Animalcare Group plc

Good morning all. This is the Animal Care Group interim results presentation. Attendees are just filtering through now we've started. The presentation will be with Jenny Winter, the CEO, and Chris Brewster, the CFO. For questions, if you have questions, please hit the raise hand icon and that will show me that you've asked a question. I will then unmute you to be able to ask us.

Thank you.

Okay. So you're very welcome to this morning's presentation. As Helen very kindly said, you've got myself and Chris. I think from looking down the list, most of you are familiar with Animal Care Group. And so hopefully what we can do this morning is just give you a bit of an update of the first half for us and a bit of a sentiment for where we're going next. So Those of you who follow the animal health market will know that it's a pretty dynamic growing sector. We see it as quite competitive, but it's got really attractive long term fundamentals. Some key points that we see about the market in the first half of this year is we're seeing the market growth returning to what we would call more pre-COVID levels, which is really positive growth. but not quite the growth that we saw, which was really significant just during those COVID years. And so we see it as a real positive. It's a good place to be operating. For us, we definitely recognise that the companion animal part of the market, the dogs and cats, is definitely the main driver of the growth that we're seeing. And despite what you tend to read, particularly in the UK, more so than in any of our other countries, that pet ownership is becoming squeezed by inflation, we're not really seeing that. And you can see in some of the other animal health companies that they're seeing growth of pet ownership and growth in the spend per pet. So we also see that. And we're seeing a change in customer base. And here you're seeing different demands. We're seeing a bit more of a switch to OTC and certainly a bit more buying online. If you look at the pharmaceutical, the sort of prescription market, which about 80% of our business is in this piece in the market, we see that novel, innovative products are driving the growth. These are products that are sustainable for the future, that have, whilst they have competition, they don't have direct competition from generics. And so these are the products that are really driving higher margins. Particularly in the UK, we see a continued influence of the veterinary corporates. They all seem to be doing something slightly different, but we're seeing a bigger influence. And that for us is a positive and a negative. If you win in a corporate, you get the volume growth, but you tend to get it at slightly lower margins. So we see the influence of veterinary corporates in the UK as something that is a fundamental part of our business moving forward. We see some changes around Europe. There's some legislation changes in France. There is some appetite for growth from the corporates around the other countries where we operate. We're not seeing that in the same way that we see it currently in the UK. And as I'm sure you're all aware, the CMA is currently looking at the corporates, which we aren't particularly involved in. And that is going on in the UK at the moment. The final point is interesting because this is just a perception of ours at the moment, is that we kind of feel that people are waking up again and really starting to explore M&A of all types. So this might be distribution deals, license deals and full M&A activities. And so I think from from our team in the first half of this year, that felt like it was really gaining some momentum. So on the whole, we see it as a really positive place to be doing business, really excited about what the future might look like. For those of you who are less familiar with us, I think just as a reminder, you know, what are we? We're a profitable cash generating business with strong margins, low level of debt. And what this really means is that we have the financial opportunity and we have huge ambition to invest in both organic and M&A growth. And so that's that's kind of us in a nutshell and just wanted to remind people of the fundamentals of our business. These five things are the things that those of you who've been following us for a while know. This is now, we're five years into this. And whilst things change along the route and we're constantly flexing to make sure that we're working with the market dynamics, these five things are still the most important. Making sure that our finances are strong, revenue, cash conversion, EPS, et cetera, really fundamentally so that we can continue to invest in healthy growth for the future. Our portfolio is looking more attractive. What we and others see is that always at the bottom of our portfolio, you've got products that come out, either through greater genericization and price pressure, through changes in technology or in vet practices. Some distribution products go back to their owner, but we are compensating as far as we can, and we'll talk about that later, to move to higher margin, much more sustainable brands and products and services. And so that growth portfolio continues to be important for us. Business development. We'll talk a lot about this. This is really we see the opportunity for inorganic growth as critical for our future success. Our pipeline at the moment, we have a fairly limited pipeline and strengthening that is a real focus and will continue to be so. And we are continuing to make sure that we've got the organisation in the right shape to make the most of the opportunities. Just looking at highlights from the first half. We again have seen our margins improve. We've got one and a half percent improvement. And that for us is really important to continue that journey. Cash conversion has improved, reducing our net debt to 3.8 as of June 30th. And clearly, and you'll hear us talk about this time and time again, the reason why we have the strong financial platform is we are desperately keen and driven to find the right opportunities for future growth. We launched Plactive in 2022. We've had great response from the market. The reps in all our markets really love selling Plactive. We have Orizyme historically, which is still growing. And so this dental market for us is a really important place. We're looking forward to a good future with that. Identica, again, we're going to talk more about this, continues its strong sales and profit momentum. Daxacox is gaining prescribers in our direct sales markets. This is the once weekly non-steroidal. We see on the downside production animals have been affected by some phasing of orders. The production animal orders tend to be sort of big orders in the limited number of times a year. We're seeing a bit of that. We're also seeing some impact of generic competition in the production animal business. In Equine, the main benefit we're seeing is we took back one of our distribution products that was previously on distribution. We took it back into the UK. That's Danilon, and that's a really important driver for our UK business. From a business development, in the first half, we've been, as always, highly active. But actually, we've increased our activity in M&A and partnering opportunities. We've put more resources behind it. We're actually now that, you know, Congress is a normal and they're actually face to face again. We're much more present and we're seeing that the impact of that coming through sort of post the first half. where our funnel that we describe of opportunities that we're assessing is just increasing significantly. And for us, we know that if we can increase the number of products and opportunities, we're looking at the chance of landing one and being successful and bringing one through is increasing as well. You will have hopefully or maybe seen that our joint venture partner, Kane Biotech, who had a 66% share in our STEM joint venture, they are having a strategic review which could or may or may not result in a sale of their share. We actually have a very strong contract with, as part of that STEM JV. So we are also having a look at what opportunities this might give us. for future growth of the STEM products. So we see that as a really positive thing, depending on where Kane decide to go with it. Either they stay, either they sell their share, whatever the outcome, we are working closely with them and we're quite excited about the opportunity. In our pipeline during the first half, nothing very exciting to share in terms of actual detail, but I can tell you that we're really positive about the VHH antibody technology. This, for those of you who haven't followed our journey, is really a platform technology. I have some really, really exciting antibodies that have a number of potential of different indications. And we have two candidates at the moment. We're looking at a third. So that that's exciting. And to see that long term, it's a long term opportunity, but it's good to see the number of opportunities coming through there. And as I mentioned on the business development slide, we have realigned our resources. And so we've got more people out there talking about opportunities in M&A. And we also have just made sure that we're continuing to drive the organisation to be resourced in the right way to achieve future growth. So pleased with how the first half has gone and recognising the changes in the marketplace. So I'm going to hand over to Chris to talk in a bit more detail about the finances.

Thanks, Jenny. Morning, everyone. So hopefully you've had time to read the more detailed press release, but we'll start on a summary of the financials in the highlights on this slide. I think to kind of set the scene, as Jenny said, from our perspective, So pleased with the overall performance, which from a revenue perspective is against a strong 22 comparator, which was broadly in line with what we call an exceptional 21, which lots of the other competitors saw. We've drawn out in particular from a P&L viewpoint around the gross margin evolution. We'll come on to more detail. And importantly, the expectation that we'll return to revenue growth this year. From a cash and net debt perspective, as mentioned, we've got an improvement in our cash generation, which means that we've ended the period in a very strong financial position. And really, again, we'll talk a bit more detail about this, but that's really the underpin to be able to execute M&A. What we want to do is leverage the balance sheet to execute those. As we progress through the slide deck, we'll cover revenue down to EBITDA in more detail. We've got some more slides on revenue than before, but I'll touch on EPS and the dividend as we don't cover those later on. So on EPS, really the driver of that is the EBITDA movement that you can see on the slide. And then on the interim dividend, we're declaring 2p the same as prior years. Really, our kind of, I suppose, approach to the dividend is we've held the interim for the last few years and any changes we may or may not make to the dividend will be reflected in the final, once we know the year end results. So this is a kind of summary of the performance down through EBITDA. We can see at the headline that the revenue is down by 4% to just under 37 million. As I said, we've got a slide on each of the product categories, so we'll deep dive into more of the detail on that and identicare. But if I was to summarise that kind of 4% in a nutshell, So if we look at our own farmer operations, our sales are flat in there. And really, that was a combination of growth from recently launched products, so that Plactive and Daxcox. And as Jenny said, we've taken back down along in-house. So we've got the benefit of that being in our own portfolio now rather than through distribution. And that's really helped to offset some of the moderation in animal health market growth. and also wholesaler destocking, which has been a theme of, I think, some of the competitor announcements, and we've seen that in our business in particular in Southern Europe. If we pause there and just, I suppose, explain a little bit more our view on why we're seeing this destocking and, I suppose, volatility in kind of how the wholesaler buying patterns work, Our view is really there's three drivers that underpin this kind of, I suppose, dynamics we're seeing. One is inflation. So what you tend to see is where wholesalers are operating on lower margin. If there's some relative price inflations, they'll buy ahead of that uh cost the capital so the debt and the cost of debt's gone up as you all know and therefore their and focus on cash and working capital is becoming more apparent i think the third thing we're seeing which is a which is a kind of theme from the south is in particular spain is this consolidation of the distributor network and again that's meaning that you know there's bigger businesses that have perhaps got a bit more focus on cash so thought it'd be worthwhile just explaining a little bit of the dynamics around that um Excluding Danylon, our international partner business was around a million lower than last year. That's really driven by a couple of specific factors, namely order phasing. So as a reminder, the international partners is export. The export customers buy one, two, three times a year. They're buying batch, you know, pallets of stock. So they tend to be kind of quite volatile sometimes in terms of the order patterns. And then secondly, as we've highlighted previously, And before really in terms of the generic part of their portfolio, we have seen some generic competition. And again, I'll touch on a bit more detail on the production animals slide. And importantly, again, identity care has grown by 28%. And again, we'll come on to more details. On the gross margins, as Jenny noted, we're continuing to see a really nice evolution in the margins over the past few years. Again, drivers as before has been sales mix. So that real focus on the higher margin, bigger brands that we've continued to have over the last kind of three years when the fruits of that are coming through. Identicare is in there in terms of the accretion in revenue is largely driven by higher margin subscription services, for example. And then those two are coupled with pricing actions that we've taken from a sales perspective to recover or combat inflation, importantly, while maintaining our competitiveness in terms of where we position our pricing in the market. On SG&A very briefly, COP overheads are broadly in line with last year. The main feature of the half a million increase is people, predominantly around headcount increase in identicare in particular, and then salary inflation is broadly the balance. Okay, so I've got three slides on our pharma product portfolio. We've given the historical track record, so you can see underneath each of the charts on the left-hand side, there's some historical track record on the dynamics that will be useful to share. But I will focus on, you know, the H1-22 versus 23 in terms of, I suppose, the commentary around performance. To briefly set the scene, so this is kind of summarizing the box around how we see the segment. So companion animals has happened for a long time. It's the largest part of our business, around 70% of revenues. In line with the market, this is where we see this is the engine of our future growth. And to drive this growth, we'll allocate capital to invest in our own operations, so that's sales, marketing, people, innovation through R&D, and also M&A. If we turn to the specifics on the revenue, so you can see 26 million, so a touchdown on prior year. And again, you can actually see the peaks in the chart at the bottom. You can see the comparators in 22, which I think on a CER basis are broadly in line with 21. So Jenny mentioned the dental range, so that's Plactiv and also importantly Orizyne, which is one of our top five brands, has done very well. I think we're now market leader in Germany and Belgium, for example, so we're really pleased with how that's growing. Daxacox, what we're seeing there is that in our own operations, that's growing by a mid single digit at the half year, that's actually increased a bit post year end. as we continue to invest in the sales and marketing excellence around data cost to drive uptake. And those two items in terms of new product growth, they have been offset by wholesale and destocking. We've talked about that. And also some kind of, I suppose, dynamics in the generic portfolio, whether that's more innovative products or in certain areas as pricing around some of the generic portfolio. And then identity care is included in there, and we'll touch on that later on. On production animals, again, to briefly set the context of how we see this. So it is an important part of our business. It's about 40% of our southern European operations. So it's a kind of legacy, but important part of that business and also international partners. In terms of investment, really, we see this kind of part of our portfolio as maintaining what we've got. So maintaining the revenue. How do we do that? Again, through sales and marketing excellence, having specialised kind of salespeople. And we are looking at and continue to look at selective distribution opportunities to kind of maintain that portfolio. So it's here to say, you know, the objective is to kind of keep that around where we've got today. and driver of that revenue performance is centered around as i said before international partners um so the million the million that international partners revenue declined by is broadly the same as what the production animal portfolio is and again it's it's partly down to the sales order phasing but also some um generic price competition against one or two of our products and we've responded through sales price to combat that kind of potential risk on volume On equine, very briefly, this is a relatively small but highly profitable part of the market. And I think for us, given our scale, that's really where we can do well, because potentially some of the bigger companies aren't in there. And like production animal investment perspective, largely centred around equine. specialist sales and marketing resource. However, in connection with our wider R&D efforts, we are reviewing opportunities for novel and innovative additions to the portfolio. uh jenny mentioned very briefly that you know the main driver of grover is bringing danny long back in house um which was affected um at the back end of last year what we have seen is that the distributor got quite a lot of stock in channel at the end of last year so that that's that's had to unwind in the first half which is why we're saying that we should expect to see a an increase in in our selling um during the second half of the year as that that distributor start to unwind OK, I'm going to hand back to Jenny just to talk a bit more about IdentiCare.

OK, so we have talked a little bit about IdentiCare over the years and we are just becoming increasingly excited and pleased about some of the decisions that we took around Identi. So just to remind, this is sort of two bits. It's a microchip that goes into IdentiCare. Dogs, compulsory microchipping of dogs has been in for a while. Compulsory microchipping of cats is coming in and also equine. But the majority of the pets who are recorded on our database are dogs. Cats will quickly catch up. So this is predominantly a business where we collect the data when the pet is microchipped. And then that data is where we are now moving towards a really scalable, high margin, recurring revenue subscription platform. So in order to ensure you get your best possible chance of reunification with your pet, we offer a range of services which is based on a subscription platform. And these subscriptions, you know, are growing high double digit. It's a recurring business. So we're really excited about this. And so in the first half, its sales increased by about 28 percent. So it's about one point five million, which is which is clearly, you know, a small a small revenue at the moment, but growing very rapidly. And we reckon that that will accelerate in the second half of 2023. Just in the middle section, a lovely picture of Robert Diamond. But really, one of the things that we focused on for this bit of our business was making sure that it had the right leadership. And I think this is really showing what you can do if you get the right thought process and the right strategy in place. And we brought Robert in. He's a specialist in digital businesses. he uh we we always sort of have a a bit of a chuckle because we try and leave robert to do what you need to do for a digital business and it's interesting because there's a question about is it corn on the floor it's an animal health business it's absolutely focused on on pets um but it's it's not our prescription business and bringing robert in has been You know, really, really, really helpful. So we have great hopes for this in the future. It's a service business and very exciting. So that's a little bit on IdentiCare. We'll continue to share a bit more on IdentiCare now that it's established and repositioned.

okay so this is the last couple of slides from me we've got here so um this is just a summary of the housing cash side so cash conversion improved to around 50 for three percent um in the first half recognizing that last year obviously was was very low so we expected to see that increase and that's really driven by as you can see on the slide that the lower networking capital movement And the £2 million increase in our cash generated from operations is really the driver of that reduction in debt. And as we said in the announcement, our debt is predominantly now IFRS 16, the lease liabilities. So we're virtually debt free at the half year. So again, reiterating the kind of strength of the balance sheet. We mentioned in the statement that we are expecting to see cash conversion improve in the second half. I think the target for the four year is to kind of modestly improve on the 78% that we achieved last year. That is subject to the trading patterns and by that we do mean those kind of wholesale or distributor buying dynamics that we've talked about earlier. and then i think as we went through the last kind of you know the slides on on the business in terms of um kind of companion and production and then we'll be talked about kind of um you know where we're allocating investment so this is kind of a summary of that we i think we gave we gave something like this uh um two or three years ago but if we if we kind of summarize and again to set the scene essentially the driver post-merger when we were well over 2x lever was to get our debt down. And really that debt was being driven down by having a very strong cash conversion. So we've kind of got that target range of 80 to 100% and essentially creating the leverage to invest in the organic and inorganic opportunities in terms of BD and M&A. And so on the left hand side, as we've talked about, you've got really strong balance sheet that's actually improved again, you know, post year end. So really pleased with that. In terms of allocating capital, it's the cash we generate that we're going to invest in R&D. So all for us generally will come on to. And, you know, that reserves the debt and equity for M&A and BD opportunities. And again, you know, we clearly have a dividend policy of paying a dividend. But we've always said that, you know, that will be in the context of recognising the investment needs of the business. So I don't think there's any new news there, but just a reminder of, you know, that kind of overall policy.

And then just moving on naturally from, you know, Chris talks about the fact that we've got the capability to invest. And so, you know, that's really a key part of what we're doing and our activities on a day-to-day basis now. I think I mentioned in the summary, we are seeing an increase to openness to explore dealmaking. And this is at all stages. So bringing in products under license, M&A, Always sort of short term, long term. We're just seeing that. And it may also be a function of us putting a lot more time and effort and resources behind it in the first six months. And hopefully that continues. We've got a number of very active opportunities at the moment. But we are very disciplined. It's great that we have that opportunity through our low debt and our leverage. But we still recognise that we are often competing with some of the really large organisations. And so we know that we need to be really ambitious to try and get a great deal. But we also need to be disciplined because we have a limited amount of money to spend. A reminder of what we're targeting. We're really absolutely focused on things that strengthen our pipeline. So at the moment, we have we have lifecycle management for Dax Cox, for the Plactive range. We're doing some investment in new indications, new tablet sizes, new formulations for those products. And we'll continue to do that. And then in the launch later launch period, we hopefully will have some of the the all frost candidates coming through. So really making sure that we build a pipeline of products, both that are short term and long term. We're also looking to optimize our geographic footprint. France is clearly a miss for us at the moment, so we're looking at opportunities in France. But also in some of our countries, we're relatively small versus some really very significant and very exciting markets. Germany and Italy, for example, the market's big, we're very small. Can we find bolt-on opportunities in those markets? And we're also looking for bolt-on opportunities because we recognise that one of our challenges is really about scale. So what can we do? We've got a number of conversations going on in there. So really our focus is generating that sustainable growth in our portfolio, looking for products and organisations and companies. And we are we recognize that growth in the U.S. is is significant and we keep an eye on the U.S., but we also recognize that U.S. is a big chunk. And so it's not on a short term agenda, but certainly strengthening a footprint in Europe, strengthening our pipeline and making sure that portfolios is is sustainable. I talked briefly in the introduction about Kane. One of the really critical things for us is that when we established the STEM joint venture with Kane, we were very careful about our contract. And so we are very confident that the strength of our own contract means that the opportunities to maximise anything that comes out of Kane's strategic review of their participation. Actually, we see it as it's a win-win. We are confident that ultimately we can do what we want to do and continue to really drive the success of that jv with whatever comes out of the ultimate deal but it's been a great lesson in in you know focus on the contract when you first set it up and and we're we're very confident here that the outcome will be positive And not much to say on us for us. We're not sharing any preclinical data, but we're very confident and comfortable and excited about the early, early research. And clearly this is a longer term opportunity. And so we are monitoring very carefully and taking small steps. But those small steps at the moment are very positive. And so the two bits of this deal with Orthros, we have a licence agreement for two candidates and those are progressing through the development programme. And the research collaboration with Orthros has identified a third candidate that has some really exciting results. and we're looking at how we want to take that through to development. So that's a bit of work in progress, but the agreement's going well. And we're seeing more and more energy and excitement in this whole space of VHH antibodies and similar technologies happening. And so this is an important technology platform for us. It could go in several different directions. Early candidates were fairly clear where they would go. But we also see the third and potentially more candidates that will come out. So really important platform for us. And just in terms of summary and outlook. You know, you're seeing continued gross margin improvement, cash conversion, and that's despite what we see as a bit of an easing in demand growth across the markets post the COVID bump. Strong financial position, more resources now put into M&A and licensing. Focus on the growth opportunities, including Orthros, STEM, Identicare, And so those are those are all good, positive, sustainable areas for us. And so we we anticipate that the second half will be an improvement on the first half. So return to revenue growth and EBITDA in line with the market expectations. So that's the sort of end of the formal piece. I think, as Helen said, if you want to ask a question, we can't actually see. But hopefully we'll be able to see in a minute if anybody has any questions. Questions? More than happy to do our best to answer.

We have one question to start with, which is from Kane at Numis, which he typed up. Question is on the destocking. My understanding is that the wholesalers typically hold four to six weeks of stock. With that in mind, how far into this destocking do you think you are?

Yeah. Yeah. Yeah. So it does vary. So I think it's probably more. 46 weeks in the UK, I think it varies. So how far are we into it? For me, I think the continuation of that stocking, destocking kind of volatility, I think we're going to continue to see. I think the wholesalers are getting more sophisticated around. And we talked about things like inflation. So where we've got price rises, then they'll be trying to buy more in advance of that. So You know, when are we going to see the last of these stocking? Probably into next year, I think, is my – so I still think we'll have a bit of an impact in this year.

I think the interesting thing – so we look at sell-out data. So our sell-out data is what actually goes from the wholesaler into the vet – Or in some markets, it's what the vet's actually prescribing. So when we look at that data, you can see that there's growth in the sell-out from the wholesaler to the end prescriber. And in Germany, where we direct distribute, you can see that because we don't have the wholesaler in between. So my thinking on when do we see the destocking, the fact that we're seeing growth, in that sell out from the wholesaler suggests that at some point they're going to have to get back into holding stock. What I am aware of from talking particularly in Spain where the distributor market has changed absolutely fundamentally in the last probably three years, what you see there is that they're getting much better at using data to say which products they need to hold a different level of stock. So I think what you'll see is a differentiation of products that move really quickly. They might hold more stock, less stock. So I think that's what's driving it. But certainly we're seeing sellout growing where sell-in has been steady or declining. So how long they can last before they get to too short a stock hold, I don't know. But I think you're right, Chris, probably sometime next year you'll see a bit more normalised.

OK, next, Mike Mitchell. Mike, I'm going to unmute you and then we'll go to Max after that.

That's great. Hope you can hear me. Yeah, that's good.

Super, that's great. Thanks for taking my questions. Just following on then from the... From that commentary just on the de-stocking dynamic, which products in particular are you seeing? Are there any specific ones that you're seeing that are exposed in that category? in that phenomenon that you're seeing right now?

No, so I think it's more companion animal than production animal, because clearly production animal is a corporate market anyway, so you're essentially selling into, so it's more companion animals. On their specific product that we're seeing it on, a little bit probably more in the UK on where And corporates will get the wholesalers to hold safety stock. So there's been a bit of movement around the levels of safety stock they carry. But otherwise, it's kind of across the range, really.

Okay. No, that's great. So, yeah, I was just then going to ask us, of course, Decra's got sort of commentary about destocking earlier in the year. That was more of a U.S. phenomenon, but with a bit of a passing commentary on the U.K. So Decra. I know, Chris, earlier on in the presentation, you were sort of focusing more on Southern Europe. So I just wondered whether there was a sort of whether you're still waiting for a destocking dynamic to manifest in the UK or whether you're already seeing that. So whether there's anything unexpected yet to come through, but it sounds like you're already sort of. getting a grip, getting an understanding of what's happening in the UK market there.

Yes, yeah. And then obviously for us, Danny Long's in stock. So again, you know, it's higher there. So absolutely right. I think from a monetary perspective, I think from what we can see, it's more impacting the Southern European businesses.

Fantastic, thanks. Then just one final one for me just for now, just on the Identicare subscriptions, you know, just thinking about the sort of Commentary, the narrative that's going on right now about cost of living and how we're all apparently turning off our subscriptions. Not that my son's Xbox Microsoft Gold subscription is getting turned off anytime soon, apparently. But is there any flexing that you're having to do with regarding subscriptions there on pricing or introductory periods at the start of subscriptions? How much how much navigating this new model are you having to having to do with IdentiCare?

Yeah. I don't know the answers.

Yeah, so today, right, I think it's a good question. So I think it's in our mindset for the future. But really... what we're seeing is it's around the value rather than the price point description. So I think there was a lot of thought going into the price point. And actually, I think the price point has increased on some of the kind of, you kind of have a bronze, silver, gold type kind of tonight. So the answer is, have we responded yet because we're seeing subscription growth moderate due to cost of living and et cetera? No. where we may need to kind of flex our subscription, either pricing or offering as we go forward, then yes, I suspect that's going to be the case. But we haven't yet, because I think what we do offer is relatively unique at the moment in the market. And I think that's why Identica is really well positioned. I think we're doing things that, you know, our competitors are in the UK.

Got it. That's great. Chris, Jenny, thanks ever so much.

Thanks, Mike. Okay, we have Max up now, and I also have two questions from Jan van Tom, which I will give you when Max is done.

Okay. Hey, guys, thanks for taking my questions. I've got a few, so I'll go one at a time. So, firstly, just on Daxer Cox, obviously you've talked about – Prescriptions, but not really about revenues. I guess, is the issue share a voice given Librello's success from Zoetis? Is that really the issue? Why the growth hasn't necessarily come through as you had expected?

Yeah, I think it's absolutely. We launched into a COVID market where we couldn't talk to anybody, establishing new relations with our customers. And Librella had existing relationships with a product that they were able to move quickly. And our share of voice is much lower. I mean, it's hard to actually look at exactly what percentage of the Zoetis share of voice we have, but it is much lower. And so what we're doing at the moment is finding ways of increasing that share of voice. What we find is when people start to use it, they really like it. Being once a week is a great opportunity, all of those good things. But our ability to get to the customers at the pace that we need to get to them and get back to them is really what's limiting us. So, yeah, it's absolutely share a voice.

Okay. And then just in terms of the pipeline, obviously the Allsross deal is progressing well. Could you give us an idea of when you might get into like a registration type study or are we still quite a long way from that stage?

Yeah. In terms of the lead candidates, it should be sort of end of 24, beginning of 25.

For both of them? Or is there one leading the other? No, both of them. Okay.

Okay. Then just on M&A, obviously you've highlighted that, you know, you've brought down the debt levels in the business, you know, very successfully over the last few years. Just wondered where you see in terms of the buyer power for potential M&A. Obviously you have a large amount – gearing possible in terms of rcfs and stuff but uh not sure in this market how much uh there would be in terms of sensitivity to going over gear over to higher level gearing so just kind of interested in how you viewing the mna opportunities that you're seeing and that and and uh how much uh firepower you do have actually okay

So, Max, is the question centered around how far we're prepared to lever?

I guess that's part of it, yes. It's sort of what sort of size transactions could you potentially do just with your current borrowing capabilities that you're prepared to take? You've clearly got more than probably you'd be happy to take.

Yeah, so in terms of leverage, we've had that kind of one to two times target. I've kind of wrote on my notes, fortune favours the brave. And really what we're talking about that internally is that if you ask the question, would we be prepared to go a little bit above that for the right deal that's highly cash generative, you're going to be highly accretive, and what we can see as a pathway to delivering relatively quickly, then I think a view as a business is yes, we'd probably go a little bit above that for the right deal. In terms of, I suppose, size of deal, things we're looking at kind of range from probably low single millions up to maybe from a facility perspective plus equity, maybe in that 50 million range. So it's really quite a wide range. So I think in terms of that M&A, I think it's a leverage in equity play for the biggest size of that range.

Great, thank you. And then last question, just in terms of the guidance on EBITDA, obviously guiding to revenues being a little stronger in the second half or comparable, but returning to growth, I think is the comment. But the EBITDA are obviously guiding to a little bit weaker EBITDA in the second half than the first half. And I just wondered where you see the investment going in the second half.

So, yeah, so it's really centred around. So Identica in the second half, definitely in people. So Chief Marketing Officer example is a key on there. R&D, I think I said in the presentation that the R&D is difficult to see in our industry. numbers because of the way we allocate things, but R&D in the second half we think will accelerate, particularly in relation to the Orthros pipeline. And sales and marketing investment, again, I think, particularly in relation to things like that to Cox. we reorganize that well the kind of internal kind of reshuffling as jenny called it um uh where we're actually you know new coo um i think absolutely one of the the key kind of focus areas is um you know where are we tightening you know where we'll be too disciplined in terms of our investment in sales and marketing for example so so definitely sales and marketing

Great, thank you.

Okay, two questions from Jan van Tom. First one is, could you give some more details on the financial performance and expected performance of a STEM joint venture? And the second is, what is the expected impact on identicare of the mandatory chipping of cats next year? What percentage of cats are already chipped? Jan, I'm going to unmute you if you have any follow-ups.

So I'll kick off with the easier question first. So in terms of composing microchips for cats, the data is suggesting that about 60% of cats are chipped. I think that's based on CMA data, isn't it? And in terms of what it means for us, The revenue from microchipping effectively is a commodity, so low price, high volume market. So from a chip perspective, and I think a lot of this chipping will go through the charities. or be part funded by the charities. So in terms of, so we'll see, I think a big increase in volume of chips, but not necessarily coming through into sales, but where the opportunity is with identicare is what you do with that data and the conversion. The expectation is if we look at a kind of run rate conversion on a business as usual basis, logic is that these are people who are effectively being enforced to register their pet, probably have, you know, spend less on their pet than perhaps other people. And therefore, we do expect to get some benefits. subscription and service data from that, but probably at lower levels than what we would see from a normal course of business. In terms of timing, I think the legislation is coming in June next year. So, I mean, in theory, the kickoff should be fairly soon in terms of getting all those caps chipped in time. If there's anything like the dog microchipping, then it all kind of happened. You know, everyone left at the last minute. So I think it'll be more a feature of the first half next year on chip volume. Second question on STEM. It's a good question. And the kind of answer is from a financial perspective, I don't know at this stage. And that's partly because STEM as an entity has kind of repositioned itself in terms of what it is. um so i can't remember what's in the public domain from kane's perspective but essentially so the stem business um is made up of uh so it stem as an entity has retail rights everywhere at the moment um and what and then it had previously going into this year It licensed out the veterinary rights to us for everywhere else but North and South America, which is Decra. and essentially after a kind of strategic review the positioning of stem is yes there's a retail business there but probably in canada on your own because it's a kind of early to small market and but but getting penetration into the us um needs significant investment you know you're growing a brand so what we did is or what the business did is um start to do looks for some licensed partners in the US. So these are people who are a lot bigger than the STEM operation. And, and therefore, you know, I think the first license deal, I think Kane announced it was signed probably, I think it was in kind of early part of this year. So From a business model perspective, it's becoming a, I suppose, a licensing and partnering business rather than, I suppose, a standalone retail business with its own operations. As to what that's going to look like in the future, it's early days at the moment, so I don't know the answer.

I think we've always said from an animal care perspective, we expect the income from the STEM partnership to, to be a pretty significant part up in the top 10 of our products, probably in the top five, because there's various different sources of income stream. There's the royalties, there's the... you know, licensing deals. And then there's our own proactive sales in Europe and the rest of the world, which is what we talked about going really well. So, you know, we see there's a combination of different aspects of income from that deal. But again, it'll be in our top five, I'm sure, but whether it's Number one or two, I don't know.

Yeah, I mean, importantly, linking to that. Yeah. So I think when we went into STEM, it wasn't the focus was really around that being an extension to our R&D pipeline. And that's been you know, we've all said it's been relatively slow to choose. So I think in terms of that licensing and partnering business model, really what the focus is is is trying to increase that that kind of um the r&d um so and financially that from a stem perspective that means you know there'll probably be either more cash or more charge going into the next kind of couple of years that helped yeah it's a bit of a i recognize it's not a very yeah it's not very quantified but that's about

Yeah, I'm not seeing any other hands up. If anybody has any other questions, please indicate and I'll unmute you. Okay.

Helen, I think if there's no more questions, I think everybody on the call knows how to find us if you do suddenly think of something else. I'm more than happy to answer any additional questions you may have in the next few days. In the meantime, thank you very much. And thanks, Helen, for navigating our way through.

Sorry, I've just seen another one come up from Jan. What is the rationale for Kane to exit the JV?

I think it's really that they have really focused on their human indications for the technology. So they want to invest a bit more in their human human bit.

So that was their rationale. Yes, they're releasing funding for the human health part of their business. OK. Anything else, Helen? Sorry, nothing on the list and no other hands up.

Right. Thank you very much.

Thank you. Thank you, everyone.