Animalcare Group plc

Good morning. Hopefully you can see the presentation and hear Chris and myself. So let me know if not. I've got the attendee list open, so hopefully somebody will flag if there's any challenges. So welcome to the Animal Care 2024 interim results. Looking forward to sharing with you the progress that we've made in the first half of the year and we continue to make since the end of June. For anyone who's not very familiar with animal care, this is really just to articulate the strategy, the three pillars of our growth from left to right. Organic growth, that is our existing brands in the portfolio. That's new and existing. We always talk about new being products launched in the last three years. Inorganic growth, this is all the activity that we're doing to build our future products. and our new product development. And those three areas are really the fundamentals of our business. In terms of the underpins for our business, strategically, we absolutely have to have strong finances, and we've made a lot of progress there in the last five years. Our people, we are very focused on making sure that we have a highly capable team. We haven't got a lot of people, so we need to have the best team. and making sure that we continue to build capabilities and processes to exploit the opportunities that come our way. So in terms of highlights, the highlights for the first half, commercial delivery, you'll have seen from the notes and the results that we released today, that we continue to see progress in all three areas. In terms of organic growth, We're particularly pleased to see that both Plactive and Daxacox have been doing well. In fact, in our markets where we sell and promote Daxacox ourselves, it's up a little bit higher than that. Overall, it's 41% and Plactive. And as those of you who know us well know that those are our two leading products. We're really focused on those. We'll talk a little bit more about those in the depth of the presentation. We continue to see Danilon benefit. We brought Danilon back in-house in the UK in particular. That's an equine pain product and it's continuing to see good growth. And actually in production animals, we've got a 14.3% increase in revenue. And this is a really important part of our business, continues to deliver. And we're looking now at opportunities to strengthen that. It's predominantly in our southern European countries. In organic, I guess, in terms of the first half, the main piece is the disposal of denticare and our disposal of our minority stake in STEM, which has really increased our deal making power. We see those two really good examples of us, of our strategy in action. Both of those are decisions that we took that help us to focus on our core business. In new product development, we're progressing with our VHH antibodies. This is such an exciting area. We're seeing more and more of our peer group companies get into this area. So it's a very exciting, exciting opportunity. We're still continuing to do some preclinical work. We've also been in the clinic over the summer with our VHH antibodies. So that's a really exciting area. We're also expanding indications and territories for our key products. That's got some Plactiv. We can talk a little bit more about those. And we're preparing to launch two new products, plus actually some line extensions on that's got some practice in 2025. So pretty busy in all of those three areas. In terms of strong finances, we see that balance sheet has just been transformed by the disposals and we're now looking very actively at growth opportunities. We've really focused our efforts on M&A, BD and new product development. And actually, since Ed came on board in June, July, as our new non-executive chair, I have to say from a personal perspective, that's been brilliant. It feels like we've really ramped up that M&A, BD area because of Ed's significant experiences with DECRA over many years. And really, that's been a great opportunity for us to continue to drive that agenda forward. Commercial excellence we can talk a bit more about, but really making sure that we're operationally highly effective is key to where we're going. So in terms of those of you who follow the animal health market know that this continues to be a really good market to be in. It's really hard, we find it quite hard to get consensus on the actual sales growth I think even in the last week, we've 7% growth, 9% growth, but we think there's an average of about 5% sales growth from the top 10 animal health companies in the first half, which is slightly ahead of the first half in 23. The companion animal sector does remain the main driver of growth, but we're also seeing growth in both equine, and for us personally, we're seeing growth in the production animal sector, although the production animal sector is a little bit more balancey. We are seeing high levels of pet ownership, despite the news of pet rehoming being up, but we don't see that in our business. We see pets being presented to the vet. Vets are really busy. We continue to see some change in customer base. This is predominantly relating to the corporates, but what we have seen in the first half of this year is is because of the UK CMA review, we've seen the corporates changing pace a bit and really looking a little bit more inwardly about how they're managing and trying to deal with the CMA review. But we continue to see demand for our products through the corporates. If you look at the marketplace, the really big growth areas are for novel, innovative products. So those are definitely driving growth and commanding higher margins. These are products that absolutely show a differentiation from what's available out there today. And when you look at our peer group companies, the same as us, we're looking to get into those markets rather than in the area of the market that will always be subject to either price competition or technology advances. So I think we're seeing it's a really good place to be, attractive long term. And actually, across the board, we're seeing more appetite for M&A of all types. So it's very active M&A, been a very active M&A for six months. Not so much in actual deals done, but in terms of the number of deals that have been discussed and coming to fruition. And Chris, to give the details on the finances.

Good morning, everyone. Just before I start going through the financial performance, I just thought I'd begin by clarifying the basis of the presentation of the financial results, because you've obviously seen that that's changed quite significantly versus how we presented normally. And this is really around... This bit of continuing and discontinued operations. So just to be clear, in terms of the figures on this slide, all of the profit and loss figures are from continuing farmer operations with the comparatives like the like. So we've adjusted our identity care in both periods. What I've done that hopefully helpful is in the back of this deck, in the last slide of the appendix, the pro forma P&L for 2023 full year. So hopefully that helps with, one, just seeing what the full year was like last year. And secondly, there's an anchor and a reference point to the consensus forecast that we put into the R&S. Just to note, STEM is not discontinued, so the income that we get from the licence which remains is the same, so the equity is a non-underlying item. And then the cash conversion, you can see on this slide, does include identity care, but there was only two months of trading, so the difference is immaterial, so we'll focus on that. In terms of headlines for the first half, so JLM really pleased to report organic growth of 5%. That's 7% of constant currency. I'll talk a little bit more about FX in a bit. You can see that's at least in line with the market based on those top 10 animal health company performance, which is about 75% of the market. I've already used that reference point. Continued positive progression on gross margins, largely through sales mix. Significantly improved levels of cash conversion versus last year. So as I said, we're on track for delivering the four-year target of 85% to 90%. Generally noted, clearly transformational change in our balance sheet was about 33 million of cash on the balance sheet, excluding leases. Linked to that funding capacity, you've seen that we've refinanced our RCF post-period end, and we've now got those facilities out to 31st of March, 2029, so that all adds up to the firepower we've got from M&A and BD. And then finally, we've noted that we've seen the continued positive performance we've seen carry on through Q3, as far as we're through that so far, and therefore we're expecting FY24 results to be in line with market expectations. As previously, I'm going to cover areas in more detail apart from underlying EPS. So we'll just touch on that there, and I'll touch on the effective tax rate while we're here because there's been some changes to forecast. So in terms of EPS, that's down by around 5% versus prior period, and that's all in the tax framework. and we can see that there's an effective tax rate 27 is a lot higher than that here the main reasons for that are the increase in the uk tax rate and also we've seen lower innovation reliefs in the period so where we're going to from a full year basis is that based on the forecast and assumption we've got around geographic mix of profits by territory we're expecting the etr to be broadly in line with what we can see here for the half year um going forward, we expect that to normalise, and we think our normalised rate will probably be about 23, so that will come down from 25. So just very quickly on this slide, so revenue, again, I'll cover in more detail, but some headlines, so up 5% to 37 million. FX has impacted revenues, as we can see, by around 2%. I don't know, we expect this to be a feature or potentially an increasing feature for the full year. GBP Euros kind of just hit the 120 mark. So just to give some guidance on FX impact, every cent movement, GBP Euros has an impact of around a million on the top line and around 0.2 million on EBITDA. And at the half year, we had about a 2% difference on average. That's where we're seeing that. So we expect FX to be a feature of the full year. In terms of overall growth in revenues, I would say it's broadly 50-50 mixed between price and volume at CER. Volume growth incorporates around a million of new products or recently launched product revenue, and that's predominantly in companion animals. On gross margins, as I said, we've had a 0.5% improvement. Really, that's this continuing focus around the kind of larger and higher margin brands. Platinum and Dax of Cox are clearly contributing to that as it's down along. Just to touch, we continue to see Cox inflation. Certain we've actually agreed to take to improve shortage supply in terms of a couple of key brands. As historically, where possible, we're mitigating this inflation through selective price increases, and we've broadly covered that cost inflation in the first half. On underlying EBITDA, hundreds above last year, at 6.6 million, overheads are up by 8%, and principally around two areas, so people. In there, I think we know we guided at the four-year that there's some quite significant inflation in certain areas of our market, Spain in particular, which has been government-led. So there's broadly 50-50 in terms of the people increases or inflation, and the rest is investments in particular commercial excellence of supply and then marketing. And we can see some of the benefits of that marketing investment in some of the growth that we've seen in some of the key products like Daxcox and Platte to begin with. Those investment areas continue to be a main focus for remainder 2024. 2025, we're expecting inflation to ease a bit. Therefore, from a people perspective, it'll be more around investments rather than inflation. I've got three slides on revenue performance, so we'll start with companion animals. Again, just to confirm, all of these figures are have been effective on an adjusted basis, so they're continuing only. So the three-year track record that I've got at the bottom left-hand slide, so they've all been adjusted for the keen people who look at last year's, so they're all excluding identicare. So hopefully, again, this helps with getting a feel for how this business has performed over the last three years. So we can see revenues are broadly flat. To start with the positives, Jenny's noted that's Cox's. an increase of around 40%, which spans across both our own operations and our international partners and international partners, our export customers. If you recall, the export part of our business actually declined last year in terms of GATS costs, so it's pleasing to see that that's come back with our partner, as well as continuing growth in our own operations. If we were to point to why on our own operations, I think the feeling is the success is down to the more internal factors and external factors in the market we haven't seen change. So really bringing together the sales and marketing operations, I think, is really driven, you know, sales and marketing excellence and the benefits there. Dental range. So we have Platinum, and then we have also, we've talked about it really previously, Last brand of ours called Orizyme, that's toothpaste. Both of those continue to grow strongly. Platinum obviously higher as it's still going through its growth curve. And combined dental sales for the pair are over 3 million. So what really kind of, you know, getting some traction out in that dental franchise. Jenny's going to come on to a bit more detail later about some potential areas of extra investment that we're going to make, notably in relation to the change in our license that we had with Stem on the deal with Decro. These positive contributions to revenue growth were offset by what were umbrellaing a supply disruption, and that's impacted three areas. One is later-than-expected deliveries to our export customers. Secondly, we've had some outstarts of certain products in our own operations, notably UK and Germany. We've seen some of the impacts of those unwind during COP23. Hence, we've seen growth accelerating companion animals. So it's growing versus the kind of flat at the half year. We've also seen an impact from supply in terms of delaying new product launches. So some of those have been later than expected, and actually some will be into the part of next year now. Unproduction Animals, as Jenny said, had a really good first half, so revenues up 14%. The growth, again, is spread geographically, so as Jenny noted, our own operations are largely around the south, and then in our international partners, that growth spread across a number of our larger brands, so Dill again is a good example there. We've also seen some one-off competitor out of stocks benefit. And as a result of that, what we're guiding to is we expect four-year growth to be, you know, in the mid-single digits. So we'll see growth soften in the second half of the year. Finally, on equine, so this, I mean, for us, this is a, a small but growing and profitable portfolio with the leading brand that's generally noted in Danylon. And Danylon was, again, one of the key drivers of the growth, but we've also seen some growth across other brands within this part of the business, notably in our fluid range. We're building the Danylon brand outside of the UK. That's about 90% of the Danylon sales. So we've seen that we've... We've done some territory expansion across three territories and we'll start to see a benefit of those coming into next year.

I was just going to cover up a little bit more about the portfolio. Before I do, I did forget to mention that if you do have any questions, we'll take them at the end. If you raise a hand, we can come to you with questions. So just a reminder on that one. So in terms of where we are with the portfolio, a lot of the work that we've done in the past, we're very comfortable with where that leaves us and where we're moving to. So we have got a mixture in the portfolio, which is, I think, a good thing because it gives us the balance across the portfolio. So we've got some really mature products with strong brands and differentiation that continue to grow. Chris mentioned Orizyme, Danilon. We have a product called Dinaldene. And those products... continue to be really the mainstay of our existing portfolio. We also have worked very hard on making sure that we have more products in our portfolio that are what we described as owned and long-term licenses. These are effectively either the products that we own the IP on or licenses that actually are evergreen, nobody can take them back. So that's now at about 65% of revenue. I think it's moved from around 50% a few years ago. The other big area for us, similar to our peer companies, is we're moving our portfolio from generic towards novel products. So we're very conscious that we've got some great generic products in our portfolio and we will continue to support those, but we're very keen to make sure that we're moving to novel products such as tax cost proactive as a larger percent. And the other encouraging thing is that recent launches, so in the last three years, are now accounting for about 10% of revenue, which is an indicator of how we're trying to move forward to gradually grow this business and compensate for where there may be price competition or technology advance. So 10% of revenue in recent launches. And just on the right-hand side, there's a bit of a reminder that in this market, particularly in companion animals... you see that the life expectancy is increasing through, a lot of the time, improvements and advances in medical care for these pets. We have got an increase in pet population. So that's driving the opportunity to value over the lifetime of the pet. And we are actively looking at those areas on the right-hand side, dental care, obviously, some of the things around ear infections, stomach upset. We're launching some products in that area next year. Kidney disease, heart disease, thyroid, arthritis. So we're very active in those areas that are growth areas, giving us an opportunity. We are not playing significantly in the parasitology vaccines area, which those of you who are looking at companies in that area, you can see that there's quite a lot of movement in that area. But we don't play there. We're not investing in R&D. So really... We recognise that our volume growth is being driven by generics, so more pets being treated. The value growth is really being driven by innovative and novel medicines, and within that, things like X-Cops.