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.

Okay. So I'm just going to come back to the cash and the cash position. I think as the headline says, you know, leading on from what Jenny just said, there's been a transformational change to our balance sheet. So I'm not going to spend too much time on explaining the bottom bridge, because obviously the net debt position, which is 1.2 million, including our first 16 leases, is clearly very different. You can see on the right hand side. I think at the time of the transaction announcement, we kind of estimated around 27 million of net cash. So what I am going to focus on is cash conversion. So if we kind of look at that table on the right-hand side, so as I said, you know, underlying the cash conversion improved on 22, which is kind of what we directed to, and that was really driven by a combination of a low increase in our net working capital and also reduction in the other items, some of that's tax and non-cash, et cetera. So that's led to around a million increase in our underlying cash flow from operations to 11.4 million. On the working capital, the net movement's really quite small, but if you have a look at the detailed cash flow, the actual movement in the constituent parts of debts, creditors and payables is actually material. versus that net change. So I'll touch on that actually a bit in terms of more about what we see going forward. So an overall level for 24, we're guiding on two things. One is continuing to target an improvement in cash conversion from 23. So we're guiding to around 90%. That factors in the disposal of Identicare. So Identicare, because of the subscriptions, had a high cash conversion versus this average of 86 here. But we're confident Tiki picking up on Jenny's point around our operational excellence and supply chain that we can, there's some things that we can benefit from going forward on working capital. On the constituent parts, I suppose the guidance is, so trade receivables we think will be broadly similar. So I think the phasing of sales we expect to be the same, largely driven by particularly towards the year end in terms of when we do price increases and some promotional activities. Inventories, we ended 23 in a lower than expected position. So we expect that to increase during the year, come on to the dynamics first half, second half. High payables, And also, just touching on, we touched on the effective tax rate in the P&L, and I said there that the cash taxes are higher. We expect them to come down in 2024. So the dynamic there on working capital is that there will be an increase, but all pointing towards a 90% cash conversion. In terms of profile, we are expecting to see that similar to what we've seen in 2023, which is an acceleration in cash conversions as we go through the year. So we will see a lower cash conversion, H1 versus H2. The large part of the H1 driver is this normalisation of what we had was low stocks at the end of 2023. On the left-hand side, I just wanted to touch on this very briefly. So we are coming towards the completion of a refinancing exercise of our revolving credit facility, which is due for renewal at the end of March 25. We're expecting that to be completed by the end of April, and we're going to tick up the RCF a little bit to give us a bit more firepower. So we're expecting to complete that by the end of 24.

So now that we've got that strong balance sheet and we've got some cash, just this schematic really represents the things that we're doing to really drive future growth. Obviously, promotion of existing brands, and you've seen from the EBITDA in 23 and also the impact for 24, we continue to invest to make sure we're driving those brands as hard as we can and really making sure that the organisation is an absolutely commercially excellent organisation. So a bit of investment there. The next three blue boxes we've talked about a lot. We are still looking to expand our geographic footprint. We're still looking for something in France. We're looking at opportunities to make sure that we consolidate our European footprint. We're also keeping an eye on the US, keeping an eye on Asia, but really looking to expand our geographic footprint. And it's interesting because you can see that our results when we have direct sales marketing operations are good. So we really want to make sure that we continue to expand that. We're looking at in-licensing late-stage assets. It's really clear that until we get all thrust through to the next stages, that our focus is on looking for opportunities that are immediately accreted, both in revenue and profit. So any product or company that can add in the short term to top and bottom line, that's really where most of our activity is. And then acquiring brands and companies outside of licensing or, sorry, the two options, licensing or acquiring, but making sure that we're just building that, but building that so that it continues to travel for cash. So that's really what we want to spend the money on. And, you know, that's the anticipation. And then future down the track in licensing early stage assets, we would, once we get all thrust moved a little bit further down the track, We will look for some more early stage assets and do the same risk management approach, very early stage, very low payments building as we get towards launch. And then also looking at some innovative new product development that we can do ourselves and we can look for opportunities there. All of those things driving to EBITDA growth. But actually, frankly, the real focus is on those blue boxes. geographic footprint, late-stage assets in licensing or acquiring. So that's what we're focused on. Just a little bit more about what's changed in 23. The big thing that's changed is that the velocity that we've got has increased. So when I talk about velocity, the number of products and companies we've been looking at, the number of products that we've decided or companies that we've decided are of real interest, the number of active conversations that we have ongoing, the number of product deals signed in 23. And also during 23, we participated. When you look at one NBO, it wasn't just the NBO. We actually had an NBO and we went into a formal process, went all the way through to DD. Unfortunately, we weren't successful, but it gave us real confidence that we were able to compete with the good guys. We were in play. it took up quite a lot of our time. So underpinning that, we are seeing an increased openness to explore different deal-making options, and we're doing some of that. It's interesting because when you look at the number of deals that were done, which was sort of a bit suppressed from previous year, but actually what we're seeing now is much more willingness to do deals, much more openness, probably partly as a result of us being out there a lot more, but also I think people are kind of looking for the next opportunity. Martin, who's been leading this now since last June, you know, he's out there, has the right connections. We're talking to the big companies about what's in their tail that might be suitable for us. But we are retaining the discipline around what we look at to make sure that we spend the money very sensibly. So we won't do a deal just for the sake of doing a deal. So as I've said before, strengthening the pipeline, geographic footprint. And we've had a real focus on sustainable portfolio growth. So even if it's a new product deal that we sign, we're looking for that to be a sustainable product that we have the rights to for a significant amount of time. And as we announced last year, in the middle of last year, Kane Biotech are looking to review their majority equity interest in STEM. That is still ongoing. We're watching with interest as to what Kane want to do. And so we're part of that conversation. But clearly, it's Kane who are driving that piece of the decision. Not much to say on North Ross as those of you who've worked with companies with early stage products. But what I will say is we are now looking into equines. There's some clinical work going on in horses. It makes a lot of sense. We like the equine business because it's for a business our size. The customer group is very clear. So equine specialists, it's a very clear segment of the overall veterinary practice. So it's a good area for us. We're having a look at the Orthros products in equine, and then we'll do the studies in dogs before the end of the year. As you know, we've got this ongoing research collaboration. We're just trying to get those first products through the license agreement first before we get too caught up in signing new deals. But we've got some studies going on on the third potential collaboration. So we're really pleased with how that's going. As I say, it's a really interesting area. Lots of activity that we're keeping up with. So it's a bit of a watcher's space. So there's nothing new to tell you. We will announce as soon as we have anything worth sharing.

Okay, so this is my final slide. So Jenny's outlined the strategic priorities around those kind of three core areas and also given some information on BD. So this slide's kind of moving on just to kind of give some information on how we expect to fund that strategy. And at the bottom, we'll just give an indication of our overall funding capacity as it stands today. So I'll do a quick run through down the capital priorities. So on organic growth, I think you've heard the theme of continuing investment in people and operational excellence. I think I would kind of summarise that as this continues to underpin what we've called strong foundations for future growth. In terms of inorganic growth, so no change here in terms of the debt capacity that we have, and we've talked about effectively There's the refinancing coming up and equity capacity where we feel needed is reserved for accretive M&A in the areas that we've talked about before, whether that's geographic expansion, late stage licensing, etc. On debt, we're maintaining what I would say is a disciplined approach to the bank sheet. So target leverage of up to 2x. And then if we take that on the basis of the ongoing farmer EBITDA with the cash in the bank today, then, you know, indications is we've got around 50 million of funding capacity to allocate to that area. So a significant amount of available facilities, etc. In terms of the pipeline costs, the underpin to increasing investment here continues to be that strong cash conversion we've talked about. That's why that continues to be a focus. And we are targeting to increase investment in this area to around 5% of revenues. That will largely be CapEx versus OpEx. We've talked about there is R&D going through the P&L at the moment, but as Jenny's touched on too, we'll tend to only have probably one key project on late stage assets, which is impacting our EBITDA. And then on the dividend, I think I kind of said right at the start about the policy, which is unchanged. So really, as you can see from this capital allocation slide, big focus around investing for future growth and value creation. What we've added here is a chart on the right-hand side to kind of demonstrate a couple of things, really, is that we've continued to return a dividend to shareholders. and so that's 12 million over the last five years. But in that time, which I think continues to generate the kind of strength of our free cash flow, we've also reduced debt by over 20 million. So in terms of this overall dividend increase, we think the business is in really good shape from a normal course of business in terms of cash generation to continue to fund a dividend, but with a primary focus on the three top boxes on that left-hand side.

So that's coming to the end. And just in terms of outlook, I hope that what you've seen today and we've been sharing with you, you know, we're really happy with where we've got to. We've got revenue growth. We're focused. Identicare, we believe, was a great deal. It was, you know, the right thing to do for the business. And we'll use that money very wisely. Orthrost is continuing. And there's a lot of excitement around that area. We've extended into the equine indication. And so in 2024, you know, continuing to push for profitable growth and cash and really setting up the investment in organic and inorganic opportunities. Because now that we have the firepower, as Chris talked about, you know, we're really clear on what we want to do and we are pushing hard to make sure that we continue to grow this business. So more than happy to take questions. I'm going to take guidance from Helen, who can have a look at who's got their hands raised and can unmute. So Helen, over to you.

Thank you. We have two people with their hands up. I also have one typed question from Lars Knudsen. Should I give you that one first and then I'll unmute Max? OK, Lars's question is, thank you for the presentation. I hear a lot of operational efficiency and improvement and higher growth of higher margin products. But still, you expect EBITDA margin to be down year over year. How does that add up?

So I think if we're looking at the forecast, one of the reasons on the EBITDA margin is identicare, because that was probably around where you can see it's about 50% EBITDA margin. So if we look at pharma versus pharma, we are expecting EBITDA margin to tick down a little bit this year. It's flat on higher revenues, but that's really the theme around that is what we've talked about is the investment. So it's the investment and a little bit of that continuing theme on inflation that means that EBITDA margin will downturn in 24, but we're expecting that to increase from 25 onwards. So 24 is really another big investment here for an identity care disposal of the two key reasons.

Okay. Lars, I hope that answers your question. Helen, do you want to unmute Max?

Yes, Max is unmuted now.

Hi, Max.

Hi, Jenny. Hi, Chris. Thanks for taking my questions. Firstly, just to understand a little bit on this price and volume in 2023 in terms of your revenue growth, because obviously we've been in quite a high inflationary environment and how that has impacted the business and how you see that going forwards. Secondly, you talked about in the release about having done a distribution deal in Spain. I think you've done another couple subsequent to that. So I wanted to try and understand. And you mentioned in your talk just then to the slides that your focus is on much longer contracts terms with those sort of distribution deals. So understand a little bit more on that. And then finally on Plactive Plus, clearly that's a surprise on the upside. compared with, I think, probably original expectations, it almost looks like it's going to be a bigger product than Daxacox at the moment. So try and understand, you know, where we could see that product going longer term, given the success. Thank you.

Chris, do you want to address the... Yeah, so if I understand correctly, Matt, this is around the revenue rather than the... Exactly, exactly. So I'm not going to give you absolute numbers because some of the data in the business is quite tricky.

I mean, Chris, to summarize, I think your underlying constant currency growth was 2.5%. You were in an inflationary environment last year. Does that suggest that it's almost all price? If not, you've seen a little bit of volume declines. Would that be fair to say or not?

Yes. So in terms of sales prices, you're right. So that continued probably mid-single digit. Volumes have declined, but that's largely partly in international partners where we've talked about that kind of volume decline there. And also in some of the lower margin areas of the portfolio, some of which has been impacted by that supply of disruptions I've talked about. So you're right. So overall, I would say some volumes have declined a bit overall, and the sales price is a large part of the driver, but there's also the sales mix in there as well.

Right. Okay. Matt, on the distribution deals, so I think we talked about three. We did one for production animals in Spain, which was a really nice add-on piece. And then two, one is we're now distributing Oral-Aid, which is a rehydration therapy, which is from a... business in Northern Ireland, and that's gone really well. And the other product that we signed a deal on last year is a product called Alpamil. And again, that is going very nicely. I think in terms of, you know, my comments about longer contracts, better contracts, I think we learned a lot of lessons from some of the loss of distribution contracts that we had historically. but also some of the quality of the distribution contracts. So I think many people are aware we have a legal counsel called Leon McElveen, and he has helped us to make sure those contracts are more sustainable. But also we're putting much more effort into the real truly partnering with people so that we don't have any shocks and surprises. So these new contracts are important. you know, longer, rolling, we've been careful about changing control clauses, et cetera. So just really a discipline about making sure those contracts are more sustainable. So that's the piece on there. And you're right, Plactive has been, you know, when we always have a range and clearly we share, you know, mid-range or slightly conservative sometimes, but Plactive has really been going well. A couple of reasons for that. One is it's a growing market. And secondly, our sales force love it. So they love selling Plactive. Frankly, it's an easier sell for them. It's less competitive than Daxcox. And so what we're trying to do is make sure that with the lessons we've learned from Plactive, a transfer to Daxcox and our sales teams becomes confident around Daxcox as they are around Plactive. But for me, it's one of those things that really shows the benefit of having that commercial excellence. Also worth remembering that Plactive doesn't have the long regulatory timelines that Daxcox has. So as we territory expand, whilst there are usually some regulatory process to go through, it's not a full prescription medicine regulatory process. So we anticipate that being a bit quicker. Now, if your next question was, how big could you see it being? I don't know today, you know, if I was to share the top of that range, but it's certainly going really well, hugely successful. And as I say, the business loves it. So, and as well as the vet, of course. But yeah, could it be bigger than Daxaclots? Let's hope, eh?

Thank you.

Helen, anyone else with questions?

Sorry, I have to remember to unmute myself so you can hear me. We've got Mike Mitchell. I'm just unmuting him now.

Great, thanks. Hi, Mike.

Mike's unmuted, but maybe you haven't unmuted yourself, Mike. I don't know.

Can you hear me now? Yeah. Hi, Mike. Fantastic. Hi there, Chris. Hi, Jenny. Thank you. No, great performance. And congratulations, of course, on the Identico deal. Just on the inorganic side of the story, I'm just wondering what the sort of day-to-day process looks like. I just wondered if you could remind us about the team that's tasked with finding deals, their background, where they're located. Are you going to add or do you need to add any more bodies to the team, given the greater cash resources that you've got there? And just to come back to that strategic priorities slide, Jenny, in that stepwise chart, you know, with the blue boxes, should we – infer anything from the ordering of those boxes. Do I take this as a form of prioritisation of strategy? I'm just thinking how the task is going to be tasked there.

Yeah, Mike, I'll pick that one up first, if that's all right. Ideally, we'd like something that covered those first three boxes. So, you know, we talked about one NBO that we did last year and got all the way down the track and that covered all three. So it isn't necessarily a prioritisation but we know that our ideal deal would deliver those three and something for the pipeline. So that's our sort of holy grail. As I say, we thought we'd found it last year, but we are picking ourselves up again and re-looking for that. But that's the holy grail. What we also recognise is that some bolt-ons would be helpful. So when you think about the how do we spend the money, the majority of that money we would like to spend on something that does all three. So really nice, big, big opportunity. But in the meantime, we would look for smaller deals that bolted on in any of those three areas. So whether it's a product that was ready to go, a business in Germany, France, Italy, where we're slightly under scale. So that's really either in licensing products or buying or licensing products from companies. So So not really an order of priority. Ideally, we'd like them all in one package, but we will do smaller deals as well. Does that, hopefully that helps?

Yes, no, that's really great. Thank you.

Just in terms of processing the people. So I think you're probably aware that we freed up Martin from all these other responsibilities last June. And Martin is really our man out there. So Martin's out there knocking down doors. He's seven foot something, so he's very good at it. But he's out there and he's a real networker. And it's very interesting in the last six months, particularly the number of people that Martin has been able to access. So in terms of the lead generation and who's out there, the main person is Martin. So he's been going to BMX, AHI, all of the key congresses, networking with the people in all the BD organizations in all of the big companies. They have a BD forum. So there's a very out there be present. And Martin is really the face of that. And then I was going to say behind the scenes, but that's not really fair for the role that she's doing. We have Sandra Singal, who's our product and business development director. And Sandra's role is more of a desk research role. And so Sandra is looking at things that she then points Martin out to go and interact about. And Sandra is really looking to try and make sure that we have things that are right for the market in the future. So she's doing more of a desk process piece. And so they're the two key people. And then we have a sort of analyst person, Anne Kreibig, who is supporting on both doing the commercial evaluations for things that Martin finds, but also helping Sandra to identify opportunities. So that's the sort of core team. In terms of process, we have a weekly, what we call the sport meeting, which is strategic project opportunities team. And that's the group that look at things, both whether it's a, hey, there's a really interesting business somebody's told me about. What do we think? What do we look like? What are the challenges? What are the opportunities? So that's what the sport team, that's a weekly process. We have a steering group, which is the broader executive team where we challenge, you know, either the forecast or the opportunity, how it would fit. And then I suppose Chris and myself, we brought in last year, I think you're aware, Lorna as finance director. And that was really so that we can use more of Chris's time on a lot of the financial piece and analysis. We brought in Maria, a COO, and that was really so that more of my time is spent out talking to people. And that has certainly happened. Clearly, Chris. has been introduced. Lorna's only been with us full time since January and it feels like she's been a lot longer, but clearly with the audit, the annual report and all of the activities that go around today and the moving into the AGM, we haven't had quite as much of Chris's time, but I think with Lorna now on board, that will help. Certainly my time is spent. You also asked a question about do we need more resource? We have continued to contract in resource at whatever stage we are at. So if it's a, that's an interesting business, how would we construct the deal? And we use this a lot for the MBO that we submitted last year and that whole process through DD. We contract in experts. So most of our experts seem to come from AZ, can't think why that is, but we've got some great people who we call upon to help us at those times. So we've got that in place. Do I think today we need some more resource? I think we're well positioned. I think as the COO and the finance director help, and it frees us to up a bit more, but we will certainly keep that under review as we move forward. And the time when we will need some more resource, and whether we choose to bring it in on contract or we actually bring somebody in, is when... when we get some of these opportunities that we're talking about to their next stage, because what we are very aware of is For example, last year when we were looking at the major deal, it sucked everybody in. And actually what we realized when that didn't come to fruition was that the whole target generation, the whole process of going, analyzing and assessing and moving forward had sort of stopped because everybody was sucked into that deal. So I think that's the piece that we recognize we need to be really aware of. But today we haven't got a plan to bring, we haven't allocated another headcount, but we hope that some of the work we did last year will really help to free up resources to do more of this.

Sorry, Mike.

Yeah, no, that's fantastic. No, that's really helpful, Jenny. Just one final one for me then, just pre-identity care. I think my view of the development platform for the group as well was that it was very useful to have third parties or collaborative or research partnerships where you pivot off the external expertise of another party, as well as jointly investing. Does that still apply now? Or, you know, now given the cash resources, are you much more likely to consider bringing that sort of expertise in-house?

It's a really interesting one, and I don't think there's one size fits all. But certainly one of the things we have ramped up, which I should have said earlier about the process, is our use of external experts and advisers. And I think one of the things we recognize is that we have limited expertise. And so if we were to bring something in, you know, thankfully, Sandra's got good biologics expertise, so can work with the orthosteals very well. But, you know, if we get into some of the other areas, we would probably need to bring additional expertise in. So I think it'll be a mix, to be honest. The partnering piece, I think, works really well when you when your partner's good. And so getting that right at the start, I think, you know, and STEM's been a really interesting learning process for us. and you know wherever that ends up going you know we've learned a lot from how that partnership works and what you need to make sure you put in place but also working with this group of advisors has started to help us to to work out where it's right to partner where it's right to jv and where it's right just to buy in i don't think i wouldn't i wouldn't rush to buy something in if we didn't really understand it i think it's great if you can find a partner who you can work closely with fantastic thanks jenny thanks chris

We have another question from Kane Slitskin. I'm just going to unmute him.

Hi, Kane.

Hi, guys. Morning. Can you hear me?

Yes.

Lovely. Quick question, guys. I sort of noticed, of course, you talking about sort of the focus on larger, certainly more profitable brands and that's sort of helping companies. I'm just wondering, and apologies, I did arrive late, so apologies if you've already shown this, but you used to give that sort of slide or a percentage of revenue coming from your top 40 brands. I'm not sure if you showed that earlier. Where are we on that? Was that about 75% to 80% of sales, if I recall, last year? And how has that portion of the portfolio grown versus sort of, I guess, the overall growth or the X sort of portion? Yeah.

Yes, yeah. So the slide's not in there, Cain, but I can give you the kind of core details. So in terms of the top 40, yeah, it's about 80% of overall sales. And as we've seen in the past, the growth is higher in that part of the portfolio, logically, than the rest. So I think if we talked about, you know, broadly 4% growth, then the top 40 was growing probably between 5% and 6%. that's where we are now and again that's bringing in new products as they enter the top 40 so is a big driver okay thanks guys okay and then we've got a couple of minutes i think any any others i've got no other hands showing right well i think everybody knows where we are and what we're doing and um you know if you do come up with any other questions please do feel free to

contact us and we'll do our best to answer. But thank you very much for your time and attention and for some good questions.