(5)
(1,866)
(334)
430
13
-
13
(1,744)
2,426
2,144
1,866
9797
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020
Property and related fixtures and fittings held by Zhejiang ECO Biok Animal Health Products Limited has been
reclassified from Plant and machinery to Land and buildings, and Furniture, fittings and equipment. These
adjustments have been made retrospectively to 1 April 2018.
Valuation Technique used
Significant unobservable inputs
Inter-relationship between key unobservable
inputs and fair value
RICS Valuation – Global Standards (‘Red Book
Global Standards’)
Estimated market rent
Capital Value
Reduced marketability and hence rent
achievable by the property.
Price per square foot in local market.
Yield in local market
General condition
Statutory searches
Environmental matters
In determining the fair value of freehold land and buildings level-3 fair value inputs are used. The significant
unobservable inputs used in establishing the fair value of freehold land and buildings are the estimated
market rent and capital value. The Directors believe that the fair value of freehold land and buildings reflects
the carrying value and a significant change in unobservable inputs would not significantly increase or reduce
the fair value of the freehold land and buildings.
The freehold property of 78 Coombe Road, New Malden is subject to a legal charge held by the Company’s
bankers dated 20 March 1987.
Depreciation has been included in the administrative expenses line in the income statement, except for
£129,000 (2019: £110,000) of depreciation of production equipment in the Chinese subsidiary ECO Biok, which
is included within cost of sales.
9898
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 The value of the freehold property would have been recorded at £249,000 (2019: £259,000) on a historical
cost basis.
Company
Land and
Buildings
(freehold)
Fixtures,
fittings and
equipment
Total
Cost or valuation
£000’s
£000’s
£000’s
At 1 April 2018
Additions
Revaluation in the year
At 31 March 2019
Additions
Disposals
Revaluation in the year
At 31 March 2020
Depreciation
At 1 April 2018
Charge for the year
Revaluation in the year restated
At 31 March 2019 Restated
Charge for the year
Disposals
Revaluation in the year
At 31 March 2020
Net Book Value
At 31 March 2020
At 31 March 2019
At 31 March 2018
730
-
30
760
-
-
(145)
615
(25)
(13)
38
-
(13)
-
13
-
615
760
705
165
2
-
167
1
(154)
-
14
(154)
(4)
-
(158)
(4)
155
-
(7)
7
9
11
895
2
30
927
1
(154)
(145)
629
(179)
(17)
38
(158)
(17)
155
13
(7)
622
769
716
9999
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 14.
Investment property
Group and Company
At 1 April 2018 and 31 March 2019
Revaluation in 2020
At 31 March 2020
Land and
Buildings
(freehold)
Total
£000’s
£000’s
200
105
305
200
105
305
The property in Western Road, Mitcham was valued at £305,000 as at 31 March 2020 by Colliers International
Valuation UK LLP (external independent qualified valuer). The fair value of the investment property was
determined by applying a 7.75% discount rate to the annual rental value of the property as determined by
local market conditions. This property was previously the Head Office of Lawrence plc (now ECO Animal
Health Group plc) and is occupied by a charity at zero cost. The Directors believe that the open market value
of this property is not significantly different to the carrying value.
The value of the investment property would have been recorded at £130,000 on a historical cost basis.
Valuation Technique used
Significant unobservable inputs
Inter-relationship between key unobservable
inputs and fair value
RICS Valuation – Global Standards (‘Red Book
Global Standards’)
Estimated market rent
Capital Value
Reduced marketability and hence rent
achievable by the property.
Price per square foot in local market.
Yield in local market
General condition
Statutory searches
Environmental matters
In determining the fair value of investment property level-3 fair value inputs are used. The significant
unobservable inputs used in establishing the fair value of investment property are the estimated market rent
and capital value. The Directors believe that the fair value of investment property reflects the carrying value
and a significant change in unobservable inputs would not significantly increase or reduce the fair value of
the investment property.
100100
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 15. Right of use assets
Group
Cost
Introduction on inception of IFRS 16
Additions
Prior year adjustments*
Disposals
Foreign exchange movements
At 31 March 2019 - restated
Additions
Disposals
Foreign exchange movements
At 31 March 2020
Depreciation
Introduction on inception of IFRS 16
Charge for the year
Prior year adjustments*
Disposals
Foreign exchange movements
At 31 March 2019 - restated
Charge for the year
Disposals
Foreign exchange movements
At 31 March 2020
Net Book Value
At 31 March 2020
At 31 March 2019 - restated*
*Please refer to Note 3 for further details on prior year adjustments.
Property
Vehicles
£000’s
£000’s
Other
£000’s
Total
£000’s
2,297
118
(192)
-
16
2,239
370
(494)
(2)
2,113
(328)
(318)
(62)
-
(6)
(714)
(323)
494
1
(542)
1,571
1,525
203
85
(37)
(19)
(3)
229
-
(33)
2
198
(70)
(60)
18
19
2
(91)
(61)
33
-
(119)
79
138
7
-
15
-
-
22
-
-
1
23
(2)
(2)
(6)
-
-
(10)
(5)
-
-
(15)
8
12
2,507
203
(214)
(19)
13
2,490
370
(527)
1
2,334
(400)
(380)
(50)
19
(4)
(815)
(389)
527
1
(676)
1,658
1,675
101101
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 Vehicles
£000’s
Other
£000’s
Total
£000’s
21
26
70
-
(2)
115
-
(19)
(1)
95
(7)
(13)
(42)
1
(61)
(31)
19
1
(72)
23
54
7
-
-
-
-
7
-
-
-
7
(2)
(2)
-
-
(4)
(1)
-
-
(5)
2
3
28
26
70
-
(2)
122
-
(19)
(1)
102
(9)
(15)
(42)
1
(65)
(32)
19
1
(77)
25
57
Company
Cost
Introduction on inception of IFRS 16
Additions
Prior year adjustments
Disposals
Foreign exchange movements
At 31 March 2019
Additions
Disposals
Foreign exchange movements
At 31 March 2020
Depreciation
Introduction on inception of IFRS 16
Charge for the year
Prior year adjustments
Foreign exchange movements
At 31 March 2019
Charge for the year
Disposals
Foreign exchange movements
At 31 March 2020
Net Book Value
At 31 March 2020
At 31 March 2019
102102
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 16. Fixed asset investments
Group
At 31 March 2018
Share of associate's result for the year
Foreign exchange differences
At 31 March 2019
Share of associate's result for the year
Foreign exchange differences
At 31 March 2020
Company
Cost
Investment in
Associate
Unlisted
investments
(Equity)
£000’s
(Cost)
£000’s
89
14
4
107
42
8
157
9
-
-
9
-
-
9
Unlisted
investments
(subsidiaries)
£000’s
Total
£000’s
98
14
4
116
42
8
166
Total
£000’s
At 31 March 2018, 2019 and 2020
20,077
20,077
Impairment
At 31 March 2018, 2019
Impairment charge
At 31 March 2020
Net Book Value
At 31 March 2020
At 31 March 2018, 2019
The Company’s subsidiary Petlove Limited became dormant during the financial year ended 31 March 2020
therefore was fully impaired at the year end.
The Company holds more than 20% of the share capital of the following companies:
-
(45)
(45)
20,032
20,077
-
(45)
(45)
20,032
20,077
103103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 Subsidiary undertakings held by the Company
Company
Registered office address
Country of
registration or
incorporation
Class
Shares held %
Zhejiang ECO Biok Animal Health
Products Limited
Zhongguan Industrial Area, Deqing, Zhejiang Province
P. R. China
Ordinary
Petlove Limited
78 Coombe Road, New Malden, Surrey, KT3 4QS
Great Britain
Ordinary
3*
91
ECO Animal Health Limited
78 Coombe Road, New Malden, Surrey, KT3 4QS
Great Britain
Ordinary
100
Subsidiary undertakings held by the Group
ECO Animal Health Southern Africa (Pty)
Limited.
Zhejiang ECO Biok Animal Health
Products Limited.
Shanghai ECO Biok Veterinary Drug Sale
Company Ltd. (via Zhejiang ECO Biok
Animal Products Ltd.)
228 Athol Road, Highlands North, Johannesburg 2192
South Africa
Ordinary
100
Zhongguan Industrial Area, Deqing, Zhejiang Province
P. R. China
Ordinary
48*
Room 1502-3, Imago Plaza, No. 99 Wuning Road, Ptro
District, Shanghai 200063
P. R. China
Ordinary
100
ECO Animal Health do Brasil Comercio
de Produtos Veterinarios Ltda.
Av. Dr. Cardoso de Melo, 1470, Cl311, Villa Olimpia, CEP
04548-005, Sao Paulo
ECO Animal Health Japan Inc.
1-2-1, Hamamatsu-cho, Minato-Ku, Tokyo
ECO Animal Health USA Corp.
344 Nassau Street, Princeton, New Jersey, 08540
Interpet LLC.
3775 Columbia Pike, Ellicott City, Maryland, 21043
Brazil
Japan
U.S.A.
U.S.A.
Ordinary
Ordinary
Ordinary
Ordinary
ECO Animal Health de Mexico, S de R.L.
de C.V.
Av Techologico Sur 134-4, Unidad Habitacional
Moderna, Queretaro, 76030
Mexico
Ordinary
ECO Animal Health de Argentina S.A.
Calle 4 E 43/44 N: 581 P.6 D:B La Plata, Buenos Aires
Argentina
Ordinary
ECO Animal Health Malaysia Sdn. Bhd.
10th Floor, Menara Hap Seng, No 1 & 3, Jalan P Ramlee,
50250 Kuala Lumpur
Malaysia
Ordinary
100
100
100
100
100
100
100
ECO Animal Health India (Private) Ltd.
No 33/5, Second Floor, Mount Kailash Building,
Meanee Avenue Road, Ulsoor Bangalore, Karnataka,
560042
ECO Animal Health Europe Ltd.
6 Northbrook Road, Dublin 6, Eire
India
Ordinary
100
Republic of
Ireland
Ordinary
100
* The Group’s control over its China based subsidiary Zhejiang ECO Biok Animal Health Products Limited is
achieved via a joint holding of 51% of the entity’s Ordinary share capital between the Company (3%) and its
UK based trading subsidiary ECO Animal Health Limited (48%).
104104
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 The principal activity of these undertakings for the last relevant financial year was as follows:
Company Name
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
ECO Animal Health Japan Inc.
ECO Animal Health USA Corp.
Interpret
ECO Animal Health de Mexico, S. de R. L. de C. V.
ECO Animal Health de Argentina S.A.
ECO Animal Health Malaysia Sdn. Bhd
ECO Animal Health India (Private) Ltd
ECO Animal Health Europe Ltd
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
Non-trading
Non-trading
The aggregate amount of capital and reserves and the results of these undertakings for the last relevant
financial year were:
ECO Animal Health Limited
ECO Animal Health Southern Africa (Pty) Limited
Zhejiang ECO Biok Animal Health Products Ltd
ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltd
ECO Animal Health Japan Inc.
ECO Animal Health de Mexico, S. de R. L. de C. V.
ECO Animal Health USA Corp.
ECO Animal Health India (Private) Ltd
ECO Animal Health Europe Ltd
ECO Animal Health Malaysia Sdn Bhd
Equity
2020
£000’s
1,021
276
11,965
(227)
1,505
141
(1,648)
-
-
(21)
Profit/(loss)
for the year
2020
£000’s
1,834
19
3,473
(571)
152
99
(997)
-
-
(7)
The equity and results of Shanghai ECO Biok Veterinary Drug Sale Company Ltd are included within those
disclosed for Zhejiang ECO Biok Animal Health Products Limited.
All of the subsidiaries listed above were included in the consolidation for the year.
Equity
2019
£000’s
Profit/(loss) for
the year
2019
£000’s
Restated
Restated
44,486
(4,346)
271
11,622
317
1,255
136
96
-
(244)
(826)
19
2,885
(163)
175
53
(725)
-
(244)
(812)
105105
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 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.
Interpet LLC has been excluded from consolidation as it holds no assets or liabilities and has ceased trading.
The following trading subsidiaries have no requirement for audit under local legislation:
•
•
•
•
ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda.
ECO Animal Health Japan Inc.
ECO Animal Health USA Corp.
ECO Animal Health de Mexico, S. de R. L. de C. V.
ECO Animal Health Group PLC has given statutory guarantees against all the outstanding liabilities of ECO
Animal Health Ltd, thereby allowing its subsidiary to be exempt from the annual audit requirement under
Section 479A of the Companies Act, for the year ended 31 March 2020.
Non-controlling interests
Zhejiang ECO Biok Animal Health Products Limited (Zhejiang ECO Biok) and Shanghai ECO Biok Veterinary
Drug Sale Company Limited (Shanghai ECO Biok), both 51% owned subsidiaries of the Group, have material
non-controlling interests (NCI). Summarised financial information in relation to these two subsidiaries is
presented below together with amounts attributable to NCI.
Please note as Shanghai ECO Biok is a 100% owned subsidiary of Zhejiang ECO Biok, the summarised results
below are consolidated on Zhejiang ECO Biok level, before wider group eliminations.
2020
£000’s
20,169
(10,374)
9,795
(5,275)
4,520
(67)
4,453
(1,201)
3,252
1,593
39
(968)
2019
£000’s
Restated*
24,300
(14,311)
9,989
(5,232)
4,757
(71)
4,686
(1,435)
3,251
1,593
(2)
(1,643)
For the year ended 31 March
Revenue
Cost of sales
Gross Profit
Administrative expenses
Operating profit
Finance expense
Profit before tax
Tax expense
Profit after tax
Profit / (loss) allocated to NCI
Other comprehensive income allocated to NCI
Dividend paid to NCI
106106
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 As at 31 March
Assets:
Property plant and equipment
Right-of-use assets
Deferred tax assets
Inventories
Trade and other receivables
Cash and cash equivalents
Liabilities:
Trade and other payables
Contract liabilities
Lease liabilities – short term
Lease liabilities – long term
Accumulated NCI
2020
£000’s
2019
£000’s
704
891
30
3,150
6,457
5,339
16,571
3,306
605
96
857
4,864
5,766
799
816
30
4,055
7,530
4,045
17,275
5,261
848
87
775
6,971
5,102
*Please refer to Note 3 for further details on prior year restatements.
Joint Operations
The Group also holds (by means of its ownership of ECO Animal Health USA Corp.), a 50% interest in
Pharmgate Animal Health LLC, which is resident in the U.S.A. Pharmgate Animal Health LLC distributes the
Group’s products in the U.S.A.
The Group also holds (by means of its ownership of ECO Animal Health Ltd) a 50% interest in Pharmgate
Animal Health Canada Inc, which distributes its products into Canada.
The Group also holds (by means of its ownership of ECO Animal Health Europe Ltd) a 50% interest in ECO-
Pharm Limited, based in the Republic of Ireland. ECO-Pharm Limited has not yet commenced trading.
Both Pharmgate Animal Health LLC and Pharmgate Animal Health Canada Inc. have accounting years which
end on 31 December.
The Group’s holdings in each of the joint operations’ share capital is given in the table below:
Pharmgate Animal Health Canada Inc
Holding
(shares)
Shares in issue
Holding
%
Common Shares
Class A Shares
Class B Shares
100
100
-
200
100
100
50
100
-
107107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 Pharmgate Animal Health USA LLC
Holding
(shares)
Shares in issue
Holding
%
Common Shares
Class A Shares
Class B Shares
ECO-Pharm Limited
Common Shares
Class A Shares
Class B Shares
100
100
-
200
100
100
50
100
-
Holding
(shares)
Shares in issue
Holding
%
25,000
50,000
1
-
1
1
50
100
-
In the case of Pharmgate Animal Health Canada Inc and Pharmgate Animal Health USA LLC, A shares carry
the rights to dividends payable out of profits attributable to the Group. These are made up of profits made
by products supplied by the ECO Group plus 50% of any profit relating to new products developed jointly by
the partners to the joint operation.
In the case of ECO-Pharm Limited, profits attributable to the Group are made up of profits made by
products supplied by the ECO Group plus 33% of any profit relating to new products developed jointly by
the partners to the joint operation.
The following amounts included in the Group’s financial statements are related to its interest in these joint
operations.
Pharmgate Animal Health LLC
Pharmgate Animal Health
Canada Inc
2020
£000’s
2,325
(2,310)
7,612
-
2019
£000’s
Restated
968
(1,363)
9,161
-
2020
£000’s
511
(510)
3,358
-
2019
£000’s
Restated
461
(569)
3,764
-
Current assets
Current liabilities
Sales
Profit
108108
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 Associated Company
The Group also holds (by means of its ownership of ECO Animal Health Japan Inc.) a 47.62% interest in
EcoPharma.com which is resident in Japan. This Company distributes Animal Health products and other
general merchandise within Japan.
ECO Animal Health Japan Inc’s holding in EcoPharma.com is 10,000,000 shares out of a total of 21,000,000
shares.
The following amounts included in the Group’s financial statements are related to its interests in this
associated Company.
Investments (share of net assets)
At 1 April
Share of results for the year
Foreign exchange movement
At 31 March
Summarised financial information
At 31 March
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets (100%)
Group share of net assets (47.62%)
Year ended 31 March
Revenue
Net profit
2020
£000’s
107
42
8
157
2020
£000’s
541
19
221
12
327
156
1,634
79
2019
£000’s
89
14
4
107
2019
£000’s
Restated
386
19
181
5
219
104
1,514
30
109109
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 17.
Inventories
Raw materials and consumables
Finished goods and goods for resale
Work in progress
Group
Company
2020
2019
2020
2019
£000’s
£000’s
£000’s
£000’s
Restated
Restated
6,734
4,397
6,133
17,264
13,960
5,393
124
19,477
-
-
-
-
-
-
-
-
The cost of inventories recognised as an expense and included in cost of sales in the period amounted to
£38,381,000 (2019 restated: £35,337,000).
18. Trade and other receivables
Group
Company
2020
2019
2020
2019
Restated
Non-current
£000’s
£000’s
£000’s
£000’s
Amounts owed by group undertakings
-
-
59,295
59,988
The intercompany debt is due on demand, however the company has classified the receivable as a non-
current asset as it does not expect to realise the asset within 12 months after the reporting period.
Current
£000’s
£000’s
£000’s
£000’s
Group
Company
2020
2019
2020
2019
Trade receivables
Other receivables
Prepayments and accrued income
Restated
Restated
25,974
22,525
1,884
495
339
469
28,353
23,333
-
30
25
55
-
35
11
46
110110
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 As at 31 March 2020, trade receivables of £11,402,000 (2019: £2,592,000) due to the Group and £nil (2019: £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:
Up to 3 months past due
3 to 6 months past due
Over 6 months past due
Group
Company
2020
2019
2020
2019
£000’s
£000’s
£000’s
£000’s
6,974
2,899
1,529
11,402
1,547
515
530
2,592
-
-
-
-
-
-
-
-
As at 31 March 2020, impairment provisions of £419,000 on gross receivables of £705,000 (2019: £280,000 on
gross receivables of £280,000) were impaired and provided for. The impaired receivables mainly relate to debt
for which recovery is still being sought. The Group mitigates its exposure to credit risk by extensive use of
commercial credit reference agencies, close management of its customers’ trading against terms offered and
use of retention of title clauses wherever possible.
The Group has experienced minimal bad debt history and concluded that a wholly immaterial expected
credit loss provision would be required. This consideration includes the potential risks arising from COVID on
its customers. Its experience with customers since 31 March 2020, is consistent with those considerations that
credit risk has not increased. No collateral is held against customer receivable balances.
The ageing analysis of the impaired balances is as follows:
Group
Company
2020
2019
2020
2019
£000’s
£000’s
£000’s
£000’s
Current debt
Up to 3 months past due
3 to 6 months past due
Over 6 months past due
152
4
2
261
419
1
-
68
211
280
-
-
-
-
-
Movement on the Group provision for impairment of trade receivables is as follows:
Group
Balance at 1 April
Additional provision made
(Recovered) in the year
Written off in the year
Balance at 31 March
2020
£
280
140
-
(1)
419
-
-
-
-
-
2019
£
470
-
(33)
(157)
280
111111
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 The carrying amounts of trade and other receivables are denominated in the following currencies:
Group
Company
2020
2019
2020
2019
Restated
£000’s
£000’s
£000’s
£000’s
Restated
1,130
3,288
7,053
7,805
946
695
816
1,477
123
759
2,875
12,875
6,757
2,233
841
511
1,499
3
55
46
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Pounds Sterling
Euros
U S Dollars
Chinese RMB
Brazilian Real
Japanese Yen
Canadian dollars
Mexican Pesos
Other currencies
The carrying amounts of trade and other receivables are not significantly different to their fair values.
28,353
23,333
55
46
19. Deferred tax
Group
Deferred tax assets and liabilities are attributable to the following:
Assets / (Liabilities)
Net
2020
2019
2020
2019
£000’s
£000’s
£000’s
£000’s
Restated
Restated
Trade related temporary differences
(2,487)
(2,152)
(2,487)
(2,152)
Overseas trade related temporary
differences
Freehold property
Investment property
Plant and equipment
Deferred tax on share options
Tax losses carried forward
Amount (payable) after more than one
year
30
(76)
(19)
(77)
-
1,993
(636)
-
(75)
(10)
(49)
503
1,783
-
30
(76)
(19)
(77)
-
1,993
(636)
-
(75)
(10)
(49)
503
1,783
-
112112
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 The movement on the deferred tax account can be summarised as follows:
Trade
related
temporary
differences
Freehold
property
Investment
property
Plant and
machinery
Share
options
£000’s
£000’s
£000’s
£000’s
At 31 March 2019 - Restated
(Charge) for the year through income statement
Credit for the year through income statement
(Charge) for the year through reserves
At 31 March 2020
(369)
(398)
303
-
(464)
(75)
-
-
(1)
(76)
(10)
(9)
-
-
(19)
(49)
(28)
-
(77)
503
(130)
-
(373)
-
Trade related temporary differences are predominantly related to research and development tax deductions
claimed in advance of expense recognition in the income statement. The tax losses carried forward are not
expected to expire under current legislation.
Any future dividend received from the Chinese subsidiary Zhejiang ECO Biok Animal Health Products Limited
will be subject to a 5% withholding tax. The deferred tax liability in respect of this has not been recognised.
Total
£000’s
-
(565)
303
(374)
(636)
Company
Freehold
property
Investment
property
Share
options
2020
2020
2020
Total
2020
Freehold
property
Investment
property
Share
options
2019
2019
2019
Total
2019
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
At 1 April
(Charge) for the year
through income
statement
Credit for the year
through income
statement
(Charge) for the year
through reserves
At 31 March
(75)
-
-
(1)
(76)
(10)
(9)
-
-
(19)
85
(22)
-
(63)
-
-
(31)
-
(64)
(95)
(79)
(11)
-
4
-
-
1
-
(75)
(10)
90
-
34
(39)
85
At the year ended 31 March 2020 the Group had a deferred tax asset of £nil on share options. (2019 restated:
A deferred tax asset on share options of £139k was unrecognised).
At the year ended 31 March 2020 the Group has an unrecognised deferred tax asset in relation to unused
overseas tax losses amounting to £700,000 (2019: £350,000). These tax losses are not expected to expire.
In the year ended 31 March 2020 £978,000 of recoverable tax assets were deemed no longer recoverable and
expensed through retained earnings.
-
-
39
(39)
-
113113
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 20. Cash and cash equivalents
Cash and cash equivalents comprise cash and short-term deposits held by the Group. The carrying amount of
these assets are not significantly different to their fair value.
Group
Company
2020
2019
2020
2019
£000’s
£000’s
£000’s
£000’s
Restated
Cash and cash equivalents
Net funds per cash flow
11,877
11,877
16,863
16,863
177
177
4,236
4,236
21. Trade and other payables
Group
Company
2020
2019
2020
2019
£000’s
£000’s
£000’s
£000’s
Restated
Restated
7,608
594
2,093
4,191
9,520
847
1,641
1,355
14,486
13,363
189
-
197
181
567
17
-
132
147
296
Group
Company
2020
2019
2020
2019
£000’s
£000’s
£000’s
£000’s
Restated
-
2,032
-
2,032
-
-
-
-
-
2,001
-
2,001
-
-
-
-
Trade payables
Contract liabilities
Other payables
Accruals and deferred income
22. Borrowings
Reconciliation of movement in borrowings
Opening Borrowings
Overdraft drawn
Overdraft paid
Closing borrowings
114114
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 Overdraft facility
The Group has the facility (up to £5,000,000) to overdraw in specific currencies but no net facility. The
interest rate for all currency overdrafts is 1.8% over the relevant currency base rate and the borrowings are
secured by two debentures held over all assets of the Company. This facility is repayable on demand. The
Company and ECO Animal Health Limited have each given a guarantee to the Group’s bankers for the foreign
currency overdraft facility.
The undrawn facility is £2,968,000 (2019: no facility).
Cash and cash equivalents
Overdraft
Lease Liabilities
Net Cash
Reconciliation of Lease Liabilities
Group
Company
2020
2019
2020
2019
£000’s
£000’s
£000’s
£000’s
Restated
16,863
-
(1,770)
15,093
11,877
(2,032)
(1,766)
8,079
177
(2,001)
(27)
4,236
-
(67)
(1,851)
(4,169)
Group
Company
2020
2019
2020
2019
£000’s
£000’s
£000’s
£000’s
Restated
Restated
Opening lease liabilities
(1,770)
-
(65)
Recognition of Lease Liabilities on adoption of IFRS16
New lease liabilities
Repayment of lease liabilities principal
Lease liabilities interest
Lease liabilities interest repayment
Foreign exchange
Closing lease Liabilities
Current lease liabilities
Non-current lease liabilities
-
(359)
364
(125)
125
(1)
(2,012)
(88)
338
(139)
139
(8)
(1,766)
(1,770)
(342)
(330)
(1,424)
(1,440)
-
-
38
(13)
13
(2)
(29)
(24)
(5)
The Group leases a number of properties and motor vehicles in the jurisdictions it operates in. At 31 March
2020 there were no termination or extension options on leases.
The Group expensed £47,000 for the year ended 31 March 2020 (2019: restated £91,000) for short term and
low value leases.
-
(67)
(30)
31
(22)
22
1
(65)
(36)
(29)
115115
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 Group Leases Maturity
At 31 March 2020 the Group held the following number of leases in each of the maturity categories below.
Up to 1 year
Between 2 - 5 years
Over 5 years
Total number of leases
Average lease term (in years)
Property
Vehicle
Other
Total
-
5
3
8
10
3
8
-
11
4
-
3
-
3
5
3
16
3
22
The weighted average incremental borrowing rate applied to lease liabilities recognised in the statement of
financial position was 7.10% at 31 March 2020 (2019 restated: 7.84%, initial application date: 7.03%).
Weighted average incremental borrowing rate:
Property
Vehicle
Other
Weighted average
Group
2020
5.9%
29.0%
4.0%
7.10%
Group
2019
Restated
Group
Transition
2018
5.8%
29.0%
4.0%
7.84%
5.9%
29.0%
4.0%
7.03%
Amounts payable under lease arrangements for the Group:
The undiscounted contractual cash flows payable under the existing lease arrangements at 31 March 2020 are
analysed into the following maturity categories.
Up to 1
year
Between
two - five
years
Over five
years
Total
£000’s
£000’s
£000’s
£000’s
Amounts payable under lease
arrangements
502
1,025
1,621
3,148
116116
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20
23. Pension and other post-retirement benefit commitments
Defined Contribution Pension Scheme
The Group operates defined contribution pension schemes. The assets of the schemes are held
separately from the Group and independently administered by insurance companies. The pension cost
charge represents contributions payable to the funds in the year and amounted to £262,000 (2019:
£321,000).
Defined Benefit Pension Scheme
The Group operates a defined benefit scheme in the UK for ex-employees only. A full actuarial
valuation was carried out at 6 April 2018 and updated to 31 March 2020 for IAS 19 purposes by a qualified
independent actuary. The major assumptions used by the actuary were:
Discount rate
Pension revaluation
Inflation assumption with a maximum of 5% p.a.
Mortality rates
No pre-retirement mortality is assumed (2019: none)
31 March 2020
31 March 2019
2.40%
2.70%
2.70%
2.15%
2.25%
2.25%
Post retirement mortality is based on 100% of the SAPS “S2” normal tables, based on the members’ year
of birth, improving in line with CMI 2019 projections with a 1.25% long term trend rate (2019: CMI 2018).
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 (2019: 21.7 years) and 24.4 years for females (2019: 23.7 years). For
members retiring in 20 years’ time, the expectation of life would be 23.7 years for males (2019: 23.0 years)
and 25.9 years for females (2019: 25.2 years).
The weighted average term of the liabilities is 10 years (2019: 10 years).
The scheme is exposed to a number of risks including:
•
•
•
Interest rate risk: Movements in the discount rate used could affect the present value of the defined benefit pension obligations.
Longevity risk: Changes in the estimated mortality rates of former employees could affect the present value of the defined benefit pension
obligations.
Investment risk: Variations in the actual return from the scheme’s investments could affect the scheme’s ability to meet its future pension obligations
117117
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 Results
£000’s
£000’s
£000’s
£000’s
2020
2019
Assets at start of year
Defined benefit obligation at start of year
1,802
(1,899)
2,503
(2,603)
Net (liability) at 1 April
(97)
(100)
Return on assets
Interest cost
Past service cost
(Loss) on asset return
Gain/(loss) on changes in assumptions
Statement of other comprehensive income
Employer contributions (gross)
Net (liability) at 31 March
Actual assets at end of year
Actual defined benefit obligation at end of year
38
(39)
-
(2)
14
(1)
12
59
(27)
1,787
(1,814)
61
(62)
(19)
(38)
2
(20)
(36)
59
(97)
1,802
(1,899)
The pension fund assets (principally made up of annuities for the benefit of active pensioners) are all held
within a policy managed by an insurance company regulated by the Financial Conduct Authority of the
United Kingdom and the United Kingdom Pensions Regulator. By law, the trustees are required to act in
the best interests of participants to the schemes. Responsibility for governance of the plans – including
investment decisions and contributions schedules lies with trustees.
118118
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20
Reconciliation of changes in the asset value
during the year
2020
2019
£000’s
£000’s
£000’s
£000’s
Fair value of assets at 1 April
Return on assets
(Loss) on asset return
Employer contributions (gross)
(Decrease)/increase in secured pensioners’ value
due to scheme experience
Benefits paid
Fair value of assets at 31 March
Reconciliation of changes in the liability value
during the year
Defined benefit obligation at 1 April
Interest cost
Past service cost
(Gain)/loss on changes in assumptions
(Decrease)/increase in secured pensioners’ value
due to scheme experience
Benefits paid
1,802
38
(2)
59
(110)
-
1,899
39
-
(14)
(110)
-
2,503
61
(38)
59
(783)
-
1,787
1,802
2,603
62
19
(2)
(783)
-
Defined benefit obligation at 31 March
1,814
1,899
The expected contribution to be paid by the employer during the next accounting year is £59,000
(2019: £59,000).
Year ended 31 March
2020
2019
2018
2017
2016
£000’s
£000’s
£000’s
£000’s
£000’s
restated
Fair value of plan assets
1,787
1,802
2,503
2,314
1,814
1,899
2,603
2,435
(27)
(2)
(97)
(38)
(100)
(121)
(7)
(300)
2,715
2,431
284
13
Present value of defined benefit
obligation
(Deficit)/Surplus in plan
Experience (losses)/gains on plan
liabilities
Plan Assets
Assets under management
Annuities
Total
2020
£000’s
2019
£000’s
145
102
1,642
1,700
1,787
1,802
119119
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 Assets under management composition
Gilts
Corporate Bonds
UK Equities
Overseas Equities
Property
Cash
2020
£000’s
9.80%
37.00%
15.60%
26.10%
10.10%
1.40%
2019
£000’s
9.40%
35.50%
17.30%
26.60%
9.90%
1.30%
100.00%
100.00%
Defined benefit obligation – sensitivity analysis
The following amounts are the effect (on the defined benefit obligation) of reasonably possible changes to
the key actuarial assumptions, as required by IAS 19.
Actuarial assumption
Reasonably
Possible Change
(Decrease)/Increase in Defined Benefit
Obligation
2020
2019
£000’s
£000’s
£000’s
£000’s
Restated*
Discount rate
Members’ life expectancy
(+/- 0.25%)
(+/- 1year)
(42)
(97)
44
101
(50)
(100)
50
110
*2019 figures have been recalculated in order to be comparable.
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions
constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated.
When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the
same method (present value of the defined benefit obligation calculated with the projected unit credit
method at the end of the reporting period) has been applied as when calculating the defined benefit liability
recognised in the Statement of financial position.
The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to
the prior period.
The Company has given a floating charge dated 1 December 2006 over all of its assets to the trustees of the
pension fund to secure all present and future obligations and liabilities to the pension fund.
120120
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 24. Share-based payments
The expense recognised for share-based payments made during the year is shown in the following table:
2020
£000’s
2019
£000’s
284
631
Total expense arising from equity settled share based
payments transactions
The share-based payment plans are described below:
Movements in issued share options during the year
The following table illustrates the number and weighted average exercise prices (WAEP) of and movements in,
share options during the period:
Options
Options
2020
2020
2019
2019
000’s
WAEP
000’s
WAEP
£
3.62
-
3.55
2.27
3.68
3.36
5,556
387
(33)
(1,618)
4,292
2,279
£
3.26
3.82
3.54
2.40
3.62
2.78
4,292
-
(668)
(105)
3,519
2,812
Outstanding at 1 April
Granted during the period
Cancelled during the period
Exercised during the period
Outstanding at 31 March
Exercisable at 31 March
The average share price during the year was 319.10p (2019: 481.41p).
The maximum aggregate number of shares over which options may currently be granted cannot exceed 10%
of the nominal share capital of the Company on the grant date. The options outstanding at 31 March 2020
had a weighted average share price of £3.68 (2019: £3.62) and a weighted average remaining contractual life of
3.1 years (2019: 4.4 years).
ECO Animal Health Group plc Executive Share Option Scheme
In accordance with the Executive Share Option Scheme, approved and unapproved share options are
granted to Directors and employees who devote at least 25 hours per week to the performance of duties or
employment with the Company.
Details of options granted to Directors can be found in the Directors Report and notes 29 (Directors’
Emoluments) and 31 (Related Party Transactions).
The exercise price of the options is equal to the market price of the shares at the date of grant. The options
vest three years from the date of grant and if the option holder ceases to be a Director or employee of the
Company due to injury, disability, redundancy or retirement on reaching pensionable age or any other age at
which they are bound to retire at in accordance with the terms of their contract of employment, the option
may be exercised within a period of six months after the option holders so ceasing, although the Board may,
at its discretion, extend this period by up to 36 months after the date of cessation.
If the option holder ceases employment for any other reason, the option may not be exercised unless the
Board permits. The approved and unapproved options will be forfeited where they remain unexercised at the
end of their respective contractual lives of ten and seven years respectively.
121121
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 An analysis of the expiry dates of the outstanding options at 31 March 2020 is given below:
Date of grant
11 October 2011
09 October 2013
09 October 2013
21 August 2014
21 August 2014
13 February 2015
13 February 2015
26 August 2015
26 August 2015
18 December 2015
18 January 2016
18 January 2016
17 February 2016
17 February 2016
01 March 2016
01 March 2016
12 September 2016
12 September 2016
15 September 2016
15 September 2016
21 September 2017
21 September 2017
12 April 2018
23 October 2018
23 October 2018
19 December 2018
19 December 2018
Unapproved
Approved
Exercise price (pence)
Expiry date
11,000
23,340
14,400
34,500
35,400
10,200
19,600
9,600
25,100
5,900
53,475
3,900
75,200
7,800
329,415
3,050
14,000
138,500
572,100
600,000
286,800
400
40,400
423,900
544,100
287,525
276,800
2,200
3,189,775
186.50
196.00
196.00
161.50
161.50
200.50
200.50
265.00
265.00
312.50
315.00
315.00
312.50
312.50
312.50
312.50
432.50
432.50
435.00
435.00
620.00
620.00
545.00
380.00
380.00
380.00
380.00
11 October 2021
09 October 2023
09 October 2020
07 August 2024
07 August 2021
13 February 2025
13 February 2022
26 August 2025
26 August 2022
18 December 2022
18 January 2026
18 January 2023
17 February 2026
17 February 2023
01 March 2026
01 March 2023
12 September 2026
12 September 2023
15 September 2026
15 September 2023
21 September 2027
21 September 2024
12 April 2028
23 October 2028
23 October 2025
19 December 2028
19 December 2025
The market price of the shares at 31 March 2020 was 220.0p (2019: 440.0p) with a range in the year of 135.0p to
445.0p (2019: 367.0p to 581.0p).
122122
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 The Company uses a Black-Scholes model to value share based payments and the following table lists the
inputs to this model for the last five years. No new options were issued in the year ended 31 March 2020.
Vesting period (years)
Option expiry (years)
Dividends expected on the shares
Risk free rate (average)
Volatility of share price
Weighted average fair value (pence)
2020
2019
2018
2017
2016
n/a
3
3
3
3
7-10 yrs
7-10 yrs
7-10 yrs
7-10 yrs
1.90%
1.00%
20%
51.0
1.10%
1.00%
20%
98.6
1.50%
1.00%
20%
61.4
1.50%
1.00%
20%
43.0
The risk-free rate has been based on the yield from UK Government Treasury coupons. The volatility of the
share price was estimated based on standard deviation calculations on the historic share price.
The Company recognised £284,000 share-based payment expense in the income statement in the year ended
31 March 2020.
25. Share capital
Authorised
68,100,000 ordinary shares of 5p each
10,790 deferred ordinary shares of 10p each
32,334 convertible preference shares of £1 each
2020
£000’s
3,405
1
32
3,438
2019
£000’s
3,405
1
32
3,438
Allotted, called up and fully paid
67,547,626 (2019: 67,443,126) ordinary shares of 5p each
3,377
3,372
During the year 104,500 shares were issued at a premium of £232,000 as a result of the exercise of options by
employees. (2019: 1,618,310 shares at a premium of £3,803,000).
123123
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 26. Non-controlling (minority) interests
Balance at 1 April
Share of adjustment to reserves on
implementation of IFRS 16
Prior year adjustment on IFRS 16 opening
Balance at 1 April – restated
Share of subsidiary’s profit for the year
Share of foreign exchange gain/(loss) on net
investment
Share of dividend paid by subsidiary
Balance at 31 March
27. Other reserves
2020
2020
2019
2019
£000’s
£000’s
£000’s
£000’s
Restated
Restated
5,102
-
-
5,102
1,632
(968)
5,766
1,593
39
5,154
1
(12)
5,143
1,602
(1,643)
5,102
1,593
9
The Group and Company held a Capital redemption reserve of £106,000 as at 31 March 2020 (2019 restated:
£106,000, 2018 restated: £106,000).
Included in the Group’s foreign currency revaluation reserve are the following exchange movements on
consolidation of the subsidiaries and joint operations listed below:
At 1 April 2019
Movement in
the year
At 31 March
2020
£000’s
£000’s
£000’s
Restated
854
(381)
(5)
(21)
15
5
467
40
35
99
(46)
(75)
6
59
894
(346)
94
(67)
(60)
11
526
In respect of:
Zhejiang ECO Biok Animal Health Products
Limited
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.
Pharmgate LLC
Foreign currency differences attributable to
owner credited directly to reserves.
124124
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 28. Capital commitments
The Group had no authorised capital commitments as at 31 March 2020 (2019: Nil).
29. Directors’ emoluments
Emoluments for qualifying services
Company pension contributions to money purchase schemes
Share-based payments
Benefits in kind
2020
£000’s
847
26
70
11
954
2019
£000’s
Restated*
943
16
404
16
1,379
* Please refer to Note 3 for further details on prior year adjustments.
During the year the Directors exercised nil (2019: 715,000) share options realising a gain of £nil
(2019: £1,861,800).
The highest paid Director received £385,000 (2019: Restated £638,000) including £38,000 (2019: £191,000) of
share-based payments and £10,000 (2019: £10,000) of pension contributions.
The bonus values have been restated to include the amount accrued for the financial year and not the
amount related to performance of the previous financial year, as previously reported.
30. Employees
Number of employees
The average number of employees (including Directors) during the year was:
Directors
Production and development
Administration
Sales
2020
2019
Number
Number
5
66
45
88
204
7
70
47
93
217
125125
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 Employment costs (including amounts capitalised)
Wages and salaries
Share-based payments
Social security costs
Other pension costs
2020
£000’s
9,584
284
764
269
10,901
2019
£000’s
Restated*
9,878
631
914
353
11,776
* The bonuses have been restated in accordance with note 3.4.
31. Related party transactions
During the year ended 31 March 2020 Julia Trouse, a longstanding former Director and Company Secretary
of the Group, withdrew cash from the Company totalling £25,748 (2019: - £46,920) which was recorded in the
Company and Group’s financial statements as administrative costs in each period.
Mrs Trouse withdrew further cash over an extended period starting in 2014, the cumulative amount of
which was £322,109 as at 31 March 2020 (£296,361 as at 31 March 2019; and £249,441 as at 31 March 2018). These
withdrawals were not approved, were outside the normal course of the Group’s business and were in excess
of Mrs Trouse’s contractual remuneration levels. The highest total value of withdrawals in any year was
£87,187. No reimbursement of these withdrawals was assured at any of the reporting dates to 31 March 2020,
therefore all amounts remain expensed in the periods in which each payment was made and no asset for
reimbursement has been included in the financial statements as at 31 March 2020. Mrs Trouse resigned as a
director of the Company on 19 August 2019 and ceased employment with the Company on 31 January 2020.
The Group’s Internal Audit department identified the payments and reported their findings to the Board in
April 2020. Further work was performed to help assess the full extent of the withdrawals. Mrs Trouse agreed
to repay these amounts to the Company and Group and repayment of £307,113 was made in August 2020.
No interest was received. The reimbursement will be recorded as Other Income in the financial statements
for the year ending 31 March 2021. Discussions are on-going with regard to repayment of the remaining £14,996.
During the year Clemo Consultancy Ltd, a company in which B Clemo is a director, shareholder and person
with significant control received consultancy fees of £14,500 (2019: £nil).
During the year P Lawrence and his family received dividends to the value of £489,000 (2019: £882,000).
The other Directors and their families received dividends to the value of £1,000 (2019: £2,000).
During the year ended 31 March 2019, the Group provided management services to Anpario plc, a Company in
which P A Lawrence is a Director and holds share options. Fees of £7,000 were charged (2020: £nil).
During the year ended 31 March 2019, the Group provided management services to Amati Aim VCT plc,
a Company in which P A Lawrence is a Director. Fees of £14,579 were charged (2020: £nil).
During the year ended 31 March 2019, the Group employed two adult children of P A Lawrence and provided
their services to Emmelle Construction Limited, a Company in which P A Lawrence is both a Director and
shareholder. All employment costs of the two adult children, for five months of the year until August 2018 when
the arrangement was terminated, of £18,000 (2020: nil) were fully recharged to Emmelle Construction Limited.
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 £475,000 (2019: £473,000) and charged interest of £890,000 (2019: £910,000) to the
Company. Both of these charges were made through the inter-company account and were eliminated on
consolidation.
126126
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 During the year Zhejiang ECO Biok Animal Health Products Limited paid dividends of £77,000 to ECO Animal
Health Group plc (2019: £131,000) and £930,000 to ECO Animal Health Limited (2019: £1,578,000).
During the year ECO Animal Health Group plc received no dividend from ECO Animal Health Limited
(2019: £15,000,000).
Key management compensation
The Group regards the Board of Directors as its key management.
Salaries and short term benefits
Retirement benefits
Share-based payments
2020
£000’s
858
26
70
954
2019
£000’s
Restated*
959
16
404
1,379
* The bonus values have been restated to include the amount accrued for the financial year and not the
amount related to performance of the previous financial year, as previously reported.
The number of Directors for which retirement benefits were accruing was 4 (2019: 3).
32. Financial instruments
The Group uses financial instruments comprising borrowings, cash and cash equivalents and various items,
such as trade receivables, trade payables etc. that arise directly from its operations. The main purpose of
these financial instruments is to raise finance for the Group’s operations. The Directors are responsible for the
overall risk management.
The main risks arising from the Group’s use of financial instruments are capital and liquidity risk, credit
risk and foreign currency risks and they are summarised below. The policies have remained unchanged
throughout the year.
Capital and liquidity risk
The Group manages its capital to ensure continuity as a going concern whilst maximising returns through
the optimisation of debt and equity. As part of this, the Board considers the cost and risk associated with
each class of capital. The capital structure of the Group consists of cash and cash equivalents in note 20,
borrowings in note 22 and equity attributable to equity holders of the parent comprising issued capital,
reserves and retained earnings as disclosed in the Group’s statement of changes in equity.
Liquidity risk is managed by maintaining adequate reserves and banking facilities with continuous monitoring
of the latest developments by management.
The Group’s objectives when maintaining capital are:
•
•
to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns
for shareholders and benefits for other stakeholders, and
to provide an adequate return to shareholders by pricing products and services commensurately with the
level of risk.
The Group sets the amount of capital it requires in proportion to risk. The group manages its capital structure
and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the
underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of
dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.
127127
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 As an AIM quoted company, our governance framework is underpinned by the AIM Rules and the Quoted
Companies Alliance (QCA) Corporate Governance Code 2018 (the ‘QCA Code’). In addition to the QCA Code,
we monitor developments and guidance in the UK Corporate Governance Code, applicable to main market
listed companies, to keep abreast of matters which we feel could also be embedded as best practice as part
of a progressive approach. We also review the Investment Association guidelines and seek to comply with
these where applicable.
At 31 March 2020, the Group was contractually obliged to make repayments as detailed below:
Within one year or on demand
Trade payables
Other payables
Accruals
Borrowings
Credit Risk
2020
£000’s
7,608
2,093
4,191
2,032
15,924
2019
£000’s
Restated
9,520
1,641
1,355
-
12,516
Credit risk is that of financial loss as a result of default by a counterparty on its contractual obligations. The
Group’s exposure to credit risk arises principally in relation to trade receivables from customers and on short
term bank deposits. Customers’ creditworthiness is wherever possible checked against independent rating
databases and filing authorities, or otherwise assessed on the basis of trade knowledge and experience.
Exposure and customer credit limits are continually monitored both on specific debts and overall.
The credit risk in relation to short term bank deposits is limited because the counterparties are banks with
good credit ratings.
The Group operates in certain geographical areas which are from time to time subject to restrictions in the
free movement of funds. The Board seeks to minimise the Group’s exposure to these markets but the nature
of our business makes it impossible to eliminate this exposure completely.
None of those receivables has been subject to a significant increase in credit risk since initial recognition
and, consequently, 12-month expected credit losses have been recognised, and there are no non-current
receivable balances lifetime expected credit losses.
Currency risk
The Group operates in overseas markets particularly through its subsidiaries in China, Brazil, Mexico, the
USA and Japan as well as its joint operation in Canada and is therefore subject to currency exposure on
transactions undertaken during the year. The Group does some simple economic hedging of receivables
when the Board feels it is appropriate to do so and foreign exchange differences on retranslation of foreign
monetary items are recorded in administrative expenses in the income statement.
128128
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 The table below shows the extent to which the Group companies have monetary assets and liabilities in
currencies other than in Sterling:
Foreign currency of Group operations
2020
US
Dollar
Euros
Chinese
RMB
Japanese
Yen
Brazilian
Real
Canadian
Dollar
Mexican
Peso
Other
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
Trade and other receivables
12,850
2,875
Trade and other payables
Cash and cash equivalents
Total
2019
Restated
(1,183)
4,527
(12)
525
16,194
3,388
6,650
(3,375)
5,609
8,884
837
(233)
80
684
2,230
(131)
360
2,459
511
(129)
452
834
1,472
(329)
200
1,343
3
(1)
123
125
US
Dollar
Euros
Chinese
RMB
Japanese
Yen
Brazilian
Real
Canadian
Dollar
Mexican
Peso
Other
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
£000’s
Trade and other receivables
Trade and other payables
Cash and cash equivalents
Total
7,016
(644)
5,239
11,611
3,288
7,757
(7)
906
4,187
(2,680)
4,340
9,417
689
(107)
256
838
944
(51)
433
1,326
817
-
1,104
1,921
1,397
(13)
175
1,559
123
(114)
34
43
At 31 March 2020 the Group was mainly exposed to the US Dollar, Euro, Chinese RMB, Japanese Yen,
Brazilian Real, Canadian Dollar and Mexican Peso. The following table details the effect of a 10% movement
in the exchange rate of these currencies against sterling when applied to outstanding monetary items
denominated in foreign currency as at 31 March 2020.
U S Dollar
Euro
Chinese RMB
Japanese Yen
Brazilian Real
Canadian Dollar
Mexican Peso
.
2020
£000’s
1,799
376
987
76
273
93
149
2019
£000’s
Restated*
1,290
465
1,046
93
147
213
173
129129
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 Total
£000’s
27,858
11,877
(13,892)
(1,766)
(2,032)
22,864
16,863
(12,516)
(1,770)
Total
£000’s
30
177
(567)
(29)
(2,001)
Analysis of financial instruments by category
Group
2020
Financial assets
Financial
liabilities
£000’s
£000’s
Trade and other receivables (excluding
prepayments)
Cash and cash equivalents
Trade and other payables
Amounts due under leases
Borrowings
2019
27,858
11,877
-
-
-
-
-
(13,892)
(1,766)
(2,032)
Trade and other receivables (excluding
prepayments)
Cash and cash equivalents
Trade and other payables
Amounts due under leases
22,864
16,863
-
-
-
-
(12,516)
(1,770)
Company
2020
Financial assets
Financial
liabilities
£000’s
£000’s
£000’s
£000’s
£000’s
Restated*
Restated*
Restated*
Trade and other receivables (excluding
prepayments)
Cash and cash equivalents
Trade and other payables
Amounts due under leases
Borrowings
2019
Trade and other receivables (excluding
prepayments)
Cash and cash equivalents
Trade and other payables
Amounts due under leases
30
177
-
-
-
-
-
(567)
(29)
(2,001)
£000’s
£000’s
£000’s
Restated*
Restated*
Restated*
35
4,236
-
-
-
-
(296)
(65)
35
4,236
(296)
(65)
* Please refer to Note 3 for further details on prior year adjustments.
All financial assets and liabilities in the Group’s and Company’s statements of financial position are classified
as held at amortised cost for both the current and previous year.
130130
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020ECO Animal Health Group Plc | Annual Report 2018/19ECO Animal Health Group Plc | Annual Report 2019/20 33. Post balance sheet events
Covid-19 Impact
The Group transitioned smoothly to home working during the final weeks of the year building on the new
ways of communicating with customers developed during the African swine flu outbreak and without losses
of efficiency. Outsourced manufacturing and the Group’s supply chain operated smoothly through the year
end.
Brexit
The Group’s EU marketing authorisations have been transferred to the European subsidiary, ECO Animal
Health Europe Ltd registered in Dublin, Republic of Ireland and all our Brexit contingency plans are in
place. The financial and operational impact of Brexit is expected to be minimal, particularly given the
recently announced trade deal between the UK and the EU. The Group’s sales to the EU (excluding the UK)
represented 8% of total revenue for the year.
131131
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2020 Produced by Perivan
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