Animalcare Group plc

all a big welcome to our presentation of the full year results 2022. I think many of you have attended sessions with us previously so the suggestion is if you've got questions more than happy to answer them if you want to pop your hand up and then we will come to you in turn and either between us unmute you somehow so that we can hear you but hopefully as there aren't huge numbers of people on the call it should be relatively straightforward to do. I'm joined actually, Chris and I are in the same room. We just have very different backgrounds. So we're both in the room. Helen is also helping us and Neil is online and Neil has helped us to get to this point. So Neil is part of our animal care team. Helen's already got a hand up. That's quite impressive. Mike, you've got a hand up already. Is Does that mean we need to hear from you? No, it disappears. All right, well, we'll push on and then hopefully if we take questions at the end, unless there's anything actually desperate halfway through, we'll be keeping an eye open. So I'm going to kick off, hand over to Chris to talk some specifics about the financials and obviously answer all the tricky financial questions. So we will do that. By way of introduction, These are the five pillars that we've been talking about since 2019. And I think what my summary of where we got to in 2022 is we're making really good progress, improving the quality and sustainability of our business. Unfortunately, underneath in our existing portfolio, we have experienced two main events that created that decline in revenue, one of which was the loss of distribution contract, which I think we've talked to people before. We were conscious of the risk involved in having distribution products, and clearly one of those risks came through. And the second one was that we saw a decline in the antibiotics for production animals in Spain, and that had been quite a significant part of our portfolio experience. But if you look overall, the new products launched in the last three years were driving about five million of sales. And we lost about four and a half million through those two things that we talked about. So we compensate. We managed to compensate overall for about half of the loss. But it was a bit frustrating. I think I'll use that word. And because other than that, we see really good progress in where we're trying to get to their strategy. So just using these five pillars, we'll talk about them in more detail. Business development in 2022, we did the Orthros partnership. We're going to talk a bit more about that because it's really, really starting to be quite exciting. And that gives us a pipeline and a product for the future. IdentiCare, you will have seen that we repositioned this. We provided specialist leadership. We operate that as a very specific unit. We're going to talk a bit more about identity care because, again, I think this is a great platform for the future. Early days, small, but we're going to start talking about that a little bit more now. We're confident in the direction of travel. And we continue to have a great platform for M&A and licensing, recognising that we'd hoped beyond the all-thrust deal that we'd be talking about a new platform. business development M&A. We are going to talk a little bit more about what we're trying to do there. We're still very active. There's been a bit of market turmoil, but we're still really focused on M&A. Pipeline, all through us, we talked about STEM. We launched the first of the STEM products, the Plactive Range, really great feedback so far, and we're quite excited by that. And then we've also invested a little bit in our pipeline products, both from a DAX cost and practice lifecycle management, but also a couple of OTC products that will come through in 2023. The organization, we really focus the organization on growth. The biggest part of our organization is our sales force and our sales and marketing organization focused on talking to vets. We recognize that sales force productivity for us, because we're relatively small, And competing with some of the big guys needs to be absolutely spot on. And we've invested in making sure we have the right sales people talking to the right people about the right things. Still relatively small, but it's a real focus for us. Recognizing the inflationary pressures on individuals around our business. We've got different inflationary pressures in different countries. We've made sure that we're focused on the people we really want to retain and making sure that those people feel that they're being actively developed, doing things outside of salary increases. So that's been a big focus for us. And we've got our new board members. So we've got Doug and Sylvia, and they are very active and very supportive. Doug, from a pipeline and BD perspective, knows everybody in the industry, knows everything about the products. And so we talk to Doug a lot about making sure that our future growth is coming from products that are valuable, creating additional value for the overall organization. And Sylvia heads up the audit risk and has been an absolutely brilliant addition to our organization. So we're very excited by that. Chris is going to talk much more about finances. So, you know, you can see where we were with the revenue, margin improvement, which we're really pleased because that's part of this drive towards sustainability and quality in the business. And we've still got that good financial platform that really is, we're looking at to fund feeding. Okay. I think in 2022, we've seen lots of news flow about the animal health market. And we're absolutely certain this is still an attractive market. I think what we've seen in 2022 is quite a lot of dynamism and quite a lot of movement around the around the market and the way that we see it is it splits into two separate pieces so overall the demand from an overall animal health perspective is it continues to be resilient we still see high levels of pet ownership we see pets growing older and with that comes more chronic illness and more demand from the pet owners about the expectations for the health for their pet. We've also seen some more self-service. I think this was particularly driven in 2020 with COVID, where owners started to bypass vets because it was quite difficult to get to see them. We've seen a bit of shortage of vets, and so people can't get a quick appointment with their vets, so they go to a store or online and buy all sorts of things, mostly in the non-prescription business. So we're seeing some OTC growth. So the animal health market has had some turn. But overall, we see is a really, really healthy market. We look on the right hand side, which is a bit more about the segment of that market that we operating within the pharmaceuticals business. About 80 percent of our business continues to be prescription medicines. And we're seeing that there's a real premium for innovation. And when you look in most countries at the growth rates, you see a different growth rate for the older, more established products, generic type products. You see some volume growth there, and we see that ourselves. And we see value growth really being driven by innovative and novel medicines with greater effectiveness. And for us, things like that's contemplative. We're seeing that growth come through. So there's a difference between the two different segments of the market. In terms of assessing exactly what we think the market growth will be, we're predominantly Europe. So Europe always seems to be a bit lower growth than the U.S. Difficult to predict, but we assume that that market will be growing at somewhere around the low single digit, 3% to 5%. Depends a bit on who you talk to and what you look at, but around that low single digit. So we still see that growth, but it is this mixture of volume growth with generics and value growth driven by innovation, novel medicines and products that are more sustainable and high quality, which exactly is where our strategy fits. When we look at the customer landscape, we're seeing a sort of change in customer dynamics in here. For us, our customers is the vet. And to get to the vet, there's the distributor in that supply chain. What we are seeing is growing influence of corporates. We talk about the corporates as though they're all the same, but they're not. And we see quite a lot of difference between the different corporate customers, whether they're equity-owned, listed. But we're managing to work with all those different styles of distributors. and those different strategies. And so we are working closely with those organisations, looking for opportunities where we can drive our business more rapidly and recognising where really the corporates are trying to grow in Europe. We're keeping an eye on that, et cetera. So we've got structures in place to manage the corporates, but the really interesting thing is they're all doing something slightly different and they all have a demand for slightly different strategies from us. We're also seeing evolving distributor networks. This particularly is true in Spain, where historically we were dealing with sort of 400 plus distributors. And over the last probably three years, that's declined rapidly. And so you're starting to get a more normalized to the rest of Europe position with distributors. And this is sort of the wholesale network as well as individual distributors. But But for us, they are part of our delivery mechanism to the vet market. And so we see quite a bit of disruption there as the distributors and wholesalers work out where their position is in the overall market. Historically, it's always been a margin business. Now that's changing, that's getting squeezed. So we work closely with our wholesale partners to do that. We're seeing some changes in prescribing. I think we've seen some reports and experienced a little bit where historically the vet was prescribing a product to a pet owner regardless of their social status or affordability. We're now starting to see the question of affordability at pet level coming in. And as I mentioned before, we're still seeing some vet shortages. So we see these two bits of the market, both of which we see as really attractive. We're continuing to work closely with the stakeholders. And what we saw in 22 was this sort of moderation in demand from what we saw in 21, which was this sort of post-COVID bump and excitement. And I think all of you will have seen that from a lot of our peer companies. So I'm going to hand over to Chris at that point to talk about the financials you'll have seen in the R&S today. Thank you.

Firstly, good morning, everyone. Hope you're all keeping well. I'm going to kind of assume that you've all read the announcement front to back.

So we've just got a couple of slides to summarise the financials. So we'll cover the main financials on here, then we just give a bit more colour on revenue on the next slide, but it's a very summarised level. So I think... To set the scene and to kind of echo what Jenny said, I think we actually are really pleased with the financial perspective of the overall performance in the light of that moderating revenue line. And again, from the point that Jenny's talked about, it's progression in the business. If we look at the revenue line, which is down around 3%, we've talked about it, we'll come on to more, but really we're summarising that from the perspective of two two things really it's the moderating market but we've we've talked about what we call more specific factors um and the two specific things we'll cover are in companion animals the impact of some station of distribution agreements um which is offset as jenny said the positive progress on the sales growth of new products and then in production animals it's really the impact of the amr legislation that was in spain we'll come on to more of that so that's really a kind of um summary of the revenue line. If we look at underlying EBITDA and EBITDA margin, so EBITDA was down 2%. So 13.1. But the EBITDA margin pleasingly was just a notch above prior year levels, which really is, we talked about kind of disciplined kind of cost management towards the end of the year. But that's at a time still where we're continuing to invest in the business. So it's really pleasing that, you know, we've maintained that EBITDA margin at a time of demoralising revenues. And a real factor of that is gross margin improvement. So you've seen about three and a half percent increase there, mainly driven by sales mix towards a high margin brands. And we'll see that in the top 40 that we'll come on to later. A little bit on pricing, where we sought to mitigate, as we're all aware, the rising inflation. And as we'll talk about more later on, the repositioning and growth of the identity care business, because that's a part of that business, which is subscription, is very high gross margin. So I'll come on to that. On the point of view of SG&A costs, we've had this theme for a number of years where we continue to invest in optimising and scaling the platform so that's really kind of having that platform ready for business development M&A and the majority of the one and a half million increase in SG&A costs it is people costs they are pegged with broadly in line with last year and some of that's inflation but but mostly it's continuing to invest in areas which drive and growth of sales teams etc. Another driver of the increased spend in the year, which will become an increasing factor into next year, was off-cross. Kind of conscious, if you look at our peer now, the research line looks about the same as last year, but the research costs get, there's lots of other things in there apart from pure research, but to give you just some direction, the off-cross costs, which were obviously zero last year, were about 300 to 400K. So that's the increase in costs of the research in 22 versus 21. Directionally for FY23, and actually we've kind of revised this estimate following the training update, because actually based on some really encouraging early data, we're going to accelerate some studies this year. So we think that That number three to 400,000 we spent this year will probably be around a million. So that will become a, you know, a fact we'll see that as we go through the year from a research perspective. Just finishing off on the P&L. So at the bottom there, underlying UPS is 5%. We can see that to lower pre-tax profits that the ETRs come down. That's really driven by a combination of items, principally profit mix. There's some recognition of tax losses in there. And obviously last year took a one-off charge for the UK increasing their tax rate. I suppose directions that that is low as a tax rate. So we'll be normalising about 22, 23% this year. So just to kind of like that, you know, the tax is, I suppose, an exception of the light and a little bit in terms of that rate. Cash conversion. So you can see from the figure from 21, and if you look back, you know, we have cash conversion in excess of 100% in the three years up to the start of this financial year. you know which is which is exceptional so we guided to lower cash conversion in 22. um at the insurance we gave a target of 70 and we've coming out came out with just over 78 so really pleased with that that's obviously you know that's a good result um if we look at the underpin of that what you'll see is um the working capital movement is is is you can see is a combination of higher trade receivables so that's really around phasing of sales in december and you can see our our images have increased by about i think it was a couple of million and recognizing that we said we entered 22 with stock that was around a million million and a half lower than we expected because of some phasing of delivery so what we so the increase in 22 has been bigger because we started lower, but we are expecting to kind of manage down the working capital as we go through the year. So this year, we are expecting to increase cash conversion. I think cash taxes are becoming a bigger part of our cash. So we're guiding somewhere between 80% to 90% this year. So an improvement on 2022. On net debt, really, you can see that's not new. We generated about 2 million of net cash. And effectively, that's going to be offset by a combination of adverse effects movements. So that's all in euros. And what you've seen is the lease liabilities have gone up principally in relation to Spain and Spanish offices. So essentially, you've got 2 million of cash offset by non-cash items. Leverage is still at 0.4. As we've talked about, and we'll come on to this later on, really important that we've got that really strong leverage because we want to use that leverage capacity to execute BD and M&A. We've kind of taken out the capital allocation side, but just as a reminder, we still remain, given that everything that Jenny was talking about that we see in the market and the resilience of the market, we are saying that we will go to two times, tend to a little bit more. for the right deal that will be earnings enhancing and cash enhancing during the year. Next slide, sorry. Just pressing down. So just on the, so what we've done here, so I think the geographic performance of our operations is kind of less important, really, because what we've talked before is production animals is largely in the south, and then companion animals is spread across the business in Equine. So what we've really focused on here is the product categories, and I'll just touch on there. So, companion animals, it's about 70% of our sales, so it's always a key driver of the revenue performance, whether that's growing or declining. And you see that was about 2% down. As I said, while we're disappointed with the overall decline, particularly in that area of the business, because that's where we've seen the growth. We are really pleased with the progress made with new products and focused brands, so Datscom, for example, and they contributed about 2.1 million of sales in the period. What Jenny talked about earlier is that we're unfortunately impacted by the cessation of a distribution agreement, or was a couple of it, but one distribution being particular, which impacted the companion animals business and effectively the new products. growth was offset by that cessation of the distribution there. And as we've talked about, on the whole, we've seen some moderations. If you look at our markets, most areas have moderated a little bit in terms of geographies. And as Jenny's guided you, we're seeing it's still in growth, but growth's probably around down to the low single digits rather than being in single digits. On production animals, so this is really around And again, you know, the numbers hide some really positive progress with key products such as Dynogen, which grew really strongly. That's a really important part of our international partners business. Or the Spanish operation, which is our biggest operation, as everyone knows, was impacted by the AMR legislation. And that's really centred around the use of premixes in feed. And essentially that market in Spain has gone to zero. So that took about a million and a half pounds of our revenue there. So production animals, so things that we've got going into this year, growing really well, but, you know, one-off impact of the MR. Equine, you can see it's flat, but underneath that is a really important I suppose, transition for our organisation. So up until the middle of 22, our UK sales were actually handled by a partner. So it was in international partners. We've bought, so we've now bought Danny Long back in house. This is one of our top five, top 10 brands. So really important for us. And what that means is that we now, you know, rather than a partner managing, you know, the direct customer conversations, et cetera, we've bought all that in-house. So it comes back into our commercial operations. And obviously the beauty of that bringing it in-house is that the margins, et cetera, that the distributor is making are now into our business. So you've got high revenues and high margins. So, you know, that is going to be a factor in terms of moving forward into this year. So I'd expect to see some strong growth in equine in 23. As I said at the start, that's my summary actually, so hopefully that's given people a flavour of 22. Obviously we'll take questions at the end, but I'll hand back to Jenny now.