28 November 2024

ECO Animal Health Group plc

Results for the six months ended 30 September 2024

ECO Animal Health Group plc ("ECO", the "Company", or the "Group") (AIM: EAH), a rapidly growing global animal health company with a portfolio of marketed veterinary products and a maturing proprietary R&D pipeline, today announces its Half Year Report for the six months ended 30 September 2024 in line with the guidance provided in the 1 October 2024 Trading Update.

HIGHLIGHTS

Financial

·      Group Revenue decreased 13% to £33.2 million (H1 2023: £38.0 million)

o  Revenues on a constant currency basis decreased 9%

·      Gross margins 40.3% (H1 2023: 40.8%)

·      Adjusted EBITDA at £0.4 million (H1 2023: £0.7 million)

·      Loss per share of 2.50p (H1 2023: loss per share: 1.93p)

·      Cash generated by operations before working capital increased to £0.8 million (H1 2023: £0.7 million)

·      Cash balances decreased to £18.3 million (30 September 2023 £20.6 million)

Operational

·      Revenue in USA and Canada increased by 5% to £8.6 million (H1 2023: £8.2 million)

·      Revenue in Latin America increased by 8% to £8.3 million (H1 2023: £7.7 million)

·      Improving pork prices and better producer profitability improved revenues during August and September 2024

·      Rigorous control of input costs has supported gross margins at about the same level as prior year

·      New marketing approval for Aivlosin® in Paraguay

·      Late-stage Mycoplasma vaccine projects for poultry continued to progress towards regulatory submission according to plan, with launches planned for 2025

·      Disposal of non-core equine anti-parasitic product for £1.0 million

David Hallas, Chief Executive Officer of ECO Animal Health Group plc, commented: "We are encouraged to see an improving revenue performance as we head into the second half of our financial year. As outlined in our trading statement in October, a combination of low disease incidence particularly in China and Southeast Asia, combined with currency headwinds impacted our performance over the summer months. Since then, the Group has seen demand accelerate with 82% of the market consensus* revenue now covered by year-to-date revenue, order books and run rate from the Group's stocking locations. ECO's trading performance is typically second-half weighted and we have observed renewed strength in seasonal trading patterns. This, supported by rigorous cost control, provides confidence that full-year profitability will be in line with market consensus*.

"Meanwhile, ECO maintains its targeted focus on its dual future strategy of continuing to support the Aivlosin® franchise and targeted investment in the R&D pipeline, the engine of future growth. The Company believes that over time these investments will generate significant value for shareholders. ECO is on track and expected to deliver value from the R&D pipeline in the next 12 months and continue over the next decade."

*           Market consensus for the year ending 31 March 2025 is understood to be revenue of £85 million and EBITDA of £7.2 million

Forward-Looking Statements

This announcement contains certain forward-looking statements. The forward-looking statements reflect the knowledge and information available to the Company and Group during preparation  and up to the publication of this announcement. By their very nature, these statements depend upon circumstances and relate to events that may occur in the future and thereby involving a degree of uncertainty. Therefore, nothing in this announcement should be construed as a profit forecast by the Company or Group.

Contacts

CHAIRMAN AND CHIEF EXECUTIVE'S COMBINED STATEMENT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2024

The Board is pleased to present the results for the Group for the six months ended 30 September 2024 ("H1 2024"). During the first half of the financial year, the Group experienced continuing sales momentum in key territories despite currency headwinds. In China and Southeast Asia our results were impacted by a slow start to the Summer months in China and the loss of a key customer in Thailand. The Group expects that the typical pattern of demand will result in a significantly stronger second half to our year. The Group's revenue since September 2024, current order books and run rate of sales from the Group's stocking locations provides 82% (H1 2023 - 90%) visibility of full year consensus market forecast revenue*. Control of input costs has supported gross margins at about the same level as prior year and administrative costs have been controlled such that our net profitability is only marginally below. We increased our investment in our promising R&D pipeline and we continued to grow our commercial footprint, gaining a new marketing authorisation for our flagship product Aivlosin® in Paraguay demonstrating the continued strength of the Aivlosin® franchise.

*               Current consensus figures for the year ending 31 March 2025 are £85m of revenue and £7.2m Adjusted EBITDA

Financial Performance

Group revenue was 13% lower in H1 2024 at £33.2 million (H1 2023: £38.0 million). China and Japan revenue of £8.2 million represented 25% of Group revenue (H1 2023: 26%). On a constant currency basis, the Group's revenue in H1 2024 was £34.4 million; a decrease of 10% compared with H1 2023. The principal currency effects were from a weaker US Dollar and Chinese RMB compared with Sterling during the period.

The gross margin in H1 2024 was 40.3% (H1 2023: 40.8%). Gross margins were impacted by exchange rate losses but offset by savings in cost of sales.  The Gross margin movement may be analysed as follows:

Administrative expenses excluding foreign exchange gains at £13.4 million were 4.5% lower than the comparative period last year (H1 2023: £14.0 million). This arose in the main from decreased personnel costs (lower bonus accruals, vacancies and f/x savings in US Dollar paid employees). Legal, audit and professional costs were 34% lower than in the prior period due to better credit control leading to lower expected credit loss provisions.

Research and development ("R&D") expense and amounts capitalised were in aggregate a cash investment of £4.1 million (H1 2023: £3.6 million). This represented 12% of revenue generated in the period (H1 2023: 9%).  R&D expensed to the P&L was £2.4 million (H1 2023: £2.1 million); this represented progress in the mid-stage and early pipeline with a number of key proof of concept trials showing good early results. The late-stage Mycoplasma vaccine projects for poultry continued to progress towards regulatory submission according to plan.

Earnings before interest, tax, depreciation, amortisation and impairment, share based payments and foreign exchange movements ("Adjusted EBITDA") were £0.4 million (H1 2023: £0.7 million). This reduction arose as a direct consequence of the lower revenue offset by lower administrative expenses.

As previously announced the Group sold its licences to market an anti-parasitic equine product to its manufacturing partner in Italy.  This sale resulted in a gain of £1.0 million.  This gain is treated as exceptional and not part of the Group's reported Adjusted EBITDA.

Cash generated from operations was £nil (H1 2023: £4.8 million). The underlying cash profits in the period (operating cash flows before movements in working capital) remained strong at £0.8 million (H1 2023: £0.7 million). The unwind of year end trade payables resulted in an adverse movement in working capital.  Inventory remained in line with the year end level and trade receivable showed strong post year end recovery (generating £5.3m cash). Cash balances at 30 September 2024 can be analysed as follows:

The Group repatriates cash from China by annual dividend declarations; this is subject to withholding taxes of 5% and is paid according to the relevant shareholdings.  On a day‐to‐day basis, the Board considers the cash held in the Group's joint venture subsidiary in China to be unavailable to the Group outside of China; accordingly, cash management and funds available for investment in R&D is based upon the cash balances outside of China.

During June 2024, two dividends totalling £3.0 million (H1 2023: £3.4 million) were received from China.

The Group's committed banking facilities remain at £15.0 million, being a £5.0 million overdraft facility and a £10.0 million revolving credit facility.  These facilities expire on 30 June 2026 and were undrawn as at 30 September 2024.

Basic loss per share in the six months ended 30 September 2024 was 2.50p (H1 2023: loss 1.93p).

Business Performance

The geographical analysis of the Group's revenue in the six months ended 30 September 2024 compared to the prior period in 2023 and the full year ended 31 March 2024 was as follows:

Group revenue decreased by 13% to £33.2 million (H1 2023: £38.0 million). On a constant currency basis the decrease in revenue was 9% in H1 2024 compared with H1 2023. The main components of this overall revenue reduction were China (a reduction of £2.3 million - 27%), Mexico (a reduction of £1.3 million - 44%), Europe (a reduction of £1.3 million - 38%) and South and Southeast Asia (a reduction of £2.7 million - 35%).  Offsetting these falls were gains in Japan (£0.8 million), USA and Canada (£0.4 million), Brazil and other Latin America countries (£1.9 million). 

The lower revenue performance in China was due in the main to low disease incidence during the early summer months of 2024 compared with the equivalent period in 2023 but stronger pork prices and better producer profitability improved revenues during August and September 2024. It is expected that these stronger performances will result in a significantly stronger H2 in China.

The comparative reduction in Mexico revenue in H1 2024 compared with H1 2023 was due to 2023 being particularly strong - inventory shortages in January to March 2023 resulted in strong distributor demand in the first few months of H1 2023.  

The reduction in Europe revenue was mostly due to the withdrawal from Russia (£0.5 million) and the withdrawal from sale of a loss-making product sold in Ireland (£0.5 million). We continue to expect a new licensing approval for Aivlosin® (poultry) in the Kingdom of Saudi Arabia.

The reduction in Southeast Asia arose mainly due to the loss of a key Thailand customer and the change in the distributor in Vietnam resulting in a slow period until the new distributor is appointed. Furthermore, regulatory approval delays in Philippines and Bangladesh have also held this geographical sector back.

The USA, Canada and Japan have traded well due to market share gains, new customer wins and overall market growth.

The macro-economic outlook for the production animal health market remains strong. According to Stonehaven Consulting, pork and poultry consumption is corelated to population growth. Over the past 25 years, consumption of pork and poultry products increased by 70%, rising from 157kTon to 268kTon, compared to population growth of 34% over the same period. With nearly 2 billion more people expected to require more food over the next 25 years, demand for animal protein is set to grow.

Stonehaven Consulting also assessed the animal health product market, revealing a 5-year Compound Annual Growth Rate ("CAGR") of 5.8% in medicated feed additives, 0% for anti-infectives, and 6.4% for vaccines. Notably the disease prevention market, particularly vaccines, is predicted to continue expanding at a CAGR of 3.1% over the next seven years compared with relatively modest growth rate of 1.2% to 1.8% per annum in the disease treatment markets. This further underpins the Group's strategic expansion into vaccines and biologicals whilst recognising that the market remains robust for disease treatment.

Accelerated growth through R&D investment

The Board continues to believe that the R&D portfolio is extremely valuable and will create long-term value for shareholders. The products in our pipeline are highly complementary to our successful existing Aivlosin® based business, addressing the same markets, producers, distributors and diseases. As revenue and profits are generated from these new products the resulting cashflow will be applied in a progressive way to dividend distribution further enhancing shareholder value.

The Group's promising pipeline of new products has continued development according to plan with £4.1 million (H1 2023: £3.6 million) spent during the period. We plan to hold a Capital Markets Day ("CMD") during the final quarter of our financial year; this will follow up on the developments since our last CMD held in November 2023 and provide a status summary of the R&D portfolio.

Preparation for manufacture of the Group's pair of Mycoplasma vaccines for poultry involving technology transfer from the Group's own research lab to the appointed contract manufacturing organisation has been moving ahead and proof of concept trials have been initiated for the necrotic enteritis vaccine for poultry.

Strategy

The Group's strategy is to protect and expand the flagship branded anti-microbial Aivlosin® while making targeted investment in our R&D pipeline of targeted new product development. Our strategy review has endorsed this vision, objectives and pathway. The value in Aivlosin® will be reinforced through further investment in technical and marketing support, while we continue to invest in our valuable R&D pipeline to progress to commercialisation.

Specific priorities have been identified to bring our near to market projects to completion, preparations for their launch are well underway and business partners identified. Defence against generic competition within the Aivlosin® business arena is robust and reinforced with sound technical and marketing initiatives.

The Group is actively pursuing opportunities to collaborate through licencing in or buying new products and licencing out late and mid stage R&D programmes.

Our values

Our values, the "3 C's" of  Curiosity, Commitment and Collaboration are, we believe, the critical success factors which will drive the Group towards achieving its vision.

People

Our people, selected from the best in the animal health industry ensures that the Group's ambitions are achievable.  The alignment of personal values and the Group's values -are central to employee engagement. The Group is proud of its social and charitable initiatives, particularly as many of these are employee led.  The Board wishes to thank our people for their continuing diligence, active engagement and effort throughout the period.

Outlook

The Group expects that the historically observed increased demand for Aivlosin® associated with the Northern Hemisphere winter will once again result in a stronger second half to our year. 82% of the market consensus revenue is covered by year-to-date revenue, order books and run rate from the Group's stocking locations.  Additionally, the first half currency headwinds have normalised and the phasing and mix of revenues, inventory usage and costs all support the forward profitability. The Board will continue during the remainder of this financial year to invest in our exciting new product pipeline and pursue options to realise value.

The Board looks forward with cautious optimism to reporting the full year numbers in line with revised market expectations.

Dr Andrew Jones                                                      David Hallas

Chairman                                                                   Chief Executive Officer