Animalcare Group plc
Interim Results for the six months ended 30 June 2019
24 September 2019 - Animalcare Group plc ("the Company" or "Group") (AIM: ANCR), the European Animal Health business, announces its interim results for the six months ended 30 June 2019.
The Group continues to trade in line with market expectations for the full year on revenue and EBITDA and is making continued progress against its strategic priorities, building a strong foundation for growth.
Financial Highlights
· Revenue in line with the same period last year at £36.1m (increase of c. 0.9% at CER, 1H18: £36.1m)
o Strong sales growth across several key territories driven by successful new product launches
o Growth offset by temporary supply challenges related to third-party manufacturers
· Underlying* EBITDA increased by 8.6% to £6.8m (1H18: £6.2m). On a comparable basis, excluding the impact of IFRS16, underlying* EBITDA and EBITDA margin were flat at £6.2m (1H18: £6.2m) and 17.3% (1H18: 17.3%) respectively
· Our focus on freeing up cash to reinvest in the pipeline has driven underlying* cash conversion of 92.3%, on track to improve on the 80% achieved for the full year 2018
· Net debt reduction to £20.9m (31 December 2018: £23.6m; 30 June 2018: £26.0m) largely driven by improved cash conversion, which is ahead of plan
· Underlying* basic EPS at 6.4 pence (1H18: 6.1 pence). Statutory loss before tax, which incorporates non-underlying items, of £1.6m (1H18: £0.1m profit)
· Declared interim dividend of 2.0 pence per share, in line with the prior period
Strategic progress
The Group continues to focus on driving sales and profitable growth through portfolio optimisation, strengthening capabilities and creation of a robust pipeline:
Product portfolio
· Resources focused on the promotion of higher margin products. 25% of product brands to be delisted or divested by the end of 2019, with no significant impact to profit
Pipeline
· Regulatory approval granted for three new products to be launched in late 2019. A further two approvals are expected by year end
· Clinical trials initiated on a novel pain product
Business development
· Significant progress to expand our sales in new territories and strengthen our existing portfolio
· Two new distribution agreements signed:
o An exclusive distribution agreement for an equine pain product across Europe
o A new distribution agreement for Proccanius®, the first product to be launched across all of the Group's seven territories (post-period end)
· Two existing distribution agreements have been extended to distribute Animalcare's products in new markets within the period and an additional three distribution contracts have been signed post-period end for further products and territories
· Launched Orozyme in China in partnership with a local Chinese distributor (post-period end)
Operational Highlights
· Strengthened management team, including the appointment of a new Benelux Country Manager
o New long-term incentive plan introduced to encourage retention of key staff and align their interests with those of shareholders
· Completed the restructure and centralisation of the R&D and Technical and Regulatory teams, delivering the planned headcount reduction of nine employees in Spain and the UK at a one-off cost of £1.4m
Animalcare's Chief Executive Officer, Jenny Winter, commented: "Over the last six months we have made strong progress in delivering our five-pillar strategy to create a more focused and effective organisation to capitalise on growth in the animal health market. Optimising our product portfolio and rebuilding the pipeline has been a key focus and I am pleased to report on the recently signed agreements, including the first product to be marketed in all seven of our territories.
"Our cash conversion is on track to deliver an improvement on the prior year, which underpins our capacity to invest in short and longer- term growth opportunities and to deliver sustainable, profitable growth. We remain confident of delivering on market expectations for the current financial year."
*The Group presents a number of non-GAAP Alternative Performance Measures (APMs) which exclude non-underlying items as set out in note 3. EBITDA is defined as underlying earnings before interest, tax, depreciation and amortisation.
Analyst briefing today
Jenny Winter, Chief Executive Officer, and Chris Brewster, Chief Financial Officer, will host a meeting and conference call for analysts to provide an update the Company, followed by a Q&A session, at 08:30am BST today at the offices of Panmure Gordon & Co, One New Change, London, EC4M 9AF.
Dial-in details:
International and UK dial-in:
+44 (0) 2071 928000
Belgium dial-in:
080048740
Conference ID:
7066649
Presentation slides will be made available on Animalcare's website, www.animalcaregroup.com , prior to the conference call.
For further information, please contact:
Animalcare Group plc
Tel: 01904 487687
Jenny Winter, Chief Executive Officer
Chris Brewster, Chief Financial Officer
Panmure Gordon (Nominated Adviser & Broker)
Tel: 020 7886 2500
Corporate Finance
Freddy Crossley / Emma Earl
Corporate Broking
James Stearns
Consilium Strategic Communications
Tel: 020 3709 5709
Amber Fennell / Angela Gray / Olivia Manser
Animalcare@consilium-comms.com
About Animalcare www.animalcaregroup.com
Animalcare Group plc is a UK AIM listed veterinary sales and marketing organisation resulting from the merger of Animalcare and Ecuphar NV in July 2017. Animalcare operates in 32 countries in Europe and a further 16 worldwide. The company is focused on bringing new and innovative products to market through its own development pipeline, partnerships and via acquisition.
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) 596/2014 (MAR).
Chairman's Statement
Animalcare has made good progress over the first half of 2019, accelerating the integration of our business and executing upon our five strategic priorities to build the strong foundations from which to deliver sustainable growth over the medium to long-term.
Under the leadership of Jenny Winter, the Board has identified a clear path forward to achieve financial success through a focus on five core therapy areas and higher margin products, whilst aiming to grow faster than the markets in which we operate. This is alongside building fruitful relationships with our stakeholders and attracting and retaining the best people to drive success.
In line with our strategic priorities, we continue to focus on building a strong financial base for future growth. New product launches and annualised growth of products launched in 2018 continue to be the main driver of growth, with seven new products launched in the period. However, this was offset by temporary supply challenges related to third-party manufacturers. As a result, Group revenue was in line with the same period last year. Our underlying EBITDA was also flat on a comparable basis and we continue to closely monitor our cost base alongside a focus on top line growth. The Group's cash performance was strong, with cash conversion improving to 92.3% versus the 80% achieved in the 2018 financial year and net debt reduced to £20.9m. Further details on the financial performance can be found in the Financial Review of this report.
During late 2018, we completed a strategic review of our development pipeline and refocused our activities to drive growth over the next three to five years. The first phase of the product prioritisation is now complete and we continue to divest products which make insignificant contributions to our profit. Alongside this, we are reviewing our product development pipeline with a focus on continuing the development of products which have the greatest potential to deliver future growth.
The Board is pleased to declare an interim dividend of 2.0 pence per share, in line with prior period. We will continue to closely monitor the current dividend policy to ensure an appropriate balance between investment for future growth and returning capital to shareholders.
I would like to thank the executive team and employees within our organisation for their continued hard work as we deliver on our strategic objectives.
Jan Boone, Chairman
Business Review
Introduction
During the first six months of 2019 we have taken steps to execute our strategy to focus the Company on its core portfolio, integrate our operations, build a strong financial base and drive forward new opportunities to deliver sustainable, profitable growth over the next three to five years.
Trading during the period, in the continuing Pharmaceuticals segment, was in line with market expectations and prior period in terms of both revenue and underlying profitability. We made a commitment to improving the Group's cash conversion during 2019 financial year, principally via a targeted inventory reduction of £1 million for the full year. We are on track to deliver this target which in turn has supported the reduction observed in our net debt since the 2018-year end.
Operational Review
Our strategy is built on five priorities and we have demonstrated progress in the period under each of these:
1) Strong finances
We delivered solid sales growth across several key territories in the period and we continue to focus on top line growth, whilst closely monitoring our cost base. Cash conversion has been particularly strong, and we are well financed to invest in future growth.
2) Key leadership
The delivery of our strategy heavily relies on the management team and in order to incentivise and retain our key employees we implemented a new LTIP for the Leadership Team and rolled-out performance-based bonus plans. We also strengthened our Country Manager team with appointment of Sara Maddens in Benelux.
During the first half of 2019 we have accelerated the pace of integration to drive simplification and improve efficiency. We completed the restructure and centralisation of the R&D and Technical & Regulatory centralisation teams, delivering the planned headcount reduction of nine employees in the UK and Spain.
Following the appointment of Stephen Pearson as Group Head of Supply Chain in late 2018, significant progress has been made in creating an integrated, sustainable and efficient supply chain. We have streamlined supply across Southern Europe, supporting delivery of our inventory reduction target of £1.0m for the current financial year. Investment in SAP ERP will commence shortly to drive further efficiencies during 2020 and beyond.
3) Growth portfolio
Over the last six months we have delivered the first phase of the portfolio review with the long-term objective of creating a focused and more balanced product portfolio closely aligned to the growth segments of our market and where we have existing capabilities. Following this review 25% of brands that are insubstantial in terms of revenue and insignificant in terms of EBITDA contribution are expected to be delisted or divested by the end of the year with a further c20% reduction anticipated during 2020. We will continue to support our production animal business through targeted products within specific segments and customer groups.
4) Business development
We continue to strengthen our relationships with key stakeholders including our international partners and we recently launched, Orozyme, our first product with our partner in China.
In addition, we are focused on securing distribution agreements and in the period we completed one significant distribution deal and a further distribution deal was signed after period close. In the first half we signed an exclusive distribution agreement with a partner for an equine pain product that is aligned to our strategy.
In August, we were pleased to secure an agreement with Vetcare in Finland for the distribution of Proccanius, the first and only canine product with three important live Lactobacillus strains isolated from healthy dogs, and the first product to be launched across all seven territories in which we operate. We expect sales to commence late 2019 with a full year effect in 2020 into a market which is estimated to be around £10m and growing.
5) Innovative pipeline
Alongside the business development initiative, the internal product pipeline has progressed, with approval granted for three new products, Butazocare, Doxycare and Metrocare. All three are anticipated to be launched as planned during H2 and we expect two further approvals by the end of 2019 for launch in the first half of 2020. We are continuing to seek to broaden our product portfolio through strategic partnerships and we are exploring a number of opportunities including novel pharmaceuticals
Our Identichip and Identibase business is an asset, with its database of 5.4 million pet owners, that we believe could have significant value. It has continued to perform well and we are reviewing opportunities to expand the potential of this business and develop the technology.
Brexit
The outcome of the Brexit negotiations remains unclear and we continue with our contingency preparations, which are on track to ensure that there is minimal impact to our business operations. We continue to closely monitor the situation.
Financial Review
Overview of underlying financial results - Continuing Operations
A summary of the underlying financial results, which the Directors believe provides a clearer understanding of business performance, is shown below. The Group adopted IFRS 16 'Leases' on 1 January 2019, the impact of which is set out in note 9. Comparative financial measures have not been restated. Commentary has been made upon both an IFRS16 and IAS17 (the previous accounting standard) to allow meaningful comparison to prior periods.
Six Months to 30 June |
2019 |
2018 |
% Change at AER |
|
£'000 |
£'000 |
% |
Revenue |
36,121 |
36,057 |
0.2% |
Gross Profit |
19,135 |
19,291 |
(2.2%) |
Gross Margin % |
53.0% |
53.5% |
(1.3%) |
Underlying Operating Profit |
5,178 |
5,155 |
0.4% |
Underlying EBITDA |
6,765 |
6,227 |
8.6% |
Underlying EBITDA margin % |
18.7% |
17.3% |
1.4% |
Underlying Profit after tax
|
3,857 |
3,684 |
4.7% |
Basic Underlying EPS (p) |
6.4p |
6.1p |
4.9% |
Revenue
The Group delivered revenue growth of 0.2% (0.9% at CER) from continuing operations to £36.1m, split by product category as shown in the table below:
Six Months to 30 June |
2019 |
2018 |
% Change at AER |
|
£'000 |
£'000 |
% |
Companion Animals |
23,724 |
23,805 |
(0.3%) |
Production Animals |
9,322 |
9,358 |
(0.4%) |
Equine & other |
3,075 |
2,894 |
5.6% |
Total |
36,121 |
36,057 |
0.2% |
Companion Animals revenue declined by 0.3% to £23.7m. Growth from new product launches and annualised sales of products launched in 2018 was offset by supply issues which impacted sales by £1.1m versus prior period. We expect these supply challenges to be largely resolved by the end of the financial year. Production Animals revenue declined by 0.4% on prior period primarily driven by 2.3% lower demand for antibiotics. Equine and other sales increased by 5.6% to £3.1m due to growth within our existing portfolio.
Underlying operating results
Underlying EBITDA increased by 8.6% to £6.8m (2018: £6.2m) however on a comparable IAS17 basis, adjusted underlying EBITDA was £6.2m, in line with prior year. On an adjusted basis, EBITDA margins at 17.3% were in line with prior period. The gross margin decrease to 53.0% reflects lower margin sales mix towards distribution products and our Equine product category. We have maintained our focus on operating costs, with SG&A expenses as a percentage of revenue reducing from 36.2% to 35.7%.
The effective tax rate was 20.9% (2018: 25.3%) primarily reflecting our tax planning initiatives to optimise research and developments tax credits and utilisation of tax losses.
Non-underlying items
Non-underlying items totaling £6.7m (2018: £3.8m) relating to profit before tax have been incurred in the period, as set out in note 3. These principally comprise:
1. Amortisation and impairment of acquisition related intangibles of £5.1m (2018: £3.0m). The increase versus prior period reflects the non-cash impairment of three projects within the acquired product development pipeline at a fair value of £1.5m that failed to meet technical, competitive or commercial milestones.
2. Restructuring costs of £1.8m (2018: £nil) largely relating to the R&D and Technical & Regulatory team centralisation and associated costs of implementing headcount reduction in the UK and Spain at a cost of £1.4m
Interim dividend
The Board is proposing an interim dividend of 2.0 pence per share, in line with 2018. The interim dividend will be paid on 22 November 2019 to shareholders whose names are on the Register of Members at close of business on 25 October 2019. The ordinary shares will become ex-dividend on 24 October 2019.
Cash flow, net debt and borrowing facilities
The Group is committed to improving cash generation, important to generate the funds we need to invest for growth. We monitor progress using cash conversion as a percentage of underlying EBITDA, as set out in the table below. We have set a target in 2019 to improve on the 80% achieved for the full year 2018.
|
Six months to 30 June 2019 £'000 |
Six months to 30 June 2018 £'000 |
Year ended 31 December 2018 £'000 |
Underlying EBITDA |
6,765 |
6,227 |
11,798 |
|
|
|
|
Net cash flow from operations |
4,831 |
1,558 |
7,430 |
Non-underlying items |
1,415 |
719 |
1,993 |
Underlying net cash flow from operations |
6,246 |
2,227 |
9,423 |
|
|
|
|
Cash conversion % |
92.3% |
36.6% |
79.9% |
The Group's underlying cash conversion significantly increased vs prior period and improved on the 79.9% delivered in 2018. Working capital increased by £1.0m (2018: £3.3m increase), largely relating to decreased trade payables. The main drivers of the significant progress versus 2018 is twofold. Firstly we have reduced inventory by £1.5m since the year end and are on track to deliver our stated target of a £1.0m reduction by the end of 2019. Secondly, cash taxes were £1.0m lower due to a combination of phasing and increased cash receipts in respect of R&D tax credits.
|
£'000 |
Net debt at 1 January 2019 |
(23,588) |
Net cash generated from operations |
4,831 |
Net capital expenditure |
(1,312) |
Net finance expenses |
(829) |
Foreign exchange on cash and borrowings |
(14) |
Other cash movements |
(1) |
Net debt excluding IFRS16 lease liabilities at 30 June 2019 |
(20,913) |
Recognition of lease liabilities |
(2,214) |
Net debt at 30 June 2019 |
(23,127) |
Net capital expenditure of £1.3m largely comprises investment in a novel pain product within our product development pipeline.
The net borrowing position at the end of the period was £20.9m, a £2.7m reduction versus the 2018 year end. At 30 June 2019, total facilities were £46.2m, of which £23.1m, net of cash balances, was utilised. These bank facilities, together with the Group's operational cash flow, indicate that the Group has sufficient facilities available to fund its operations and allow for future investment.
Summary and outlook
We reiterate our outlook as set out at the time of our full year results in May and continue to expect trading for the full year 2019 to be in line with market expectations. We are building an effective and focussed organisation that is fit for the future and we have a clear strategy to grow over the next three to five years. Looking forward, we expect the supply issues which have been impacting revenue to be largely resolved by the end of the year, and will continue to drive cash generation for investing, rewarding our shareholders and reducing our debt. Success will be driven by the five pillars of our strategy and we will continue to report our progress against these.
Condensed consolidated income statement
|
|
|
|
For the six months ended 30 June |
|
|
|
|
Underlying |
|
Non-Underlying (note 3) |
|
Total |
|
Underlying |
|
Non-Underlying (note 3) |
|
Total |
|
|
Notes |
|
2019 |
|
2019 |
|
2019 |
|
2018 |
|
2018 |
|
2018 |
|
|
|
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
Revenue |
|
|
|
36,121 |
|
− |
|
36,121 |
|
36,057 |
|
− |
|
36,057 |
Cost of sales |
|
|
|
(16,986) |
|
− |
|
(16,986) |
|
(16,766) |
|
− |
|
(16,766) |
Gross profit |
|
|
|
19,135 |
|
− |
|
19,135 |
|
19,291 |
|
− |
|
19,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses |
|
|
|
(1,662) |
|
(622) |
|
(2,284) |
|
(1,598) |
|
(647) |
|
(2,245) |
Selling and marketing expenses |
|
|
|
(6,222) |
|
− |
|
(6,222) |
|
(6,591) |
|
− |
|
(6,591) |
General and administrative expenses |
|
|
|
(6,109) |
|
(2,380) |
|
(8,489) |
|
(5,974) |
|
(2,387) |
|
(8,361) |
Net other operating income / (expenses) |
|
|
|
36 |
|
(3,711) |
|
(3,675) |
|
26 |
|
(719) |
|
(693) |
Operating profit/(loss)
|
|
|
|
5,178 |
|
(6,713) |
|
(1,535) |
|
5,155 |
|
(3,754) |
|
1,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expenses |
|
|
|
(515) |
|
− |
|
(515) |
|
(475) |
|
− |
|
(475) |
Financial income |
|
|
|
216 |
|
− |
|
216 |
|
250 |
|
− |
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax |
|
|
|
4,879 |
|
(6,713) |
|
(1,834) |
|
4,930 |
|
(3,754) |
|
1,177 |
Income tax |
|
|
|
(1,022) |
|
1,268 |
|
246 |
|
(1,246) |
|
809 |
|
(437) |
Net profit/(loss) from continuing operations |
|
|
|
3,857 |
|
(5,445) |
|
(1,588) |
|
3,684 |
|
(2,945) |
|
740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Result from discontinued operations |
|
8 |
|
− |
|
− |
|
− |
|
36 |
|
(719) |
|
(683) |
Net Profit/(loss) |
|
|
|
3,857 |
|
(5,445) |
|
(1,588) |
|
3,720 |
|
(3,664) |
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit/(loss) attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The owners of the parent |
|
|
|
3,857 |
|
(5,445) |
|
(1,588) |
|
3,720 |
|
(3,664) |
|
57 |
Earnings per share for profit/(loss) from continuing operations attributable to the ordinary equity holders of the company: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
6.4p |
|
|
|
(2.6p) |
|
6.1p |
|
|
|
0.1p |
Diluted |
|
|
|
6.4p |
|
|
|
(2.6p) |
|
6.1p |
|
|
|
0.1p |
Earnings per share for profit/(loss) attributable to the ordinary equity holders of the company: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
6.4p |
|
|
|
(2.6p) |
|
6.2p |
|
|
|
0.1p |
Diluted |
|
|
|
6.4p |
|
|
|
(2.6p) |
|
6.2p |
|
|
|
0.1p |
In order to aid understanding of underlying business performance, the Directors have presented underlying results before the effect of exceptional and other items. These exceptional and other items are analysed in note 3.
Disposal of subsidiaries
On 4 September 2018, the Group announced and completed the disposal of its Wholesale business Medini NV registered in Belgium, for an initial cash consideration of £2,413k and total estimated consideration, including deferred consideration, of £2,989k. Full details regarding the disposal are disclosed in note 4 of the latest Annual Report.
For the period ended 30 June 2018, and in accordance with IFRS 5, the Wholesale business was classified as held for sale and presented as discontinued within the income statement. An impairment charge of £664k was recognised as shown in note 3. An analysis of the discontinued loss of £683k, which includes the impairment charge, is shown below:
For the six months ended 30 June 2018:
|
|
|
|
Continuing operations |
|
Discontinued operations |
|
Consolidation adjustments |
|
Total continuing and discontinued operations |
|
|
|
|
2018 |
|
2018 |
|
2018 |
|
2018 |
|
|
|
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
Revenue |
|
|
|
36,057 |
|
12,429 |
|
(718) |
|
47,769 |
Cost of sales |
|
|
|
(16,766) |
|
(11,232) |
|
689 |
|
(27,309) |
Gross Profit |
|
|
|
19,291 |
|
1,197 |
|
(29) |
|
20,459 |
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses |
|
|
|
(2,245) |
|
− |
|
− |
|
(2,245) |
Selling and marketing expenses |
|
|
|
(6,591) |
|
(833) |
|
46 |
|
(7,378) |
General and administrative expenses |
|
|
|
(8,361) |
|
(290) |
|
(18) |
|
(8,669) |
Net other operating income / (expenses) |
|
|
|
(693) |
|
(736) |
|
1 |
|
(1,427) |
Operating profit/(loss) |
|
|
|
1,402 |
|
(662) |
|
− |
|
740 |
|
|
|
|
|
|
|
|
|
|
|
Financial expenses |
|
|
|
(475) |
|
(29) |
|
20 |
|
(484) |
Financial income |
|
|
|
250 |
|
7 |
|
(20) |
|
238 |
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax
|
|
|
|
1,177 |
|
(683) |
|
− |
|
494 |
Income tax |
|
|
|
(437) |
|
− |
|
− |
|
(437) |
Net profit/(loss) |
|
|
|
740 |
|
(683) |
|
− |
|
57 |
The net cash flow by discontinued operations can be found below:
|
|
|
|
For the six months ended 30 June |
|
|
|
|
2018 |
|
|
|
|
£'000 |
Net cash flow from operating activities |
|
|
|
133 |
Net cash flow used in investing activities |
|
|
|
(94) |
Net cash flow from financing activities |
|
|
|
(28) |
Net increase of cash & cash equivalents |
|
|
|
11 |
9 |
Changes to accounting policies |
This note explains the impact of the adoption of IFRS 16 Leases on the group's financial statements and discloses the new accounting policies that have been applied from 1 January 2019. On adoption of IFRS 16, the group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases.
The Group leases various offices, vehicles and IT equipment. Rental contracts are typically made for fixed periods of 3 to 9 years, possibly with extension options; one contract has a lease term of more than 10 years. Lease terms are negotiated on an individual basis and contain a range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.
Until 1 January 2019, the Group recognised operating lease expenses on a straight-line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised.
From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a present value basis. The lease payments are discounted using the lessee's incremental borrowing rate. The Group's weighted average incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 3.2%.
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment and small items of office furniture.
A reconciliation between IAS 17 and IFRS 16 is shown below for the position at 1 January 2019:
|
|
|
|
|
|
£'000 |
Non-cancellable operating lease commitments disclosed as at 31 December 2018 |
|
|
|
|
|
2,760 |
Weighted average incremental borrowing rate at 1 January 2019 |
|
|
|
|
|
3.2% |
Discounted using the Group's incremental borrowing rate |
|
|
|
|
|
2,606 |
Add: finance lease liabilities recognised as at 31 December 2018 |
|
|
|
|
|
22 |
Lease liability recognised as at 1 January 2019 |
|
|
|
|
|
2,628 |
Of which are: |
|
|
|
|
|
|
Current lease liabilities |
|
|
|
|
|
910 |
Non-current lease liabilities |
|
|
|
|
|
1,718 |
All right-of-use assets were measured at the amount equal to the lease liability. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.
The recognised right-of-use assets relate to the following types of assets:
|
|
|
|
30 June 2019 |
|
1 January 2019 |
|
|
|
|
£'000 |
|
£'000 |
Buildings |
|
|
|
1,085 |
|
1,275 |
Vehicles |
|
|
|
1,044 |
|
1,269 |
Other |
|
|
|
65 |
|
84 |
Total right-of-use assets |
|
|
|
2,194 |
|
2,628 |
|
|
|
|
|
|
|
Current lease liabilities |
|
|
|
938 |
|
910 |
Non-current lease liabilities |
|
|
|
1,276 |
|
1,718 |
Total lease liabilities |
|
|
|
2,214 |
|
2,628 |
Cash flows relating to leases are presented as follows:
- Cash payments for the principal portion of the lease liabilities as cash flows from financing activities;
- Cash payments for the interest portion consistent with presentation of interest payments chosen by the Group, and;
- Short-term lease payments, payments for leases of low-value assets and variable lease payments that are not included in the measurement of the lease liabilities as cash flows from operating activities.
(I) Impact on EBITDA and earnings per share
EBITDA and underlying EBITDA increased by £530k for the six months to 30 June 2019 as a result of the change in accounting policy. There is no material impact on net result and earnings per share in the period.
(ii) Practical expedients applied
In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:
- The use of a single discount rate to a portfolio of leases with reasonably similar characteristics;
- Reliance on previous assessments on whether leases are onerous;
- The accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases;
- The exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application; and
- The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
This Interim Management Report ("IMR") consists of the Chairman's Statement and the Business Review, which have been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The IMR should not be relied upon by any other party or for any other purpose.
The IMR contains a number of forward looking statements. These statements are made by the Directors in good faith based upon the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward looking information.
This IMR has been prepared for the Group as a whole and therefore emphasises those matters which are significant to Animalcare Group plc and its subsidiaries when viewed as a whole.
The Group's Interim Report for the six months ended 30 June 2019 was approved and authorised for issue on 24 September 2019. Copies will be available to download on the Company's website at: www.animalcaregroup.com.