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.

So I'll just build a little bit on some of the comments that Chris made, and on the established brands, we always struggle with what to call these, but they're the kind of brands that we've had for long period of time, et cetera. I think one of the really important things that we are focused on is that some of those brands are really strong. And so we can have conversations about the impact of generics, et cetera, et cetera. But some of these brands, when you talk to customers, They know exactly what you're talking about. And Danilon is one of those. Chris talked about this is the equine product. So we've got I just pulled out some of the products that are growing at greater than 10 percent. Now, some of these products are growing up to 20 percent. So there's some really healthy growth in some established brands that we are driving and continuing to drive. And these guys are you know, that's not an expensive investment to keep them moving. They're really important and they have good margins. So, you know, Danil on the Equine Products, really excited about what the UK can do with that in the future. Dinalgen, which is a non-steroidal for production animals, is, depending on exactly which month you look at, it's usually in our top two brands. Maxivax, which is in production animals, and Solifan and Propovet. So the point here is really that in that established brand portfolio of the older brands, we've still got some really strong brands that we expect to continue to grow, drive cash, et cetera, et cetera. Now there's a whole range of products below that, greater than 10%. Didn't want to go through every single one, but just reinforcing that we've got some really positive growth. Clearly this year we had some offsets, but the fundamentals of that portfolio are really positive. And then the piece that we have put in place for that sustainable future quality is, We're really pleased with how Daxacox is going. It's a tough sell. It's a very competitive market. For us, it's a top 10 product. It's growing significantly greater than 50%. But, you know, we expect that growth to continue. It's got a foothold now. People are repeat ordering, repeat using. It's starting to get that really good vibe around it. And the fact that this is a once-weekly product is starting to kind of go, aha, we've got it. So I think that I think it's a good success. Spain and Germany in particular are having some great success. And that will continue to grow and be a very important part of our future portfolio. We've said so many times it's a great margin for us and it's our product. We own it. Nobody can take it away, etc. Similar thing with Plaxiv. We launched Plaxiv in 2022. I think for our sales teams, this was probably an easier and quicker uptake. It was more familiar, Daxacox needs some technical kind of sale, but Plactive, almost immediately, we had great response from customers, revenues progressing well. So we're excited about the Plactive Plus range, and we'll continue to extend that portfolio. Just as a reminder, this is the product and the product range that we access through STEM Healthcare, which is our joint venture. We own roughly a third of SEM Healthcare, Animal Health, sorry, and Cain Biotech own the other part. But this is for us a really important move, and it gives us access to some really good opportunities for growth. The other thing that we don't very often talk about, and Chris often references, but since 2018, 2019, so the last three years, we've managed to launch a range of new products. Now, these aren't major, major products like Daxacort and Plactive, but they're really important. And they're our products. They drive margin. And over the last, since 2020, if you look at the products we've launched in the last three years, in addition to Daxacort and Plactive, they've contributed over 5 million to our sales. And the growth rate is more than 20%. So it's not just Daxacort and Plactive that we have that are driving that quality and sustainability for the future. We've also got these slightly smaller products that we own that have good margin that will continue to help to drive that transition. Okay. One of the things that we haven't really talked about very much, you'll have seen it in the R&S, and we will be talking about it a bit more in the future, is identity care. And I think we've been relatively quiet about this. I think most of you will have seen in 2021, we set IdentiCare up as sort of not quite a standalone, but under the umbrella of animal care. But we established the IdentiCare business. So historically, this was a microchipping business. And we ran it as a microchipping business in 21. And during 22, we've really completed the repositioning of IdentiCare. So IdentiCare reflects both the chipping business and the database business. Chipping is really a commodity and we're seeing lots of churn in the actual chip business. But the data that we have and from the pet owners registering is a really important part for us. So I've summarized IdentiCare today as a small but increasingly valuable part of our business. But we do run it as a slightly separate piece. It is the U.K. at the moment. In the short term, we don't have plans to take over Europe, but we'll have a look at that. We want to get it right in the U.K., So what is IdentiCare? It's actually the UK's leading pet protection network. So on the left-hand side, you've got a horse in the box. Actually, most of the microchips go into dogs, but we do also have a lot of racehorses running around with our microchips in, and they're on our database, and normal horses as well. I keep saying my dog's registered as a horse for some reason, which always causes great hilarity. But the chip's implanted, and the pet owner then registers that chip on a database. And if it's our chip, it's almost always our database, but also other people register their chips on our database. So you become a sort of customer, really, for us, and we then manage your database. There are offers, there are opportunities, but our main focus is pet protection. So we sell insurance through that, et cetera. So the pet owner can choose their level of pet protection, and that generates a subscription-based business. And that's really what we've spent the end of 21 and the start of 22 building up. So that's really how this business works. So if you look at the right-hand side, why do people choose us? Firstly, quite often, if they have one of our chips, they choose us because it's easier. That's the information they get. And you register your dog or cat or horse on identity base. So we've got more than 4 million pets registered. And so, you know, there's a mix. Some of those have subscribed for our pet protection offer. We're pretty long established, so... You know, in the marketplace, if you're a pet owner, you see identity as one of the main databases. So there's experience and longevity. Bottom left, Trustpilot score 4.7, which is pretty cool. And, you know, we keep an eye on that. It's usually the best or equal best of the databases. And because we're a big database, there's actually quite a lot of really positive reviews. We have a call center set up. It's up at the office in York. And those guys are talking to pet owners all the time, which is a great opportunity for selling as well as the main focus, making sure their pet is safe. So there's 25 of those people who are absolutely focused on talking to pet owners. And we're starting to digitise all of that information and starting to be setting this up as a really interesting and future value generating. It's a really valuable asset for us and we're really excited about what it might look like in the future. The reason why we're talking about it now is because it is set up. We established it actually under a specialist digital leadership because whilst Chris and I would like to think of ourselves as experts in many things. We recognise that we run experts in digital, or anything, yeah. So we've brought in somebody who absolutely understands this sort of business model, and we're really excited about it. And we will continue to keep people updated. At the moment, you know, we're in double-digit revenue growth. It's a profitable business because, you know, whilst the actual chip itself is... It's a bit of a commodity. The actual data is almost entirely profit. So it's a nice business and small but perfectly formed. I think many, many people will have seen, particularly if they're cat people, that compulsory microchipping for cats comes in at 24, but you start to see a little bit in 23. Our initial... Research and understanding. I think cat owners are a bit different to dog owners. I'm a bit biased as a dog owner and a horse owner, not a cat owner. But we think that that will give us a bit of a tailwind as the compulsory chipping of cats comes to the fore. So, you know, this is a really exciting small business, but growing and will form a valuable asset for us as we move into the future. So exciting stuff. In addition to that, I wanted to share a little bit more about how we see that pipeline delivering and developing. So we just did a bit of a historical charge through from 2018. You know, during that period of time, people who've been with us for a long time know that we were predominantly generics. Then in 2019, we accelerated the development of Daxacox. And we looked at that generic pipeline and you saw the impact of us taking some things out of that that either weren't going to be competitive from a commercial perspective or technically they were really tricky. So we rationalized that portfolio. But from 2020, we've been really clear. No new generic. We have anything that we can find that we can reformulate, add something to, we're continuing to do. And there's a couple of products that will come out this year. But we're not focused on trying to create more and more generics. I think that business is probably best left to speak guys with manufacturing. So we got Daxacox to regulatory and STEM. We did the STEMs in September. So we started to access that biofilm technology. And in 2021, we were getting STEM ready for launch. Daxacox, we started lifecycle management. We're looking at different indications, different species. And those studies were initiated in 21. We launched Axocops, obviously. So where are we in 22? We've got two new products developed for launch in 23. These are OTC products, but they're sold through the vet and they enhance our portfolio. So they're fairly simple products. You might have heard me talk about them. They're for those delightful areas of diarrhea and blocked anal glands. But we're launching those this year. Apparently it's a big market for them. I've got dogs, by the way. All of us are going to talk a bit more about, because we're just getting to quite an exciting time with that, and Chris has talked about the impact that has on our finances. STEM, we started the lifecycle management. For those of you who were around when we did the STEM deal, that gives us access to two biofilm technologies, one of which is dispersing B. The co-active is the product implactive. The dispersing B, we're just working through. We had a bit of a delay because the cost of goods looked high. But the technical team have been solving that sort of manufacturing technical perspective. And I think we're pretty close to a solution there. So we will start to see some specific products coming out of the dispersing B technology. We launched Plactive. I've already mentioned that. And lifecycle management is ongoing. So 23, whilst we're continuing to do the lifecycle management, continuing to do the STEM lifecycle management, so those are focused for us in 23, the big piece of excitement for us is around the Allthrost collaboration. And I'm going to come on to Allthrost specifically. But we are continuing to look for pipeline opportunities. Clearly, we'd love a product that was launching this year that had 100 million plus peak year sales. Strangely, everybody's looking for those, so it's quite a competitive market. But we're continuing to pursue a couple of opportunities through partnerships. We're launching a distribution product with Orion later this year. So we are continuing to build that pipeline. But SSA Orthoros is really a very interesting product for us there. Predominantly companion animals we want to look at. We will look at a production animal, but they need to be sort of real no-brainers for us. Targeting our spend at five to 10% of annual revenues from 24 onwards. So this is what it looks like. So STEM, Dax Cox, Orthros today are really driving that development of the balance pipeline. Okay. So just to remind you on Orthros, those of you who are linked in People will have seen that yesterday we announced that we have, together with Orthros, been granted a Eurostars account. I forgot the word. Grant. I said account. A grant for our collaboration with Orthros. And that's really exciting because that. is recognition that we have in this technology something that is commercially viable and will get, you know, can move towards a commercial opportunity. So I would encourage you to have a look at that LinkedIn. It's on the animal care page, it's on your course page. And so that for us is another endorsement about this partnership. So just to talk about why we're excited about this is because This is two different parts of collaboration. So the research collaboration gives us access to candidates in a broad range of indications and species for commercialization. So rather than this being a license agreement for one product or one opportunity, what this research collaboration has given us is an opportunity to look at the use of these antibodies in a range of different conditions. And so actually at the moment, we have a number of potential candidates and these candidates are in all sorts of different potential indications because that's the beauty of these antibodies is their flexibility to have an impact in many different places. So the science and all of that is done by Altros with a postdoc employed by us within there. And the research collaboration is that we have access to any of the animal health indications that come out. And we also are involved earlier, early in the programme. So we're looking at all sorts of things at the moment and having a look at whether we want to develop indication A, B, C or D. In fact, we've just started a numerical system because we're starting to get so many opportunities. And what we do with these is have a look at commercial, competitive, you know, and really trying to prioritise candidates coming out of this. And it's a bit wide. On that pipeline slide, we've put so much emphasis on this because we do believe that there's a lot of different opportunities that will come out of this research collaboration. And it's partly why Chris talks about accelerating this. What we recognise is that the things coming out of Orthros today are early, but once we can get them into clinical development... then they start to have a value all on their own. So we recognize it's a bit like with the identicare piece. So it's a small but valuable asset. These will become small but valuable assets as we move them through that development program. So we're really, really excited about that research collaboration and it's going very well. We work very closely with them and we've got a mix of the science and technology. So it seems to be synergistic. The license agreements, is quite specific. So that license agreement is on candidates that have already been identified. So we know that they work. And so the license agreement is very specifically on those. We've done most of the preclinical studies. And we're looking at how we can accelerate that because I think Chris used the words encouraging. They're really encouraging the early data. And so if we can accelerate these to market, I think when we talked at the time of the deal, we said, they're probably going to be launched at 27. If we can buy investing a little bit more now, speeding that up, accelerating the development, if we can launch earlier, that would be really exciting. So we're very positive about the output from that licence agreement. And if anybody would like the description on the right-hand side, we'll get back to you. I've gone through it many times, but it's still slightly baffling. But anyway, we have the right people, and that's working really well okay just moving on to business development um you know a bit frustrating because we had anticipated that we would be announcing something actually last september october time um and and we haven't yet and so we're really conscious that this is something that we need to move quickly we need to make sure we've got the right resources but the one thing that is really clear is we are very active. So we are out there talking to people. We recognize that in a listed environment, we're seeing valuations come down aligned with the market changes. We're not yet seeing that so much in private business because I think in many of these businesses that we're talking to and we're interested in, you have private founders who have seen previous valuations and read and say, well, it's 17 times multiple. And yet we know that actually the value is reduced. So we're just working through some of those examples. We've done detailed assessment. And so when we talk about detailed assessment, you know, is it commercially viable? Is it technically viable? You know, what are the people like? How do we integrate, et cetera? So roughly, I don't know, way more than 20, but we've done at least 20 over the last 12 months. We've taken four through due diligence. One has been completed. We've still got a couple in due diligence now. So we are highly ambitious. I want to reassure everybody that we are absolutely clear that this is what we need to be doing. We're also very disciplined, recognising that to use all our debt capacity, to raise equity, to do anything like that, to be right because of where we've come from and we're relatively small. So we need to make sure that what we do is right. And so we have described that as being highly disciplined, which we see is a good thing, but we also are very active. So just a reminder, you know, we have done the altruist medical deal. We've done the STEM deal, both of which we, we are absolutely delighted by and they really give us confidence. some future opportunities, optimizing geographic footprint, France, but also generating scale in places like Germany and Italy, which we're still looking at, still trying to do, making sure that the portfolio is sustainable, bringing in valuable products in the short term, and also understanding, particularly if we have, where we have OTC products, and particularly in the STEM sector, partnership, looking at additional retail sales channels, making sure that we're operating in the places that our customers are going to buy non-prescription medicines. Okay. Just as a reassurance here, supply chain, continued improvement and robustness of supply, people and culture, Salesforce capabilities, leadership development, new board, the things I mentioned in the summary. ESG, absolutely, we have our task force, it's operating. We're looking at material importance, stakeholders and group, recognise the importance of making sure that we're doing the right things in that ESG strategy. And from a technology perspective, Viva, the Salesforce customer relationship management tool is complete. And this year we put in SAP MRP for our supply chain team. Okay, just moving on to summary and outlook, and then we can come to questions. So animal health still attractive, some market moderation versus last year, but that I think is understandable. We're seeing it across our peer group. We know we need to make sure that we're agile and able to benefit from We see that the prescription medicines are a source of high future value. That's cost-effective. Identity care, notable drivers of that growth. All frost, good progress. We've got that strong financial platform. So when we find the right thing, we've got the platform ready to move. So we're really confident in that the business is resilient. I think it's a much better looking business if we're allowed to. describe it as better looking and wider animal health care markets continuing to grow and therefore you know we're confident in that return to growth for the full year so that's that's our sort of summary and outlook and at that point open for questions i'm going to look helen and see whether we've got okay max do you want to go first

Great. Can you hear me? Yes. Hi there, guys. Just a number of questions, actually. So maybe first on Daxacox, given obviously one of your key drivers and now one of your top 10 products. Can you give us a little bit more color on the performance? Obviously, you said it's greater than 50% growth, but last year you only had it in the market for a bit over six months. So You have expected good growth here. I wonder how much you now believe was stocking in 2021 and what underlying pull-through is. Just get a bit more colour on which I think you said Spain and Germany is doing well, but just get a bit more colour on Daxacox. That's my first question.

Okay. So in answer to your question about stocking, yes, there was stocking in 2021. I think it's fair to say that we had in a couple of markets, particularly the UK, we had a belief that the corporates would jump all over this, pick it up and sell it through. And that didn't come true. I think we learned a very good lesson, hard lesson. And so there was a lot of stock in channel. So one of the things that we've been focusing on this year is sellout. So really looking at replacing stock rather than using stock. And I can tell you that the sellout is growing every month. It's really healthy. You're seeing, you know, true use in market in 2022. So, yeah, greater than 50% is actually nearer 70%. But, you know, we're seeing that. In terms of what we're seeing, I think if you look at the marketplaces, The true innovators in canine osteoarthritis are playing with Librella, which we understand. What we're seeing is that from a pet owner perspective, where we're seeing good uptake is where people understand the once-weekly picks, and that's the real driver for it. It's like, oh, okay, I don't have to force my pet to chase it around with lumps of meat with a tablet in it. Every day, I can just do it on a Sunday or whatever day of the week it is. So that's where we're starting to see the good traction. Corporates are still tricky in the UK. Interestingly, we're seeing much greater traction in corporates in Spain, et cetera, for Dax Cox. So I think our big challenge in 23 is getting it into the corporates in the UK, and then I think we'll see quite a change. So that's where we are with it. Yes. So in summary, yes, there's a lot of stock in the channel in 21. That's starting to sell out now and additional orders coming through. So good progress. We know that the thing that really drives that is face to face interaction. So when we can get our reps in to see a customer and then back in to see a customer and then back in to see a customer, that's when it really starts to fly. So it's one of the challenges about us being relatively small. You know, our sales reps are – it's really important that they know who to call on, which is where Viva comes in. So making sure that we have that weight of connection with a prescriber to get it established as loyal – And then the next step is the next prescriber. So that's what's going on at the moment. It's really a Salesforce driven activity.

Great. Second question is on R&D, so I guess more for Chris. You talk about, I think, 2024 and beyond, 5% to 10% of R&D, which is quite a step up from current levels of R&D. How do you see margin evolution, therefore, in EBIT margin, given that step up of 200 or 300 basis points in 2020? R&D spares?

Good question. So when we talk about 5% to 7%, that's overall spend, and that includes CapEx. So if we look at what we're saying this year, which is about a million in the P&L, and I think in 2024 we're looking at something like 4% to 5% million of overall spend, then essentially we'd see the R&D, the R in the P&L level out. And it may fall down depending on what comes through the research collaboration. So I would look at that spend as more CapEx than OpEx or P&L. And therefore, I don't think it's going to have a huge impact on the EBITDA margin going forward.

Okay, that's helpful. And then just a couple more. One is on the underlying growth. If you took out the Spanish business and the distribution expiry contracts, did you say that those two combined were $4.5 million? Yes. So underlying the business grew, am I right in saying it's about 3.5%? Yes. OK, OK, good. Thanks for that clarification. And finally, I saw that there was a capital injection to the STEM business. Was that part of the original payment agreement?

Yeah, good question. So when we did the agreement, we agreed to put the equity injection in over a period of time. So this year, I think we've got the last one. So it's half a million a year, four years. So this year is the last one. So you'll see another half a million Canadian dollars.

And that doesn't change your ownership yet. There's another option to change your ownership.

No. So the only thing that would change the ownership in the agreement is the option. Well, we've got the option to go to 51.

Okay. Thank you very much.

Thanks, Mike.

I think it's Mike's next, isn't it? Hi, Mike.

Mike? Yeah, hi.

That's great. Thanks, Jenny. Thanks, Chris. Let's see. Yeah, so just a few questions from me. Just coming back to the very first comments, I think, that you made, Jenny, at the start of the presentation with regards to the distribution contract. I just wondered how that potentially informs your own product development strategy or to any extent that it does. You know, when you see potential risk in the future with products that potentially sit alongside your core portfolio. So I guess I'm asking how much of the product development strategy has to be almost defensive in nature, or even if you think in that way about new product development?

Yeah, so do we think about it that way? Yes, we do. But we think about it more in terms of balancing against the risk. So what we have done actually as a result of the loss of distribution contracts, which has happened over the past few years, we have actually looked at all of our distribution contracts to have a look at how much risk we are still carrying. And the risk is declining year on year. So we're down to about 36, 37% of our portfolio is now on distribution contracts. And of that, there are some great contracts that we don't have any concern about. There's a bit that we recognise could be at risk. So In a way, those two OTC products that we have developed as a short-term product development opportunity are really trying to respond to that risk because those are things that you can develop quite quickly. They're never going to change the world, but they're ours and we can get them out and we can get some revenue from them. In terms of the longer-term, bigger pipeline piece, that's just an absolute strategic, decision to go for novel, new, differentiated, sustainable, good quality. So I think in the next couple of years, we'll continue to do some more simple product development to offset the risk. But our main belief is that if you can get that Scots Implactive product

flying that will offset the risk as well so really what we're trying to do is manage that risk through that's got proactive and some short-term otc product development opportunities whereas the longer term is all trying to focus on game changes no that's great thank you for that and so then just thinking then on um on game plays and changes and think about all for us um what should we be expecting in terms of near-term news flow i mean are we getting to the point where we should see publications or conference updates while the development work continues there?

Yes. So we've been reluctant to be too public about it. I think the LinkedIn note that was circulated yesterday is probably our first foray. But now we're starting to get data. You will start to see scientific publications coming through with data. our partnership with Orthros, we'll start to talk about the science of it and why, you know, we're seeing the data that we're seeing. And then, you know, my view is that similar to, you know, a normal product development, we will start to, you know, flag when we're going into clinical, when we're completely clinical, when we submit regulatory, etc. Because I think those are the milestones that start to build real confidence in having a future product and what that future product might look like. So yes, I think we will start to see scientific publications coming through. I think there's one in progress at the moment.

that's great final one for me then uh on identica um and it's really interesting to see how that's progressing at the moment how long before we start to see this as evolved not as a standalone but you know there's a clearly discrete center of growth which can drive the top line and group margin i mean do we have to wait for the cat-chipping in the UK to drive a step change? You know, more external factors?

No, I think the way that this subscription business is going to develop is, you know, all the subscriptions we've got this year roll into next year with the new ones. So my expectation is, you know, in 23, we'll see a step change in this business, regardless of cat-chipping. I think cat-chipping gives us some tailwinds. But, you know, in the next two years, well, this year and the next couple of years, we'll really see the value growth in this and it will become just a really valuable asset.

I think, Mike, it's an evolution of what we've already done. The real value, as everyone knows, is a recurring subscription base that's got, you know, you're measuring long-term lifetime value now, aren't you, rather than what we've made this year. and I think on cap chipping, I think there's two and a half million, Defra said 2.5 million caps to chip. That needs to be done by July, so the expectation is that to get that done, chipping has to start this year, which we think will be largely led by charities, and therefore I think there'll be some volume that starts to come through, but charities aren't paying premium prices for chips, if that makes sense. But I think the market will be bigger, like with dogs, you know, you kind of go out, you do a catch up and then every new cat's got to get chipped. So I think, you know, the overall market increases once that's done. So that needs to be positive, you know, for people in that market. Got it.

Okay. That's right. Thank you.

Max, you've got another question?

Yeah, sure. No, it's just you've obviously said you've still got 36%, 37% of your business under distribution agreements, of which some come out. Are there any kind of key ones that we should be aware of for 2023 that might be at risk? Yeah, should we be aware of those?

No, no, not for 2023.

Anything else that when you look out there, are there other things that you're looking for that you may need to counter in the business through things like you talked about launching the OTC products and stuff like that for this year that we should be aware of?

Not in our assumptions, no.

I think it would be a left field. I don't know what left field was, but It sounds like something that comes unexpectedly. So I'll say, unless there's something left field, we're not seeing anything specific.

Okay. Great. Thank you very much. I'll do September max and it'll be like. I know. Left field.

But no, not at the moment.

Okay. Good.

That's great. My partner's taking a different market or changing. We did with Dan and honest.

Yeah. Different strategy. Yeah. Yeah. Anyone else?

Maybe just on the Danalon, whilst I've got you on the line, obviously you've now got that fully in-house. Yes. That's your own kind of product now in the UK. Is that a boost to margins for 2023? Does that help? Is that one of the sort of positive drivers for the business?

Yeah, so the thing about margins, and we're actually thinking, you know, there's lots of ups and downs in there. Everything we've talked about that. So if I look at, is it a boost to margin? Yes. I think identity care is a boost to margin. You know, that gross margin is about 80. So I think those are the kind of things where we're saying, you know, they help us, you know, maintain, you know, the positive progress that we made in 22 on margins while you've got some pressure on, you know, it's on corporates and those kind of things. So there's lots of up and down. But yes, Danlon's a very good margin.

Yeah. Good.

Anything else? Okay. Well, thank you very much. Yeah, thank you.

Let us know you know how to access us and if you've got any other questions that you want us to dig into. Other than that, I'll just say thank you very much.

Yeah, thank you, everyone.

Thanks, Chris. Thanks, Helen, for sorting us.