Animalcare Group plc

morning. It looks like we've got a fair number of participants online, so we'll kick off. I think most of you know myself and Chris, so CEO, CFO, and we're delighted to be able to share with you our results this morning. Usual process, this is being recorded. If you have a question, if you put your a virtual hand up. And at the end of the presentation, Helen, who's helping us from Stifel, will unmute you and get you to ask your question. And we're more than happy to take whatever questions, but it's easier if we do them at the end on a virtual programme like this. So we'll get going. And again, thank you for joining us. I'd just like to start by reassuring those of you who've been very used to our five pillars that we haven't really changed our strategy at all. So we've just expressed it slightly differently just to pick up really the progress in the organisation. So what you can see here, the three boxes, we now talk about our organic growth. I think we used to talk about the portfolio. It's exactly the same strategic priority, really looking at developing and nurturing our existing veterinary brands. The inorganic growth, which we'll talk a bit more about because that is a really important part of our strategy, making sure that we are looking for the right strategically aligned opportunities for inorganic growth. And we'll touch on that a little bit more. Nothing's changed about that. Still geographic reach, building scale and strengthening both short, mid and long term pipelines. Moving on to the right hand side, new product development. So really for us, the inorganic growth is feeding the left hand side and feeding the right hand side. So feeding into organic growth in the next few years and feeding into new product development in the longer term. The other pillars, literally, we've just popped underneath. We are very pleased with where we've come to with our finances. We've talked about them being strong and actually strengthening. And in 2023, you'll see that they've strengthened even further, both in generating cash, but also in terms of management of debt. People, you know, we now have a highly capable team. We continue to invest in our people and you'll see that coming through in the numbers. And we've popped on operational excellence because Really, this business is now humming and it's got a really strong beat. So moving on to some of the highlights in 2023, you can see here that we launched Daxacox and Plactive. Plactive is continuing to grow really well. It's a growing market, really good reception for the dental products. Daxacox in our own direct markets hit double digit. And it's continuing to grow. We're going to talk a little bit more about a brand audit that we did last year. And then you can see in the numbers as we go through them, the equine portfolio benefited really from the return of Danilon that used to be out on distribution into our UK business. But it's providing a really strong core for our equine portfolio. In terms of inorganic growth, we continue to be highly active. In fact, In the last year, we've probably been much more active than we've been able to be before. And we'll talk about the disposal and identity care, which was a post-year event. But it really does crystallise the value that we get from something that was really not aligned to the rest of the business. We'll talk about that. In new product development, the all-thrust medical collaboration continues. This is a really exciting area. We're seeing more and more activity in this area with competitors and other organisations, and we're really pleased to be part of that exciting new area. And we've extended that programme actually to cover the equine conditions, which we hope will be a really good add-on to that licence. And actually, I've already talked about, and Chris will talk a lot more about it. Clearly, one of the things in terms of people, and you'll have seen in today's announcements, that Jan Boon, who'd been our chairman for the last seven years, which is a long term for anybody, I think, will be stepping down. And we ran a process and we looked at opportunities to continue to strengthen that. So Ed Tor will be succeeding Jan as non-executive chair. Happy to answer any questions on that. But I think many of you are familiar, Ed's been on our board and highly active as senior independent director, certainly for the time that I've been with the organisation. And just picking out something within operational excellence, I think the operational excellence is continuing to improve. You're seeing it coming to a margin in some of the activities. But we've changed our supply chain leader and he has brought Some really good experience from Colgate and GSKOTC. So we're really looking at opportunities to strengthen that supply chain, build the robustness. But also as a senior leader in the organisation, Alex Sugden, our new leader, is really adding value. So that was a real highlight for us in 2023. I popped this in for anybody who isn't familiar. particularly familiar, but most of you on the call, I think, are familiar with the animal health market. My summary is, you know, it continues to be a really attractive segment. You know, depending on which bits of data you look at, the global market's growing at about 5%. Europe probably is going a little bit ahead of that. It depends on what data source you're looking at. But whilst we continue to see some headlines about Those lockdown puppies are now, you know, people say they can't afford. We're actually not witnessing that in terms of the continued growth of the pharmaceutical part of this market. So, you know, it continues to be a great, great place to do business. I'm not going to spend any more time on this unless, you know, I'm very happy to answer questions at the end. But that's the summary. It's a dynamic growing market still. And we're really very pleased with the market fundamentals here.

Morning, everyone. What we'll do, so we've got the slide framework before, so I'll give a quick summary of the overall performance that's obviously detailed more in the prelim. So I think the summary from our side is really pleased with the overall performance, which saw the first thing was return to revenue growth following a strong second half performance, and we guided to that at the interims. continued strong progression on our gross margins through focus on our larger high margin brands and the benefits of that increase in gross profit. You'll see we've largely invested in our people base and R&D and Jenny's touched on some of the things around people already. Improved levels of cash conversion versus 22 and then leading from that at the end of the year, net of IFRS 16 leases, the business ended in a net cash position. We'll come on to you seeing clearly post-year REM with the disposal of Identicare, that's completely transformed that cash position. And we'll come on to more detail on the three core objectives that Jenny's run through in terms of how we're going to allocate that, I suppose, additional firepower to the strategic priorities around organic, inorganic and new product development. So a really kind of, I think, pleasing performance. Before I move on to more detail on particularly revenue EBITDA and cash. I'll cover two things on here. One is EPS. You've seen that's down to 10.9p, which if you look at up here now, EBITDA has increased marginally, operating profit is about the same, and profit before tax is about the same. So this is really in the tax line. So our effective tax rate has gone up to about 27%. We detailed the reasons in the prelim as to why, but just to summarise, the main reasons are UK tax rate increase during 23, and also we had a one-off benefit of a non-cash benefit of deferred tax in terms of tax losses last year. So 2023 is high. This is a guidance for 24. It will probably be in the low 20s in terms of effective tax rates, so return to more normal level. On the dividend, bottom right hand side there, so we've increased the overall dividend to five pence a share for the year, which meant that there's an increase in the final dividend to three pence. Just to kind of outline the reasons why, partly, firstly, is that we held the dividend over the last kind of few years flat. are now in recognition of the trading performance, continuing strong cash generation, balance sheet strength, and also confidence in the future performance. And that's going to be linked to later on in terms of how we allocate the cash from Identicare. So they're all the reasons why we've decided to increase the dividend. The policy remains unchanged. We'll come on to that later on. But again, our focus remains on in terms of capital allocation really around accelerating growth. So moving on to slide seven. So this is a summary of the underlying financial results down to EBITDA. So revenue up around 4% to 74.4 million. We've got a slide on each of the product categories to provide more detail. So in the meantime, I'll just summarize the overall drivers of that movement here. So a large part of the absolute growth was in companion animals, which is the largest part of our business, notably around new and recently launched products. In particular, we're pulling out Plactive there, which is the dental range that comes from our license through STEM. That's COTS, Jenny's going to touch on this later, but that's performed really well in our own operations. Identicare, which is included in companion animals, grew by 34%. So continuing the kind of trajectory we saw from the half year in terms of revenue momentum. And then Jenny mentioned earlier, the equine portfolio grew by 11% largely in relation to Danny Long coming back into our own sales and marketing control. On gross margins, I mentioned earlier, you know, this continuing evolution of strengthening our margins. So they're at 1.5%. That's a combination of positive sales mix towards a larger margin, higher brands, and also services. And by services, we mean identicare. coupled with what we term as targeted pricing measures to mitigate input cost inflation. And again, the theme there was largely COGS and logistics. In terms of underlying EBITDA, you can see that's marginally upon our year. And as I said, really what we've done is invested that kind of additional benefit from the increased sales and increased margin into our business. kind of three areas really there. People investment, so that's about one and a half million as we continue to focus around growing and developing the skills and the talent base that Jenny touched on earlier. I will note here, and I think we said this in the announcement, that there's been quite a significant amount of inflation. A lot of that's mandatory in certain countries. So about 40% of that one and a half million is inflation. We're going to see the same theme, perhaps a little bit higher in 2024. largely the results of some legislation that's come into Spain. So inflation will be a theme which we can see as, you know, continuing to invest in people. Commercial excellence, so that's sales and marketing, you know, an underpin of things like driving tax cuts and platitudes for the organic growth. And then R&D, so all thrust is early stage. So the costs at the moment are going through the P&L rather than CapEx. That will change as we go through that development pathway. So they're the kind of three areas. Those three areas in terms of investment and focus will be continued to be the theme, main focus of 2024. So again, we're planning to increase investment in all three areas as we move through this year. So three slides on each of the product categories. So At the bottom left-hand side of each of these, we've given the three-year track record just to give some people some kind of background if they need, but the focus will be on 23 versus 22. Before I move on to the financials, we've included in each of these slides how we see the segment I think we'll touch probably more on those later on when we come back to looking at strategic priorities and capital allocation but I think if we just cover up here because companion animals as I said earlier is about 70% of our business so in line with the market we see that as the engine for future growth and to drive that growth we're going to invest in our operations innovation through R&D and then a creative M&A and we'll touch on that more On the revenues, so this area was up 4%, and this year-on-year growth you can largely see on the bottom chart was delivered in the second half, so we had a really good second half here. In terms of key drivers, so the dental range, so the sales were up almost a million on last year, which is really pleasing. And also we've got a long-standing product called Orizyme, and that's one of our top five brands so that's the whole dental portfolio has kind of accelerated in terms of growth so Platte has brought along a product that's been around for a number of years so really pleased with that. Talked about Dax Cox so sales overall are broadly flat as a group but as I said the dynamic is double digit growth in our own operations offset by lower international partner sales I think Jenny touched on this briefly earlier we've undertaken a what we call a significant brand audit over the last 12 months. And really the results of that we're putting into play for 24. So the expectation is that across our own operations and also expert partners, we're expecting to accelerate growth into 24. So really exciting year for Dax Cox. Identicares in this product group, as we talked about, I kind of touched on, you know, the growth being over 30%. And that was largely through subscription sales. So chip volumes and chip sales are about flat. And really that recurring revenue base through subscriptions is one of the key drivers of the value creation that we'll come on to later in terms of the sale. So these are that. And then more broadly, I think we touched on at the heart here about some wholesaler stocking, the stocking dynamics. across certain parts of our markets. I think at the end of 23, we kind of think that's leveled out versus 22. So stocking channel, we think it's about the same. And we think, you know, that's normalised now in terms of, you know, that dynamic that impacted our first half sales. And finally, these positive contributions from Daxcox Blacktier, some new products as well, has been partially offset by the competitive dynamics that we always need to deal with across generic brands. There has been some cessation of distribution arrangements. And these are the kind of small low level ones that we would deem as kind of the less sustainable ones. So it's a little bit of this continuation of the kind of the product life, the kind of portfolio life cycle that we're looking at. And we have had some disruption in supply, particularly in the UK on certain products. large driver of that was transfer of manufacture. We expect that to normalise in 24. Production animals. I think just to remind that this is an important part of our business, particularly so South European operations and also the international partner network. And as a reminder, we're targeting to at least maintain revenues in this part of the business. And that's largely through sales and marketing excellence, and also selective distribution opportunities. On revenue performance, it grew by around 1%. Big contrast here between own operations and international partners. So direct sales operations grew by around 10%. That was largely driven by a nice new distribution product in Spain and actually growth of some of our largest selling brands including certain antibiotics that had a big fall off in 22. And in international partners, we've had some impacts of phasing of orders. So that part of the business tends to get, you know, one or two orders a year on certain products. So the phasing of those impacts. And also we've seen some generic competition on one key brand, in particular in Germany, which is under our export area. On Equine, very briefly, I think we've touched on this. So the driver of that 11% growth is Danylon. As a reminder, we brought that back into our own sales marketing control in the second half of 22. So obviously bringing back that in has meant that we've been able to drive, accelerate sales growth. And also that's had an improvement in our gross margins as well as obviously having it in our, in our business are now under control versus distribution means the margins tend to be better on that area.

Jenny. Okay. So we thought it might be helpful just to talk a little bit more about that's got some practice because those are clearly our lead drivers of future organic growth. Chris has already talked about that spot, 16% revenue growth, and it is a very competitive market. So we're really pleased with that, but not not as pleased as we would be if it was obviously much higher. So we've spent a bit of time with the change in the organisational structure with the COO in place, with some upskilling around marketing to really look at Dan a lot. And that's got sort of a very fine lens. So we're still really confident in the future. of Dax Cots. And in fact, I think in the last six months, we've become even more confident. So, you know, we know that this is a good market, increasing elderly dog population, prevalence of osteoarthritis is increasing and diagnosed more frequently. We also have seen There was a bit of market disruption in sort of 2020 with new drugs coming in for the treatment of arthritis, but the World Small Animal Veterinary Association, the WSABA, is continuing to endorse use of non-steroidals, and Daxacox is a long-acting non-steroidal, as really the standard of care. Well, the main thing about Daxacox is versus the other non-steroidals, you can give Daxacox once a week, and... I think when we did the brand audit, we realized that that message had kind of got lost. And so we've now got an absolute razor sharp clarity on the Daxcox USP, which is making life easier for the pet owner. And so that material and that focus for our sales teams is being rolled out now. We've got some new indications that we've talked about before. We've got some better, more suitable dose sizes for bigger dogs. And we've also got some work going on on acute pain, so post-operative pain, soft tissue injuries. And so those are just about to go into the regulatory process. In addition, with our partnership with Virbac, we've got a regulatory process for expanding the number of territories. I think there's just over 10 territories where we're submitting regulatory files. And those will come on stream over the next few years. So I think in 2023, we did a lot of work on that spot. And we've got a lot of confidence from where that work is taking us. So it's a bit of watch this space, really looking forward to 2024. We're already seeing a little bit of improvement in the uptake. The sellout data is really good. On Plactic, this was a product that took off as soon as we started talking about it to our customers. And as Chris said, in 2023, it increased by about a million. And we know that this segment is continuing to grow rapidly, 6% plus, depending on which reference source you use, veterinary segment. We know that the vets love these products because it really helps them to give their pet owners something that's immediately making a difference. Pet owners appreciate the fact that we have a range of products in this. We launch and choose to add to the range. New product development is progressing. We're looking at new ways to use the technology that's in Plactive that makes these products so special. And we are rolling out global distribution agreements. Just as a reminder, we have the rights to the veterinary channel across everywhere but the Americas. And so now we're rolling it out into some of those big markets in Asia, et cetera. And so we're in the process of signing those local distribution agreements. So, again, really excited about Placted. Just a question. We've talked a lot about how we've been moving the portfolio from a very mixed, generic portfolio into a better place. And so here, what we're just representing is, you know, on the top schematic, really, it fits a bit the sort of puppies at lockdown, because as those puppies age, they start to have different indications that take them into the vet. And what we're very confident about is the portfolio we have now operates in some of those big areas. So whether it's the Plactive in the dental area, whether it's Daxacox and the Orthrus collaboration around osteoarthritis, and whether it's some of those standard products that are used every day in every vet practice. So we're absolutely confident that this focus that we've had on our portfolio is really putting us in the important areas of medical need and also the lifetime stages of the pet. So we see this as a good opportunity for growth. We get lots of questions about the distribution products, and we set out as part of our strategy to reduce our reliance on what we term distribution products, but within distribution products, there's really two different groups. One is the sort of very standard distribution product that's on a short-term contract that is, you know, maybe lower margin. And over the past five years, we've really weeded those out. So our business, whilst we still have some distribution products that are important for us, most of the distribution products we have now are either where – where we have a long-term and sustainable license. So these feel like they're our own products. So we can take them away. We're really confident that we have those for a long-term future. So that boundary between owned, where we own the IP, and distribution, where we have long-term contracts, is sort of blurring a bit. And we're confident that we understand exactly where there is risk. It appears on our risk register, but we're much better at understanding where that goes. And the portfolio is also moving from that generic business that we had five years ago to the larger parts of our business coming from novel and sustainable products. And we've talked a lot about rationalising the portfolio and that is continuing to help with things like margin, our focus, allocation of resources. I'm just moving on to Identi, Identicare, which clearly was after the 2023 close. Those of you who've been with us a while and following us for a while know that we carved Identicare out from the main business. It really is a very different business to the pharmaceuticals business. And so we brought in specialist leadership. We repositioned the Identicare platform. And in 2023, we started to see that revenue and profit momentum following the carve-out that we did under Robert Diamond, who's the real specialist in this sort of retail digital business. We saw a nice sales increase. We were really pleased about it. What we found was that as the business increased, as people became more aware of IdentiCare, There was just an increasingly amount of interest in it. So from external sources, we just through 2023, that interest built. We ran a short process, ultimately recognising that there was this level of interest. And we're really happy with the deal that we did. We're looking forward to seeing what the team do in the future with the identity care business. But for us, the proceeds from that transaction really help to strengthen our balance sheet. It increases our firepower to invest in growth opportunities with those things that are much more core to our veterinary pharmaceuticals business. We're pleased with the valuation. We talk about being attractive. You know, actually for me, I think it's a very attractive valuation that we got for it. We're really pleased to have that cash to spend. And so we will be using that to invest in future business. So in our inorganic business. Okay.