REG - Eco Animal Health Gp - Final Results for Year Ended 31 March 2020
ECO Animal Health Group plc (''ECO")
(AIM: EAH)Results for the year ended 31 March 2020
ECO REPORTS A RESILIENT PERFORMANCE
HIGHLIGHTS
Financials
· Sales 7% higher at £72.1m (2019 restated: £67.3m)
· Gross margin consistent to within 1% (2020 46%, 2019 47%)
· Increased R&D investment results in adjusted EBITDA 33% lower at £8.4m (2019 restated: £12.5m)
· Earnings per share 65% lower at 3.82p (2019 restated: 10.86p)
· Strong cash generation from operations of £5.5m (2019 restated: £7.1m)
· New product development expenditure 17% higher at £10.9m (2019 £9.3m)
· Net cash lower at £9.8m (2019 restated: £16.9m)
Operations
· Demand for Aivlosin® continued to grow strongly, with two new marketing authorisations gained in Europe and Indonesia for breeding chickens and laying chickens, respectively.
· Strong revenue in China in second half as market recovers from worst effects of African Swine Fever (ASF).
· Sales growth and margin recovery in the USA as trade tensions between the USA and China recede.
· Two new poultry vaccine collaborations signed during the year with the Pirbright Institute.
· Transition to remote working and COVID-19 safe working seamless and uninterrupted
· Continued corporate governance improvements.
Marc Loomes, CEO of ECO Animal Health Group plc, commented: "These results reflect a solid recovery in our key markets, particularly in the second half of the year and we have continued our investment at record levels in new product development. We are proud of the Group's ability to seamlessly adapt to safe working during the Coronavirus pandemic. We are confident that our development programmes will deliver exciting new products which will augment the natural growth from current products and sustain long term growth. For the year ahead we expect to report profitable growth and to perform in line with the market expectations."
The information contained within this announcement is deemed by the Group to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). Upon the publication of this announcement via a Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.
This announcement is the entire text of the Annual report and Accounts for Eco Animal Health Group plc, except for the Corporate Governance Report, Directors Report and Strategic Report. The Annual Report is published today in its entirety on the Company's website at https://www.ecoanimalhealthgroupplc.com
Contacts:
ECO Animal Health Group plc
Marc Loomes (CEO)
Christopher Wilks (CFO)
Andrew Jones (Chairman)
020 8447 8899
IFC Advisory
Graham Herring
Zach Cohen
020 3934 6630
N+1 Singer (Nominated Adviser & Joint Broker)
Mark Taylor
Iqra Amin
020 7496 3000
Peel Hunt LLP (Joint Broker)
James Steel
Dr Christopher Golden
020 7418 8900
ECO Animal Health Group plc ("ECO" or "the Group") researches, develops and commercialises products for livestock. Our business strategy is to generate shareholder value by achieving the maximum sales potential from the existing product portfolio whilst investing in Research and Development ("R&D") for new products, particularly vaccines, and seeking to in-license new products.
CHAIRMAN'S STATEMENT
FOR THE YEAR ENDED 31 MARCH 2020
This has been a challenging year for our business. The combination of the ASF outbreak in Asia and the USA trade war with China particularly impacted our business in the first half of the year, although this was partly offset by very strong performance in other parts of the world. Performance in the second half of the year saw substantial recovery in revenues from the USA and China. The net result was revenue ahead of the prior year but below our internal budget.
The ECO Board is confident that our R&D portfolio has the potential to deliver major value to our shareholders and so despite the lower than budget top line revenue, we decided to maintain the budgeted increased investment in R&D to keep our portfolio progressing towards commercialisation.
This has resulted in a reduction in our immediate profits in the 2019-20 year, but we are confident this will be more than offset by the growth in long term value of the company through progression of our R&D portfolio.
We have decided not to pay a dividend for the financial year 2019-20 in order to maintain cash reserves at a prudent level, particularly in the light of the economic uncertainty arising from the COVID-19 pandemic, and to build value by continued investment in key R&D programs.
The Board places the highest priority on good corporate governance. We have taken several actions in this important area during the year:
· We appointed new auditors and undertook a major revision of the application of accounting standards across our business and we are now confident that our approach is fully compliant and reflects best practice.
· We recruited a new, highly experienced CFO and have significantly expanded and strengthened the finance team. We have also established an internal audit capability.
We have worked with a major city advisor to thoroughly review our key codes and policies and procedures and to institute training programs where needed.
We made significant changes at Board level during the year including the addition, shortly after the year end, of a new and highly experienced Non-Executive Director. The board now has a good base of experience and skills to lead the Company from the current period of challenge and change through its next stage of development and value-based growth.
We are disappointed that the release of our annual results was delayed due to the scale of work needed for the audit combined with the restrictions in working associated with COVID-19, but believe it was essential to enable completion of an extensive and thorough review of our accounting policies and statements with our new auditors.
This is my first statement as Chairman, having succeeded Richard Wood in August 2019; I am grateful for his leadership and implementing various change initiatives.
I started my report by noting that is has been a challenging year for the Company. I am hugely grateful for how the Board, Executive and wider ECO team have risen to the challenges, delivered a strong performance considering the conditions and have kept motivation and energy to keep ECO moving and developing value. Finally, I sincerely thank our shareholders for their patience and much valued strong support through this period.
Current trading and prospects
Performance in the current financial year ending 31 March 2021 has been strong with the strength seen in both our Chinese and US markets towards the end of the last financial year continuing into the current financial year. In October 2020, we announced that the revenue performance in the first six months of the current financial year was "significantly ahead of management expectations and the prior year". We also advised that notwithstanding the historical second half weighting to the Group's revenue, if these revenue trends continued through the second half of the financial year the Board expected that the Group's full year revenue for the year ending 31 March 2021 would exceed market expectations. This resulted in an upgraded market expectation both for revenue and profitability
On 24 November 2020 we confirmed that strong trading had continued during November and, being mindful of the continuing global uncertainties and four months remaining until the end of the financial year, we were confident of meeting the upgraded market expectations.
On 21 January 2021 we issued a positive trading update, confirming Group revenues and EBITDA were expected to be significantly ahead of market expectations for the year ending 31 March 2021. We noted that the strength in the Chinese market, supported by the rebuilding of pig herds and the high price for pork, continued through the third quarter and the outlook for the final quarter sales continued these strong trading trends.
We look forward to the rest of this financial year and our reporting prospects for 2021 with continuing optimism.
Dr Andrew Jones
Chairman
3 February 2021
CHIEF EXECUTIVE'S REPORT
FOR THE YEAR ENDED 31 MARCH 2020
I am pleased to report that ECO demonstrated considerable fortitude during a particularly challenging year for the Company. The impact of African Swine Fever (ASF) in China which then spread into neighbouring territories, the ongoing tensions between Washington and Beijing and the onset of the COVID-19 pandemic presented significant challenges to the business. The determination, dedication and resilience of our employees combined with the value of our product offering delivered a strong second half performance during the year ended 31 March 2020 with results for the full year being in line with the adjusted market expectations.
Operational Review
Global revenue grew by 7% to £72.1 million illustrating the value of ECO's global footprint, with sales generated in more than seventy countries, in the face of significant headwinds, and the commoditised nature of pork and poultry production.
Sales of Aivlosin®, our patented antimicrobial which is used under veterinary prescription for the treatment of economically important diseases in pigs and poultry, increased by 16%, accounting for 84% of total revenue.
Sales of the smaller Ecomectin® anti-parasitic range at £4 million, increased by 7% and represented 6% of the Group revenue.
Sales of all other products were £7.5 million (2019 - £11.4 million) and mainly comprised a range of supportive antimicrobial products for pigs in China.
The China revenue from external customers declined by 17% reflecting a year of two remarkably different periods. In December 2019, we reported for the six month period ended 30 September 2019 ("Interims") that the well-publicised effects of the ASF outbreak in China provided significant headwinds in our largest market whist noting encouraging signs for the second half of the financial year with a reported reduction in the rate of new ASF outbreaks in China and an indication of some restocking of pig herds by certain high value producers, including some of our customers. These early encouraging signs were supported by rapidly rising pork prices resulting in a strong second half ("H2") with revenue ahead of the prior year. Our Chinese subsidiary has focused on the respiratory health of replacement breeding sows whose numbers at the major producers have increased rapidly in response to the pork shortage and very high pork prices. The high value of these sows and their offspring has enabled the subsidiary to secure the business of an increasing number of key accounts.
Revenue in Japan rose by 16%, driven again by growth in the swine business to large producers.
North American revenue from external customers increased by 10% reflecting the growing importance of Aivlosin®'s low yet effective dose rate and short treatment duration in medication protocols as veterinarians and producers adhere to responsible use of antimicrobial guidelines.
In the USA, revenue was 22% higher, reflecting a strong H2 performance. The first half had been marred by China-USA trade tensions which had left US pig producers with limited ability to capitalise on the anticipated export market created by the pork shortage in China which led to overproduction of pigs with depressed prices and margins. The strong H2 was marked by better pork prices linked to global supply shortages brought about by ASF in China, an increase in commercial activities by a strengthened sales and technical team during the autumn and winter months armed with adjusted customer incentive programmes for the year 2020. Canadian revenue fell by 11% largely as a result of restrictions imposed by China on Canadian pork imports. These restrictions were lifted but the poor first half performance was not fully recovered in the second half of the financial period.
Latin America revenue rose strongly by 17%, with the Brazilian and the Mexican subsidiaries up 80% and 23% respectively, reflecting the benefits of ECO's key account management approach and the development of strong partnerships with local third party distributors in these two key markets. Argentina delivered a record result and important tenders were again won in Cuba although these results were tempered by challenging market conditions in Central America and other Latin American countries such as Columbia and Peru.
In South and Southeast Asia, revenue was 75% higher. Thailand was the best performing market with Aivlosin® on all major account approved product lists resulting in both swine and poultry revenue growth. New business was won in Malaysia resulting in almost a doubling of sales over the prior year. These two outstanding performances were moderated by extremely challenging conditions in India, where the poultry market contracted significantly amidst a transition to a more consolidated integrated market with higher quality standards and away from an informal market characterised by small producers, and in Vietnam and The Philippines, both affected by ASF.
European revenue declined by 4%. Aivlosin® sales were strong in key markets such as Spain and Poland although overall revenue into continental markets fell slightly.
Sales in the United Kingdom, which represent just over 2% of global revenue, rose 25%, across all products, led by strong Aivlosin® sales during an outbreak of swine dysentery.
In Russia, an increasingly active exporter of meat, revenue was affected by disease outbreaks in swine and in poultry although market share gains were made with the most important customers. The previously reported delays to the inspection of manufacturing facilities and laboratories by the Russian authorities have been resolved.
Sales in the Rest of the World declined by half a million pounds to £1.2million reflecting in equal parts a declining presence in South Africa and softer demand in Middle East and North Africa.
Product Research and Development
The Company's early stage research and proof of concept development activities are outsourced to leading research institutions and universities with later stage full development work managed in-house. This model mitigates the significant costs associated with in-house laboratories and owned research functions.
Product Approvals
Two Aivlosin® for poultry marketing authorisations were received. The first, from the European Medicines Agency (EMA), allowed ECO to market Aivlosin® 625 mg/g Water Soluble Granules in Europe for the treatment and metaphylaxis (control) of respiratory infections caused by Mycoplasma gallisepticum in breeding chickens, whilst the second allows the use of the same Aivlosin® formulation in chickens laying eggs for human consumption, with a zero day drug withdrawal period for eggs in Indonesia the most important market in Southeast Asia for laying birds. The Aivlosin® approval for high value breeding chickens will, like the commercial layer indication, be rolled out to the multi-million dollar international poultry markets.
Pipeline
ECO is building a significant product portfolio pipeline with a mix of well-established concepts and novel, highly competitive technologies, and approaches with the emphasis on vaccines and other new products to complement our existing antimicrobial business. The pipeline is focused on providing solutions to respiratory and gastrointestinal (gut) diseases of major economic importance in pigs and poultry. Two worldwide exclusive research partnerships with The Pirbright Institute, United Kingdom were signed in September 2019 to develop novel poultry vaccines against respiratory and systemic viral diseases in commercial chicken flocks globally. Several additional new proprietary concepts and third-party opportunities entered ECO's product development screening programme during the year. New product development expenditure in the year rose by 17% to £10.9 million (2019: £9.3 million) and is being continued at a significant level in 2020/21. This will ensure that we have several mid and late stage projects able to deliver early revenues from 2022/23.
Covid-19 Impact
ECO transitioned smoothly to home working during the final weeks of the year building on the new ways of communicating with customers developed during the ASF outbreak and without losses of efficiency. Outsourced manufacturing and the Group's supply chain operated smoothly through the year end.
Brexit
ECO's EU marketing authorisations have been transferred to the European subsidiary, ECO Animal Health Europe Limited registered in Dublin, Republic of Ireland and all our Brexit contingency plans are in place. The financial and operational impact of Brexit is expected to be minimal, particularly given the recently announced trade deal between the UK and the EU. ECO's sales to the EU (excluding the UK) represented 8% of total revenue for the year.
People
I would like to thank all our employees for their extraordinary levels of energy, engagement, and professionalism in addressing the challenges of the year. Individually and collectively their ability to innovate and to adapt combined with sheer hard work underpins these results and ECO's prospects.
Marc Loomes
Chief Executive Officer
3 February 2021
FINANCE DIRECTOR'S REPORT
FOR THE YEAR ENDED 31 MARCH 2020
Introduction
I was delighted to join ECO in September 2019 as Group Finance Director.
It has been a significant year of change for the Group. In addition to the many commercial challenges faced by the Group during the year such as African Swine Fever in China, USA-China trade tensions and, in the latter part of the financial period, the advent of the COVID-19 pandemic, we have continued our journey of improvements in governance. These improvements have been previously signalled and were introduced in last year's Annual Report. During the year ended 31 March 2020 we appointed new external auditors (this is their first audit report on ECO), we established a new internal audit function, overhauled much of the control environment around the group - in particular around financial controls and processes and, with the assistance of external professional advisors, moved the governance agenda forward, particularly in relation to the group leadership and the Board. The financial control environment has been significantly strengthened - specifically in relation to custodianship of assets, banking and cash. These actions protect the business and individuals working within the business with customary segregation of duties and multiple authorisations. From a finance and governance point of view we are now well positioned to support the strong growth the Group is experiencing and driving.
Prior Year Restatements
One of the results of the changes described in my introductory comments was to consider the accounting policies adopted by the Group previously and to review the implementation of IFRS across the Group. In a number of areas, technical non - conformance with IFRS was identified and in other areas, interpretation of the relevant standard was considered to have been incorrect. As a result, in our interim report, released in December 2019, we published extensive prior year restatements, describing the nature of the adjustments and their financial effect. Those restatements form part of these Financial Statements and have been audited for the first time. The principles of the prior year restatements are as previously described and fall into the following categories:
· Accounting for revenue in accordance with IFRS15 - revenue recognition and accounting for sales discounts (note 3.1)
· Accounting for expenditure on research and development - in particular the portion of expenditure which should be capitalised under IAS38 (note 3.2)
· Accounting for our Joint Arrangements in the USA and Canada under IFRS11 (note 3.3)
· Accounting for bonus payments on an accruals basis (note 3.4)
· Accounting for leases under IFRS16 (note 3.5)
· Accounting for foreign exchange (note 3.6)
· Accounting for Free Goods Incentive (note 3.7)
· Accounting for share based payments (note 3.8 and 3.9(Company only))
The notes to these accounts describe these changes in detail.
Audit
As stated earlier this was the first audit of the group performed by BDO. This also coincided with a period of remote working and lock-down amidst COVID-19 affecting the world. This added some distinct challenges to the audit task.
The first and most obvious challenge was that, except in China where COVID-19 was ahead of the initial European and US impact, the auditors were unable to physically attend our year end stock takes. Attendance at stock takes is a fundamental audit test. The Institute of Chartered Accountants in England and Wales suggests that auditors seek alternative means of satisfying themselves in the event of being unable to attend stock takes. Notwithstanding that the Group's stock is held at third party warehouses (and third party certification of quantities on hand was provided by these warehouses) and there was no indication that the valuation of inventory was incorrect, the audit opinion is limited in scope regarding inventory. The stock take was attended in China and therefore this limitation in scope qualification is in respect of stock held elsewhere in the group and amounted to 82% of the stock value (£14 million).
The effect of the prior year restatements, described above, was to reduce profitability in the year ended 31 March 2019. Accordingly, our new auditors considered that the materiality threshold to which our previous auditors worked (£757,000) was no longer appropriate and took a decision to reduce it. As a result, BDO have performed a re-audit of the statement of financial position at 31 March 2019. A significant balance within this statement of financial position is the net book value of Intangible Assets representing the accumulated capitalised and amortised costs historically incurred by the Group. These costs are in the main related to the development and commercialisation of Aivlosin® and Ecomectin®, the Group's main families of marketing authorisations. The capitalised net book value of these intangible assets at 31 March 2020 was £22.9 million and the revenue during the year ended 31 March 2020 derived from Aivlosin® and Ecomectin® was £64.6 million; the net book value of these assets was therefore only about one third of the annual revenue derived from their usage. However, in order to verify the original costs within the net book value of these assets our auditors required evidence of costs dating back to 2004. The Group retains invoices and records from third parties for seven years in line with statutory practice but, unfortunately, we were unable to provide some support for the audit sampling requests prior to this. In addition, for expediency, it was decided that provision of evidence to support the audit would be confined to the trading periods being audited. As a result, BDO has further limited the scope of their audit opinion in respect of Intangible assets. The net book value at 31 March 2020 relating to costs capitalised more than seven years previously (and therefore the element of audit sampling not able to be supported by physical invoices) was £8.4 million.
Trading
During the year ended 31 March 2020, ECO recorded its highest second half revenue weighting to date being 60% of the full year revenue. This compares to an equivalent second half weighting in the year ended 31 March 2019 of 55%. Year on year the second half of this financial year was 18% greater than the prior year reversing a shortfall at the half year and resulting in an overall revenue improvement for the year ended 31 March 2020 of 7% compared with the year ended 31 March 2019. The primary driver of this strong second half performance was a recovery in China (from the effects of African Swine Fever, described in our Chief Executive's report) and strong performance in the USA. A geographical analysis of revenue is as follows:
Revenue Summary
Year ended 31 March
2020
2019
% change
(£'m)
(£'m)
2019 to 2020
Restated
China and Japan
23.1
26.8
(14%)
North America (USA and Canada)
11.6
10.5
10%
South and South East Asia
14.2
8.1
75%
Latin America
12.6
10.8
17%
Europe
7.6
7.9
(4%)
Rest of World and UK
3.0
3.2
(6%)
72.1
67.3
7%
Revenue from China in the second half of the year was £14.4 million compared to the equivalent six months ended 31 March 2019 of £12.4 million underlining the recovery in that market. Trade with India (included within Asia in the above analysis) softened towards the end of the financial year, however the rest of the region including Indonesia, Malaysia, Thailand and the Philippines continued the trend set in the first half of the year resulting a year on year increase in Asia of 75% becoming the Group's second largest segment this year. The thawing in trade tensions between the USA and China resulting in strengthening swine market conditions in the second half of the year is also evident in the second half revenue from the USA of £5.8 million (2019 - £3.6 million). Latin America, and in particular Brazil, continued to benefit from pig exports to China, resulting in buoyant commodity prices and a consequent strong market for the Group's products. Europe benefitted from pork exports to China, in particular from Spain.
Gross margins at 46% in the year ended 31 March 2020 (2019: 47%) were reasonably consistent and represented a strong recovery from poor first half margins (43%) - this being associated in the main with improvements in the USA.
Overheads, at £28.3million were significantly greater in the year ended 31 March 2020 compared with the year ended 31 March 2019 (£21.8million). The greatest contributors to this increase were expenditure on Research and Development, employment costs and foreign exchange movements. Expensed research and development expenditure increased from £5.8 million in the year ended 31 March 2019 to £8.8 million in the year ended 31 March 2020. This increase of £3.0 million reflects the nature of the earlier stage projects being undertaken (and therefore expensed to the income statement) particularly in respect of vaccine development as well as an overall increase of 18% in the cash expenditure in R&D. Expensed employment costs increased from £9 million in the year ended 31 March 2019 to £10 million in the year ended 31 March 2020. Whilst the staff numbers reduced from an average of 217 in 2019 to 204 in 2020, the amount of capitalised in house labour in research and development also fell resulting in the greater charge to the income statement. The foreign exchange loss in 2020 amounted to £0.5 million whereas a gain of £0.7 million was recorded in 2019.
Total cash expenditure on research and development in the year was £10.9 million (2019: £9.3 million). This expenditure was expensed to the extent that it related to projects at the research phase and capitalised in accordance with IAS38 to the extent that it related to projects in the later stage (development phase) of the project life-cycle. The total cash expenditure in R&D can be analysed as follows:
Year ended 31 March
2020
£000's
2019
£000's (Restated)
Research expenditure - included in administrative expenses
8,775
5,868
Development expenditure - capitalised in intangible assets
2,115
3,477
Total cash expenditure (excluding employment costs)
10,890
9,345
EBITDA is considered by the Board and the Group leadership team to represent a key performance measure; the removal of amortisation (which is a significant annual non-cash charge to profits) and depreciation provides a good indication of the underlying trading performance of the business. The EBITDA margin (EBITDA expressed as a percentage of revenue in the period) was 11.6% in the year ended 31 March 2020 compared with 18.5% in the year ended 31 March 2019. This reduction arises in part from the small reduction in gross margin (1%) as well as the increased investment in R&D, referred to previously.
The Group continues to benefit from a low effective tax rate. In the year ended 31 March 2020 the effective tax rate for the Group was 19.8% (2019 - 12.3%). The historical low effective tax rate is largely a result of the significant R&D investment on which the Group receives tax credits. These tax credits continue but in 2020 a prudent assessment has been taken of the likely taxes due in foreign jurisdictions carrying a higher tax rate than the UK and no account has been taken of the likely benefit that will accrue from "patent box claims". Historic tax losses result in zero tax payable in the year. Discussions with HMRC will commence concerning the tax treatment of the prior year restatements; the accounting treatment to expense previously capitalised R&D investment may result in a reduction in prior year taxable profits. No benefit of this tax re-computation has been recognised in this Annual Report.
The consolidated cash position in the Group has declined from £16.9 million at 31 March 2019 to £11.9 million at 31 March 2020. This consolidated cash position at 31 March 2020 includes £5.3 million (2019 - £4.0 million) which is held in the Group's subsidiary in China. A portion of this cash is repatriated from China once per annum by dividend declaration; the Group's share which is received in the UK is 51%.
The cash generated from operations was 23% lower in the year ended 31 March 2020 at £5.5 million (2019 - £7.1 million) which fell less than the lower profitability due to better working capital management. From operating cash, dividends of £8.4 million were paid in September 2019 and investment of £2.1 million in capitalised development costs, together with income tax paid of £1.1 million, acquisitions of tangible fixed assets (£0.8 million) and other sundry cash movements (£0.2 million) resulted in an overall net cash draw down of £7.1 million and the lower cash balance at 31 March 2020.
Post balance sheet event
There have been no material post balance sheet events to note.
Christopher Wilks
Finance Director
3 February 2021
INDEPENDENT AUDITOR REPORT
TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEAR ENDED 31 MARCH 2020
Independent auditor's report to the members of ECO Animal Health Group Plc
Qualified opinion
We have audited the financial statements of ECO Animal Health Group Plc (the 'Parent Company') and its subsidiaries (the 'Group') for the year ended 31 March 2020, which comprise the consolidated statement of comprehensive income, the consolidated and company statements of financial position, the consolidated and company statements of changes in equity, the consolidated and company statements of cashflow and notes to the financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and international accounting standards in conformity with the requirements of the Companies Act 2006 and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
In our opinion, except for the possible effects of the matters described in the basis for qualified opinion section of our report:
• the financial statements give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 31 March 2020 and of the Group's profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006;
• the Parent Company financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
INDEPENDENT AUDITOR REPORT
TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEAR ENDED 31 MARCH 2020
Basis for qualified opinion
a) Physical inventory observations (Group)
We were not able to observe the counting of physical inventories around the Group, except for the China locations, ("non-China Group inventories") held at 31 March 2020 due to restrictions and control measures arising as a result of the COVID 19 pandemic. We were unable to satisfy ourselves by alternative means concerning the non-China Group inventories quantities held at 31 March 2020, which are included in the consolidated statement of financial position at a value of £14,003,000 (representing 82% of total inventory) by using other audit procedures. Consequently, we were unable to determine whether any adjustment to this amount was necessary.
If any adjustment to the non-China Group inventories quantities and derived values were to be required, there would be an impact on recorded cost of sales, recorded tax amounts, results recorded in the statement of comprehensive income, inventory values and total assets less total liabilities values recorded in the statement of financial position.
b) Verification of capitalised distribution rights, drug registrations, patents and license costs (together referred to as "capitalised development costs") (Group)
Given the issues connected to the recording of capitalised development costs that resulted in a prior year adjustment (as described in note 3.2 to the financial statements), we requested access to supporting information for all development costs originally capitalised in the statement of financial position. Historic accounting records for periods prior to 2013 were not required to be retained by the Group; certain sample accounting records and explanations for periods between 2013 and 1 April 2018, were not made available due to the impracticable time estimated to be required by the Directors, after commencing and carefully assessing the scope of the exercise. As a result, we were unable to obtain sufficient appropriate audit evidence concerning the net carrying value of capitalised development costs, as restated, totalling £21,726,000 at 1 April 2018.
Consequently, we were unable to determine whether any adjustment to this amount, related amortisation and deferred tax liabilities thereon, were necessary, either in respect of the current year to 31 March 2020, or the opening balances at 31 March 2019.
For the same reasons described above, we were unable to audit the prior year adjustment described in note 3.2 to the financial statements. We were not able to audit the adjustment to the net carrying value of historically capitalised costs, totalling £18,207,000, recorded as a prior year adjustment, as of 1 April 2018.
If any adjustment to the capitalised development costs were to be required, there would be an impact on recorded amortisation recognised in administrative expenses, related deferred tax charges/credits, results recorded in the statement of comprehensive income, intangible asset carrying values, deferred tax on related timing differences and total assets less total liabilities values recorded in the statement of financial position.
INDEPENDENT AUDITOR REPORT
TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEAR ENDED 31 MARCH 2020
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
• the Directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
• the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group's or the Parent Company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
In addition to the matters described in the basis for qualified opinion section of our report, we have determined the matters described below to be the key audit matters to be communicated in our report.
INDEPENDENT AUDITOR REPORT
TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEAR ENDED 31 MARCH 2020
Revenue recognition and discount accounting
Key Audit Matter
The Group's revenue recognition policy is included within the accounting policies in note 2 and the components of revenue are set out in note 4.
The Group's revenue is a key performance indicator for the market upon which the results of the Group will be assessed.
The Group has one main source of revenue representing direct sales of animal pharmaceutical products into UK, European and global markets. The Group recognises revenue at the point its performance obligation is met, which is generally on delivery of product to the customer, but may occur at different points in the revenue cycle dependent on contractual terms.
Prior period errors were identified in the Group's original revenue recognition policies, and application thereof, as explained in note 3.
Given the potential for misstatement of revenue whether due to fraud or error, the inherent judgements and estimates involved in revenue recognition and cut-off assessments, as well as the identified misstatements in the prior period, we considered revenue recognition a significant risk of material misstatement in the financial statements.
How We Addressed the Key Audit Matter in the Audit
We reviewed the revenue recognition policy applied by the Group and considered its compliance with IFRS 15 'Revenue from Contracts with Customers'. Our work included review of management's identification of performance obligations and assessment of contractual terms to determine when these performance obligations were met, both throughout the year and around year-end.
We tested a sample of the Group's revenue transactions to verify that revenue was accurately recorded in the correct accounting period. This testing was performed through review of contracts, invoices and delivery notes and agreement to the recognition of revenue in the accounting system.
Certain revenue arrangements include the offering of volume and other discounts to customers. We reviewed management's assessment of the value of these discounts at year end, reviewed contractual terms and re-performed calculations for a sample of accrued balances.
Where the Directors identified errors in prior periods, we reviewed the underlying support for adjustments proposed, testing to supporting documents such as delivery and shipment details and agreed the correct application of IFRS 15 in respect of these adjustments.
Key Observations
Based on the work performed, and following the restatements explained in note 3, we consider that revenue has been recognised in accordance with the Group's revenue recognition accounting policy and the requirements of IFRS 15.
Intangible assets - Capitalised development expenditure
Key Audit Matter
The Group's accounting policy for intangible assets is included within the accounting policies in note 2 and the components of intangible assets are set out in note 12.
The Group's policy is to capitalise development expenditure in accordance with IAS 38. During the period, the Directors reviewed past capitalised development expenditure and identified misstatements in prior periods as a result of the Group capitalising items which did not meet the criteria of IAS 38.
As a result of the errors identified, there was a significant audit risk that past capitalised expenditure was not appropriately capitalised and capitalised costs, in respect of projects not yet available for use, are impaired.
Given the potential for misstatement of capitalised development expenditure, as well as the identified misstatements in the prior period, we considered development expenditure capitalisation a key audit matter.
How We Addressed the Key Audit Matter in the Audit
We reviewed the Directors' narrative re-assessment of the appropriateness of intangible assets capitalised in the past, against the Group's revised accounting policy included in note 2.8.
Where management concluded that past costs were appropriately capitalised, for all periods up to 31 March 2019, we sampled those costs and planned to agree the cost to underlying supporting documentation and to management's assessment of whether the cost met the criteria of IAS 38 at the point of capitalisation. We performed the same procedures on capitalised costs for the year ended 31 March 2020.
We also sampled amortisation entries during the period 1 April 2018 to 31 March 2020, to ensure amortisation commenced in the correct period and over the useful life in accordance with Group policy. We reviewed the useful lives applied, for appropriateness, by corroborating the historical periods during which the Group's products have been sold and the periods over which competitor's products have been marketed.
Our work was limited for the periods prior to 1 April 2018, where certain information was not available for review, as set out in the Basis for qualified opinion section of our report.
Our work was not limited for movements in capitalised development costs for the period from 1 April 2018 to 31 March 2020.
We reviewed management's impairment assessment at 31 March 2020, for capitalised development costs not yet available for use. We challenged the future estimated forecast cashflows and whether or not technical feasibility continued to be highly probable.
Key Observations
We consider the Group's revised accounting policy to be appropriate, Our audit scope was limited in respect of the capitalised development expenditure assets' carrying value brought forward as of 1 April 2018. We did not identify anything to suggest that the judgements applied by management, in respect of capitalisation and amortisation from 1 April 2018, and their impairment assessment as of 31 March 2020, were inappropriate.
Unauthorised related party transactions and subsequent investigation
Key Audit Matter
As reported in note 31, during the year ended 31 March 2020 a longstanding former Director and Company Secretary of the Group withdrew cash from the Company totalling £25,748 (2019 - £46,920) which was recorded in the Parent Company and Group's financial statements as administrative costs in each year. Further cash was withdrawn over an extended period starting in 2014, the cumulative amount identified was £322,109 as at 31 March 2020.
These withdrawals were not approved, were outside the normal course of the Group's business and were in excess of contractual remuneration levels.
The Group's internal audit department identified the payments and reported their findings to the Board in April 2020. The Internal Audit department and an external law firm performed further work to assess the full extent of the withdrawals.
Repayment of £307,113 was made to the Group in August 2020.
A significant risk had been identified, that further unauthorised transactions remain undetected. We considered this to be a key audit matter.
How We Addressed the Key Audit Matter in the Audit
In response to the Directors' findings, we included internal forensic specialists as part of the audit team.
The audit team's work included review of the subsequent reports produced, both those of internal audit and the external law firm, and assessment of the completeness of their procedures and enquiries.
Following our review of the initially produced findings reports, we recommended a subsequent extended scope of work, and procedures were performed by the external law firm and internal audit department, supported by senior management. These extended procedures covered further electronic record investigation, examination of bank payments over a period of 7 years and an investigation into the appropriateness of supplier and payroll payments. These reports were subsequently reviewed by the audit team, including forensic audit specialists, which included re-performance of certain procedures.
Our overall audit approach included testing designed to identify and detect material misstatements in order to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement due to fraud.
Key Observations
The results of the extended scope of work, and our enquiries thereon, did not identify further material undetected unauthorised transactions. We consider the accounting for, and disclosure of, the transactions identified to be appropriate.
Prior period errors and opening balance sheet propriety
Key Audit Matter
As disclosed in note 3, prior period errors were identified in respect of the following areas:
- IFRS15 Revenue from contracts with customers
- IAS38 Intangible Assets
- IFRS11 Joint Arrangements
- Bonuses
- IFRS 16 - Leases
- Foreign exchange
- Accruals accounting
- Share-based payments
- Related party transaction disclosures
- Taxation
Given the extent of the errors identified in the prior periods, our audit of the opening balance sheet at 31 March 2019, formed a key part of the audit.
A significant risk of material misstatement was identified relating to whether:
- the assets recorded in the opening balance sheet exist;
- the liabilities in the opening balance sheet were complete;
- both assets and liabilities were accurately recorded; and
- all disclosures required were made
How We Addressed the Key Audit Matter in the Audit
Given the extent of prior period errors identified by the Directors and the audit process, we have re-audited the opening statement of financial position at 31 March 2019.
To the extent that our scope was not limited in respect of capitalised development costs, procedures included the audit of the opening statement of financial position to current period materiality and, where prior period errors were corrected, audit of those adjustments. This included a review of management's revised assessment, calculations and disclosures in note 3, by agreement to supporting documentation and inspection of underlying evidence on a sample basis.
Our audit procedures were designed to provide reasonable assurance that the restated opening statement of financial position is materially correct. This was required to ensure that the starting point for the movement between the opening and closing statements of financial position, reflected by the income statement and statement of cashflows for the year ended 31 March 2020, are also materially correct.
Key Observations
Based on the work performed, and except for the capitalised development cost limitation described in the Basis for Qualified Opinion section of our report, we have obtained sufficient assurance on the opening statement of financial position in order to form our opinion for the year ended 31 March 2020.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect or misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower level, "performance materiality", to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial, as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
The materiality for the Group financial statements as a whole was set at £250,000. This was determined by reference to the Group's profit before tax and was set at 5%. Profit before tax is considered the most appropriate measure in assessing the performance of the Group given it is an AIM listed PLC and therefore the number of users and level of interest in the financial statements is expected to be higher. Performance materiality was set at 50% of the Group materiality level, being £125,000. Performance materiality was set at this level based on the risks identified in respect of prior period errors and that this was the first year we conducted an audit of the Group.
Where financial information from components was audited separately, component materiality was set for this purpose at lower levels, varying between £45,000 and £180,000. Component performance materiality levels varied between £22,500 and £90,000.
The materiality for auditing the Parent Company financial statements, on a standalone basis, was determined with reference to 1.9% of the Parent Company's net assets. Materiality for assessing the parent company financial statements was therefore set at £1,450,000 and performance materiality was set at £725,000.
Materiality applied for group opinion purposes (component materiality) was limited to an appropriate proportion of Group materiality, and set at £45,000 for this purpose; performance materiality was set at 50% of component materiality, £22,500.
We agreed with the Audit Committee that we would report to the committee all individual audit differences in excess of £5,000. We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.
INDEPENDENT AUDITOR REPORT
TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEAR ENDED 31 MARCH 2020
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group's system of internal control, and assessing the risks of material misstatement in the financial statements at the Group level.
We obtained an understanding of the internal control environment related to the financial reporting process and assessed the appropriateness, completeness and accuracy of Group journals and other adjustments performed on consolidation.
At 31 March 2020, the Group comprised the Parent Company; one UK trading company, ECO Animal Health Limited, a two entity sub-Group in China headed by Zhejang Eco Biok Animal Health Products Limited; a US joint operation in Pharmgate Animal Health LLC and 16 other entities.
The Parent, the UK trading entity, the sub-Group in China and the US joint operation were deemed to be the significant components of the Group. Full scope audits were carried out, for the Parent Company and ECO Animal Health Limited, by the Group audit team. The audit of the Pharmgate Animal Health LLC component was carried out by the Group audit team. The audit of the sub-Group, headed by Zhejang ECO Biok Animal Health Products Limited, was conducted by BDO China under instruction from and reporting to BDO LLP as the Group auditor. We received reporting documents from the component auditor relating to the period under audit as well as opening balance sheet procedures; we conducted file reviews of the underlying audit evidence.
Significant components for the year ended 31 March 2020 comprise 77% of consolidated Group revenue, 128% of consolidated Group profit before tax (due to losses in non-significant components) and 100% of consolidated Group net assets (due to a combination of net assets and net liabilities in non-significant components).
The remaining entities were deemed insignificant to the Group due to the size of operations and balances within each entity. Audit work on these components has been limited to analytical review and sample revenue cut-off procedures carried out by the Group audit team.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
INDEPENDENT AUDITOR REPORT
TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEAR ENDED 31 MARCH 2020
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
As described in the basis for qualified opinion section of our report, we were unable to satisfy ourselves concerning the inventory quantities held at 31 March 2020 and the intangible assets carrying value at 31 March 2019 and 31 March 2020. We have concluded that where the other information refers to these balances or related balances, it may be materially misstated for the same reason.
Opinions on other matters prescribed by the Companies Act 2006
Except for the possible effects of the matters described in the basis for qualified opinion section of our report, in our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the Directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
• the strategic report and the Directors' report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
Except for the possible effect of the matters described in the basis for qualified opinion section of our report, in the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors' report.
Arising solely from the limitations on the scope of our work relating to inventory and intangible assets referred to above:
• we have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and
• we were unable to determine whether adequate accounting records have been kept by the Parent Company.
INDEPENDENT AUDITOR REPORT
TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEAR ENDED 31 MARCH 2020
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
• returns adequate for our audit have not been received from branches not visited by us; or
• the Parent Company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of Directors' remuneration specified by law are not made.
Responsibilities of Directors
As explained more fully in the Directors' responsibilities statement the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group's and the Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website : www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
INDEPENDENT AUDITOR REPORT
TO THE SHAREHOLDERS OF ECO ANIMAL HEALTH GROUP PLC
FOR THE YEAR ENDED 31 MARCH 2020
Use of our report
This report is made solely to the Parent Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Ian Oliver (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
Reading
United Kingdom
3 February 2021
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH 2020
2020
2019
Notes
£000's
£000's
Restated*
Revenue
4
72,106
67,253
Cost of sales
(38,742)
(35,448)
Gross profit
33,364
31,805
Other income
5
105
35
Administrative expenses
(28,274)
(21,772)
Profit from operating activities
6
5,195
10,068
Finance income
7
112
127
Finance costs
7
(142)
(124)
Net finance (cost)/income
(30)
3
Share of profit of associate
16
42
14
42
14
Profit before income tax
5,207
10,085
Income tax charge
9
(1,032)
(1,239)
Profit for the year
4,175
8,846
Profit attributable to:
Owners of the parent Company
2,582
7,253
Non-controlling interest
26
1,593
1,593
Profit for the year
4,175
8,846
Earnings per share (pence)
8
3.82
10.86
Diluted earnings per share (pence)
8
3.67
10.71
Earnings before Interest, Tax, Depreciation, Amortisation, Share Based Payments and Foreign Exchange Differences
6
8,362
12,452
*Please refer to Note 3 for further details on prior year restatements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2020
2020
2019
Notes
£000's
£000's
Restated*
Profit for the year
4,175
8,846
Other comprehensive income (losses) (net of related tax effects):
Revaluation of freehold property
13
(92)
-
Foreign currency translation differences
98
(8)
Remeasurement of defined benefit pension schemes
23
12
(36)
Other comprehensive income (losses) for the year
18
(44)
Total comprehensive income for the year
4,193
8,802
Attributable to:
Owners of the parent Company
2,561
7,200
Non-controlling interest
26
1,632
1,602
4,193
8,802
All items listed in other comprehensive income have been recorded directly through reserves and are shown in the consolidated statement of changes in equity.
*Please refer to Note 3 for further details on prior year restatements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2019
Share
Share
Revaluation
Other
Foreign
Retained
Total
Non-controlling
Total
Capital
Premium
Reserves
Reserves
Exchange
Earnings
Interest
Equity
Account
Reserves
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
Balance as at 31 March 2018
3,291
58,847
664
2,823
-
34,065
99,690
5,185
104,875
Adjustment re revenue cut-off (Note 3.1A)
-
-
-
-
-
(632)
(632)
33
(599)
Adjustment re intangible assets (Note 3.2)
-
-
-
-
-
(17,153)
(17,153)
-
(17,153)
Adjustment re bonuses (Note 3.4)
-
-
-
-
-
(954)
(954)
-
(954)
Adjustment re foreign exchange (Note 3.6)
-
-
-
-
484
(484)
-
-
-
Adjustment re discounts (Note3.7A)
-
-
-
-
-
(109)
(109)
(105)
(214)
Adjustment re provisions (Note 3.7C)
-
-
-
-
-
43
43
41
84
Adjustment re Share based payments (Note 3.8)
-
-
-
(2,717)
-
2,956
239
-
239
Balance as at 1 April 2018 - restated
3,291
58,847
664
106
484
17,732
81,124
5,154
86,278
Adjustment on implementation of IFRS16
-
-
-
-
-
(17)
(17)
1
(16)
Further IFRS16 adjustment (Note 3.5)
-
-
-
-
-
(37)
(37)
(12)
(49)
IFRS 16 adjusted balance as at 1 April 2018 - restated
3,291
58,847
664
106
484
17,678
81,070
5,143
86,213
Profit for the year - restated*
-
-
-
-
-
7,253
7,253
1,593
8,846
Other comprehensive income
Foreign currency differences
-
-
-
-
(17)
-
(17)
9
(8)
Actuarial gains/ (losses) on pension scheme assets
-
-
-
-
-
(36)
(36)
-
(36)
Total comprehensive income for the year
-
-
-
-
(17)
7,217
7,200
1,602
8,802
Transactions with owners recorded directly in equity
Issue of shares in the year
81
3,803
-
-
-
-
3,884
-
3,884
Share-based payments
-
-
-
-
-
631
631
-
631
Deferred tax on share-based payments
-
-
-
-
-
173
173
-
173
Dividends
-
-
-
-
-
(8,485)
(8,485)
(1,643)
(10,128)
Transactions with owners
81
3,803
-
-
-
(7,681)
(3,797)
(1,643)
(5,440)
Balance as at 31 March 2019 - restated
3,372
62,650
664
106
467
17,214
84,473
5,102
89,575
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2020
Share
Share
Revaluation
Other
Foreign
Retained
Total
Non-controlling
Total
Capital
Premium
Reserves
Reserves
Exchange
Earnings
Interest
Equity
Account
Reserves
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
Balance as at 31 March 2019 - restated*
3,372
62,650
664
106
467
17,214
84,473
5,102
89,575
Profit for the year
-
-
-
-
-
2,582
2,582
1,593
4,175
Other comprehensive income:
Foreign currency differences
-
-
-
-
59
-
59
39
98
Revaluation of freehold property
-
-
(92)
-
-
-
(92)
-
(92)
Actuarial gains on pension scheme assets
-
-
-
-
-
12
12
-
12
Total comprehensive income for the year
-
-
(92)
-
59
2,594
2,561
1,632
4,193
Transactions with owners recorded directly in equity
Issue of shares in the year
5
232
-
-
-
-
237
-
237
Share-based payments
-
-
-
-
-
284
284
-
284
Deferred tax on share-based payments
-
-
-
-
-
(373)
(373)
-
(373)
Dividends
-
-
-
-
-
(7,453)
(7,453)
(968)
(8,421)
Transactions with owners
5
232
-
-
-
(7,542)
(7,305)
(968)
(8,273)
Balance as at 31 March 2020
3,377
62,882
572
106
526
12,266
79,729
5,766
85,495
*Please refer to Note 3 for further details on prior year restatements
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2019
Company
Share
Share
Other
Revaluation
Retained
Total
Capital
Premium
Reserves
Reserves
Earnings
Account
£000's
£000's
£000's
£000's
£000's
£000's
Balance as at 31 March 2018
3,291
58,847
2,823
395
7,189
72,545
Prior year adjustments:
Adjustment re bonuses (Note 3.4)
-
-
-
-
(172)
(172)
Adjustment re Share based payments (Note 3.8)
-
-
(2,717)
-
2,807
90
Adjustment re share-based payments (Note 3.9)
-
-
-
-
1,324
1,324
Balance as at 31 March 2018 - restated
3,291
58,847
106
395
11,148
73,787
Adjustment on implementation of IFRS16 (Note 3.5)
-
-
-
-
(7)
(7)
IFRS 16 adjusted balance as at 1 April 2018 - restated
3,291
58,847
106
395
11,141
73,780
Profit for the year - as reported
-
-
-
-
15,041
15,041
Prior year adjustments:
Adjustment re bonuses (Note 3.4)
-
-
-
-
71
71
Adjustment re IFRS16 (Note 3.5)
-
-
-
-
(3)
(3)
Adjustment re share payments (Note 3.9)
-
-
-
-
154
154
Profit for the year - restated
-
-
-
-
15,263
15,263
Other comprehensive income:
Actuarial gains/(losses) on pension scheme assets
-
-
-
-
(36)
(36)
Total comprehensive income for the year
-
-
-
-
15,227
15,227
Transactions with owners recorded directly in equity
Issue of shares in the year
81
3,803
-
-
-
3,884
Share-based payments
-
-
-
-
631
631
Adjustment re share-based payments (Note 3.8)
-
-
-
-
(5)
(5)
Dividends
-
-
-
-
(8,485)
(8,485)
Transactions with owners
81
3,803
-
-
(7,859)
(3,975)
Balance as at 31 March 2019 - restated
3,372
62,650
106
395
18,509
85,032
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2020
Company
Share
Share
Other
Revaluation
Retained
Total
Capital
Premium
Reserves
Reserves
Earnings
Account
£000's
£000's
£000's
£000's
£000's
£000's
Balance as at 31 March 2019 - restated
3,372
62,650
106
395
18,509
85,032
Loss for the year
-
-
-
-
(151)
(151)
Other comprehensive income:
Revaluation of freehold property
-
-
-
(92)
-
(92)
Actuarial gains on pension scheme assets
-
-
-
-
12
12
Total comprehensive loss for the year
-
-
-
(92)
(139)
(231)
Transactions with owners
Issue of shares in the year
5
232
-
-
-
237
Share-based payments
-
-
-
-
284
284
Deferred tax on share-based payments
-
-
-
-
(63)
(63)
Deferred tax on property revaluations
-
-
-
(1)
-
(1)
Dividends
-
-
-
-
(7,453)
(7,453)
Transactions with owners
5
232
-
(1)
(7,232)
(6,996)
Balance as at 31 March 2020
3,377
62,882
106
302
11,138
77,805
*Please refer to Note 3 for further details on prior year restatements.
STATEMENTS OF FINANCIAL POSITION (CO. NUMBER: 01818170)
AS AT 31 MARCH 2020
Group
Company
2020
2019
2018
2020
2019
2018
Notes
£000's
£000's
£000's
£000's
£000's
£000's
Restated*
Restated*
Restated*
Restated*
Non-current assets
Intangible assets
12
41,439
41,009
39,656
-
-
-
Property, plant and equipment
13
2,426
2,144
1,866
622
769
716
Investment property
14
305
200
200
305
200
200
Right of use assets
15
1,658
1,675
-
25
57
-
Investments
16
166
116
98
20,032
20,077
20,077
Amounts due from subsidiary Company
18
-
-
-
59,295
59,988
47,650
Total non-current assets
45,994
45,144
41,820
80,279
81,091
68,643
Current assets
Inventories
17
17,264
19,477
18,654
-
-
-
Trade and other receivables
18
28,353
23,333
15,219
55
46
213
Income tax recoverable
1,265
827
343
-
14
22
Other taxes and social security
652
462
1,160
36
145
518
Cash and cash equivalents
20
11,877
16,863
20,343
177
4,236
4,959
Total current assets
59,411
60,962
55,719
268
4,441
5,712
TOTAL ASSETS
105,405
106,106
97,539
80,547
85,532
74,355
Current Liabilities
Trade and other payables
21
(14,486)
(13,363)
(10,983)
(567)
(296)
(428)
Borrowings
22
(2,032)
-
-
(2,001)
-
-
Income tax payable
(940)
(816)
(128)
-
-
-
Other taxes and social security
-
(533)
(108)
-
(90)
(98)
Lease liabilities
22
(342)
(330)
-
(24)
(36)
-
Dividends
(50)
(49)
(42)
(50)
(49)
(42)
Current liabilities
(17,850)
(15,091)
(11,261)
(2,642)
(471)
(568)
Net current assets / (liabilities)
41,561
45,871
44,458
(2,374)
3,970
5,144
Total assets less current liabilities
87,555
91,015
86,278
77,905
85,061
73,787
Non-current liabilities
Deferred tax
19
(636)
-
-
(95)
-
-
Lease liabilities
22
(1,424)
(1,440)
-
(5)
(29)
-
TOTAL ASSETS LESS TOTAL LIABILITIES
85,495
89,575
86,278
77,805
85,032
73,787
EQUITY
Issued share capital
25
3,377
3,372
3,291
3,377
3,372
3,291
Share premium account
62,882
62,650
58,847
62,882
62,650
58,847
Revaluation reserve
572
664
664
302
395
395
Other reserves
27
106
106
106
106
106
106
Foreign exchange revaluation reserve
27
526
467
484
-
-
-
Retained earnings
12,266
17,214
17,732
11,138
18,509
11,148
Shareholders' funds
79,729
84,473
81,124
77,805
85,032
73,787
Non-controlling interests
26
5,766
5,102
5,154
-
-
-
Total equity
85,495
89,575
86,278
77,805
85,032
73,787
Dr Andrew Jones, Chairman.
*Please refer to Note 3 for further details on prior year restatements. The notes on pages 63 to 149 form part of these financial statements.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2020
Group
Group
Company
Company
2020
2019
2020
2019
Restated*
Restated*
Notes
£000's
£000's
£000's
£000's
Cash flows from operating activities
Profit/(loss) before income tax
5,207
10,085
(151)
15,272
Adjustment for:
Finance income
7
(112)
(127)
(895)
(917)
Finance cost
7
142
124
30
-
Foreign exchange gain/(loss)
62
(504)
-
-
Depreciation
13
334
340
17
17
Amortisation of right-of-use assets
15
389
380
32
15
Revaluation of investment property
(64)
(55)
(64)
(55)
Amortisation of intangible assets
12
1,685
1,745
-
-
Pension payments
23
(59)
(59)
-
(59)
Share of associate's results
16
(42)
(14)
-
-
Impairment of investments
16
-
-
45
-
Share based charge
24
284
631
114
305
Dividends received
-
-
(77)
-
Operating cash flows before movements in working capital
7,826
12,546
(949)
14,578
Change in inventories
2,212
(1,814)
-
-
Change in receivables
(5,209)
(5,738)
962
(11,472)
Change in payables
662
2,141
253
(103)
Cash generated from operations
5,491
7,135
266
3,003
Finance costs
(17)
-
(30)
(2)
Income tax
(1,076)
(862)
-
(13)
Net cash from operating activities
4,398
6,273
236
2,988
Cash flows from investing activities
Acquisition of property, plant and equipment
13
(767)
(566)
(1)
(2)
Disposal of property, plant and equipment
13
-
5
-
-
Purchase of intangibles
12
(2,115)
(3,098)
-
-
Finance income
7
112
127
895
938
Dividends received
-
-
77
-
Net cash (used in)/from investing activities
(2,770)
(3,532)
971
936
Cash flows from financing activities
Change in borrowings
22
2,032
-
2,001
-
Proceeds from issue of share capital
237
3,884
237
3,884
Interest paid on lease liabilities
(125)
(139)
(13)
(22)
Principal paid on lease liabilities
(364)
(338)
(38)
(31)
Dividends paid
(8,421)
(10,121)
(7,453)
(8,478)
Net cash (used in)/from financing activities
(6,641)
(6,714)
(5,266)
(4,647)
Net (decrease) in cash and cash equivalents
(5,013)
(3,973)
(4,059)
(723)
Foreign exchange movements
27
493
-
-
Balance at the beginning of the period
16,863
20,343
4,236
4,959
Balance at the end of the period
20
11,877
16,863
177
4,236
A net cash reconciliation has been provided in note 22.
*Please refer to Note 3 for further details on prior year restatements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2020
1. General information
ECO Animal Health Group plc ("the Company") and its subsidiaries (together "the Group") manufacture and supply animal health products globally.
The Company is traded on the AIM market of the London Stock Exchange and is incorporated and domiciled in the UK. The address of its registered office is 78 Coombe Road, New Malden, Surrey, KT3 4QS.
2. Summary of significant accounting policies
2.1 Basis of preparation
The Group has presented its annual report and accounts in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS.
The preparation of financial statements, in conformity with international accounting standards in conformity with the requirements of the Companies Act 2006, requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Further details of estimates and judgements are provided in note 2.30.
The principal accounting policies of the Group are set out below and have been applied consistently in dealing with items which are considered material in relation to the Group's financial statements.
Going Concern
After making appropriate enquiries, the Directors have, at the time of approving the financial statements, formed a judgement that there is a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements.
This conclusion is based on a review of the resources available to the Group, taking account of the Group's financial projections together with available cash and committed borrowing facilities. The Directors have performed a reverse stress test on the business, by considering what quantum of revenue and gross margin reduction would be required to exhaust all available funds within 12 months of the date of approving the accounts. The Directors concluded that the likelihood of such a reduction was remote, and therefore that no material uncertainty exists with respect of going concern.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
2.2 Adoption of new and revised standards
The following new standards, amendments and interpretations for existing standards have been published and are mandatory for accounting periods beginning after 1 January 2019 (unless otherwise stated) and have been applied in preparing these consolidated financial statements. These did not result in any material changes.
· IFRS 9- Financial Instruments (amendments)
· IFRIC 23 - Uncertainty over income tax
· IAS 28 - Investments in associates and joint ventures
· IAS 19 - Employee benefits
The following amendments to existing standards and interpretations will be effective and adopted for period ended 31 March 2021 and the adoption of these amendments to existing standards and interpretations are not expected to have a material impact on the financial statements of the Group:
· IFRS 3 Business combinations - Definition of a business
· IAS 1 Presentation of financial statements, and IAS 8 Accounting policies, changes in accounting estimates and errors - Definition of material
· IFRS 11 - Joint Arrangements
· IAS 12 - Income Taxes
· IAS 23 - Amendments under 2015-2017 Cycle of Annual Improvements
The following new standards, amendments and interpretations for existing standards have been published that are mandatory for accounting periods beginning after 1 January 2020 (unless otherwise stated) and have not been applied in preparing these consolidated financial statements.
· IFRS 9, IAS 39 and IFRS 17 - Interest rate benchmark reform
The Directors do not expect that the adoption of the Standards and Interpretations listed above will have a material impact on the financial statements of the Group in future periods.
Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review has been completed.
2.3 Basis of consolidation
The consolidated financial statements comprise the accounts of the Company and its subsidiaries drawn up to 31 March 2020.
An entity is classed as a subsidiary of the Company when as a result of contractual arrangements, the Company has the power to govern its financial and operating policies so as to obtain benefits from its activities.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured, as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and contingent liabilities assumed in a business combination are measured
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
2.3 Basis of consolidation (continued)
initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value, the difference is recognised directly in the income statement.
Accounting policies of subsidiaries have been changed where material to ensure consistency with the policies adopted by the Group. Although the subsidiaries in Brazil and China and the joint operations in the USA and Canada all have December year ends, the Group uses management accounts to the end of March to prepare the Group accounts.
Subsidiaries are wholly consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation.
2.4 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting to the chief operating decision-maker. The chief operating decision-maker who is responsible for allocating resources and assessing performance of the operating segments has been identified as the Board.
2.5 Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("functional currency"). The consolidated financial statements are presented in Pounds Sterling, which is the Company's functional and the Group's presentation currency.
(b) Transactions and balances
Monetary assets and liabilities denominated in foreign currencies are translated into Pounds Sterling at the rates of exchange ruling at the date of the financial statements.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement within administrative expenses.
Foreign exchange gains and losses that relate to borrowing and cash and cash equivalents are presented in the income statement within administrative expenses.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
2.5 Foreign currency translation (continued)
(c) Group companies
The results and financial position of all Group entities that have a functional currency different from the Group's functional and presentation currency are translated into the Group's functional and presentation currency as follows;
· assets and liabilities for each Statement of financial position presented are translated at the closing exchange rate at the date of the Statement of financial position;
· income and expenses for each income statement are translated at average exchange rates unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case the income and expenses are translated at the rate on the dates of the transaction; and
· all resulting exchange differences are recognised through other comprehensive income as a separate component of equity.
When a foreign operation is partially disposed or sold, exchange differences that were recognised in equity are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are
treated as assets and liabilities of the foreign entity and translated at the closing exchange rate.
2.6 Financial instruments
Financial assets
The Group's financial assets comprise mainly trade and other receivables and cash and cash equivalents in the consolidated statement of financial position. These financial assets arise principally from the provision of goods to customers and are measured at amortised cost.
Impairment provisions for current and non-current trade receivables are recognised based on the simplified approach within IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. During this process, the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within Administrative expenses in the consolidated income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.
Impairment provisions for receivables from related parties and loans to related parties are recognised based on a forward looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses along with gross interest income are recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
2.7 Financial instruments (continued)
with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised.
Financial liabilities
The Group's financial liabilities comprise mainly trade and other payables and bank overdrafts in the consolidated statement of financial position. These financial liabilities are initially recognised at fair value and subsequently measured at amortised cost in accordance with IFRS 9.
2.7 Goodwill
Goodwill arising on the acquisition of an entity represents the excess of the costs of acquisition over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity recognised at the date of acquisition.
Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is not subject to amortisation but is tested for impairment annually.
Negative goodwill arising on an acquisition is recognised directly in the income statement. On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss recognised in the income statement on disposal. Goodwill arising before the date of transition to IFRS, on 1 April 2004, has been retained at the previous UK GAAP amounts, subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.
2.8 Other intangible assets
IAS 38 - Intangible Assets includes guidance on the accounting for Research and Development expenditure. Such an intangible asset is a resource that is controlled by the entity as a result of past events (for example, purchase or self-creation) and from which future economic benefits (inflows of cash or other assets) are expected. The three critical attributes of an intangible asset are:
· identifiability
· control (power to obtain benefits from the asset)
· future economic benefits (such as revenues or reduced future costs)
Identifiability: an intangible asset is identifiable when it:
· is separable (capable of being separated and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract) or
· arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.
Development expenditure - whether purchased or self-created (internally generated) is an example of an intangible asset, governed under IAS 38.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
2.8 Other intangible assets (continued)
Recognition criteria: IAS 38 requires an entity to recognise an intangible asset (at cost) if, and only if:
· it is probable that the future economic benefits that are attributable to the asset will flow to the entity; and
· the cost of the asset can be measured reliably.
IAS 38 includes additional recognition criteria for internally generated intangible assets.
Expenditure on the research phase of an internal project is expensed as incurred. Expenditure in the development phase of an internal project is capitalised if the entity can demonstrate:
(a) the technical feasibility of completing the intangible asset so that it will be available for use or sale.
(b) its intention to complete the intangible asset and use or sell it.
(c) its ability to use or sell the intangible asset.
(d) how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.
(e) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.
(f) its ability to measure reliably the expenditure attributable to the intangible asset during its development.
The probability of future economic benefits must be based on reasonable and supportable assumptions about conditions that will exist over the life of the asset.
Initial recognition: research and development costs
· Charge all research cost to expense.
· Development costs are capitalised only after technical and commercial feasibility of the asset for sale or use have been established. This means that the entity must intend and be able to complete the intangible asset and either use it or sell it and be able to demonstrate how the asset will generate future economic benefits.
If an entity cannot distinguish the research phase of an internal project to create an intangible asset from the development phase, the entity treats the expenditure for that project as if it were incurred in the research phase only.
If recognition criteria are not met.
If an intangible item does not meet both the definition of and the criteria for recognition as an intangible asset, IAS 38 requires the expenditure on this item to be recognised as an expense when it is incurred.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
2.8 Other intangible assets (continued)
The Group context of IAS 38
Since the early start-up stages of the business, the Group has and continues to invest significant expenditure in research and development into new animal treatments and therapies. This has resulted in a significant family of pharmaceutical treatments for pigs and poultry. Branded as Aivlosin, this product has developed over 20 years into treatments for multiple respiratory and intestinal infections - each of which have separate regulatory and marketing approvals in each target market. The work to bring Aivlosin from the laboratory to the commercial farm has moved through the classical phases of pharmaceutical development and the ECO Animal Health R&D model can be described by the following broad phases:
• The discovery phase - in vitro, in laboratory
• The proof of concept phase - key efficacy trials in small groups of animals
• The exploratory development phase - optimisation of dose, economic validation
• The full development phase - building the data set for dossier submission
• Submission of an application for regulatory approval
• Marketing and regulatory approval granted - commercial revenue begins
The application of the principles of IAS 38 to the above model is to treat expenditure on Research and Development as an expense until the likely commercial benefits that will flow from the project can be judged to be highly probable. This means that the technical feasibility (judged by reference to efficacy) must be certain, the economic feasibility (judged by reference to manufacturing methodology, market intelligence, overall programme cost) has to be highly probable and the likelihood of gaining regulatory approval must be judged to be highly probable. The Directors consider that capitalisation will generally commence once a project enters the full development phase.
In practice, work that is undertaken to build towards regulatory approval for a new treatment claim using Aivlosin (or other product) or an approval for marketing Aivlosin in a new geographical market can be viewed as starting at the full development phase and are likely to meet the capitalisation criteria whereas costs in relation to some of the Group's more recently announced projects (for example the vaccine collaboration projects with The Pirbright Institute) would be considered to have not yet met the criteria for capitalisation and should have therefore been expensed. Such projects' costs are likely to meet the capitalisation requirements once they are approved internally to commence the full development phase, subject to careful consideration of residual technical feasibility/risk.
Amortisation of capitalised expenditure is determined with reference to the point at which regulatory approval is given to the product to which the expenditure relates. For historic periods, the approach adopted has been to amalgamate the expenditure incurred on all projects relating to the same product, since the last regulatory approval and then identify the next nearest regulatory approval given for that product in either the same or a subsequent half-year. Amortisation begins in the half-year following the receipt of regulatory approval. A full six months of amortisation is charged in the first half-year for which costs are amortised.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
2.8 Other intangible assets (continued)
Where the Group has capitalised costs which relate to multiple products, a proportional method is adopted to determined what ratio of costs capitalised to date should be subject to amortisation. This method first looks at capitalised costs that relate to specific products and identifies the proportion of such costs that are subject to amortisation at the end of any given half-year period. The ratio thus calculated is then applied to those costs that relate to multiple products to determine the portion that should be subject to amortisation.
These approaches have been modified where it is possible to allocate an individual capitalised cost to a single identifiable project. In these cases the start date for amortisation is the half-year following the half-year period in which the project receives regulatory approval. Where regulatory approval has not been received for a project, the amortisation has not started.
Amortisation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows:
Aivlosin 5% on cost
Ecomectin 10% on cost
Trade marks and patents 10% on cost
2.9 Property, plant and equipment and depreciation
Plant and equipment are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows:
Plant and machinery 10%-20% on cost
Fixtures, fittings and equipment 10%-20% on cost
Motor vehicles 25% on cost
Freehold land and buildings valuations are measured as a level 3 recurring fair value measurement. The property is professionally valued by a qualified surveyor at least once every three years. Surpluses (which are not reversals of previous deficits) arising from the periodic valuations are taken to other comprehensive income, and deficits (which are not reversals of previous surpluses) are taken to the income statement within administrative expenses. Depreciation is provided at a rate calculated to expense the valuation less estimated residual value over the remaining useful life of the building at a rate of 2% per annum on a straight line basis. Land is not depreciated.
2.10 Impairment of non-financial assets
The carrying amounts of the Group's assets are reviewed at each year end, to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated in order to determine the impairment loss if any. The recoverable amount is the higher of its fair value and its value in use. For intangible assets with an indefinite useful life or not available for use, an impairment test is performed at each year end.
In assessing value in use, the expected future cashflows from the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
2.10 Impairment of non-financial assets (continued)
An impairment loss is recognised in the income statement whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.
A previously recognised impairment loss for costs other than goodwill is reversed if the recoverable amount increases as a result of a change in the estimates used to determine the recoverable amount, but not to an amount higher than the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognised in prior years and no reversal of impairment losses recognised on goodwill.
2.11 Investment property
Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is measured at fair value as a level 3 recurring fair value measurement.
The property is professionally valued by a qualified surveyor at least once every three years. Surpluses and deficits arising from the periodic valuations are taken to the income statement within administrative expenses.
2.12 Investments in subsidiaries
An investment in a subsidiary is where the Group own a controlling interest in an entity. Non-current asset investments are stated at fair value. They are recognised or derecognised on the date when the contract for acquisition or disposal requires the delivery of that investment.
Investments in subsidiaries are stated at cost less impairment in the Parent Company's statement of financial position.
An impairment is recognised in profit or loss when there is objective evidence that the asset is impaired and is measured as the difference between the investment's carrying amount and the present value of estimated future cashflows discounted at the effective interest rate adjusted for a risk premium. Impairment losses are reversed in subsequent periods when an increase in the investment's recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised costs would have been had the impairment not been recognised.
2.13 Joint Arrangements
A joint arrangement is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control; that is, when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
2.13 Joint Operations (continued)
The group classifies its interests in joint arrangements as either:
- Joint ventures: where the group has rights to only the net assets of the joint
arrangement
- Joint operations: where the group has both the rights to assets and obligations for
the liabilities of the joint arrangement.
In assessing the classification of interests in joint arrangements, the Group considers:
- The structure of the joint arrangement
- The legal form of joint arrangements structured through a separate vehicle
- The contractual terms of the joint arrangement agreement
- Any other facts and circumstances (including any other contractual arrangements).
The Group has interests in joint operations. The Group recognises its share of the assets, liabilities, income, expenses and cashflows of joint operations combined with the equivalent items in the consolidated financial statements on a line by line basis.
2.14 Investments in Associates
An associate is an entity in which an investor has significant influence but not control or joint control. Significant influence is defined as "the power to participate in the financial and operating policy decisions but not to control them".
The Group reports its interests in associates using the equity method of accounting. Under this method, an equity investment is initially recorded at cost (subject to initial fair value adjustment if acquired as part of the acquisition of a subsidiary) and is subsequently adjusted
to reflect the Group's share of the net profit or loss of the associate. If the Group's share of losses of an associate equals or exceeds its "interest in the associate", the Group discontinues recognising its share of further losses. If the associate subsequently reports profits, the investor resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised.
2.15 Leasing
The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Group applies a single recognition and measurement approach for all leases under IFRS 16, as applied from the transition date of 1 April 2018, except for short-term leases and leases of low-value assets.
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease, which is the date the underlying asset is available for use. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any re-measurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date, less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the lease term.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
2.15 Leasing (continued)
If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.
The right-of-use assets are also subject to impairment. Refer to the accounting policies in the section 2.10.
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of the lease payments to be made over the lease term. The lease liabilities include the present value of the following lease payments:
• fixed payments (including in-substance fixed payments), less any lease incentives receivable;
• variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date;
• amounts expected to be payable by the Group under residual value guarantees;
• the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and
• payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. In addition, the carrying amount of lease liabilities is re-measured if there is a modification, a change in the lease term, a change in the lease payments (for example, changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Extension and termination options
Extension and termination options are included in a number of property and equipment leases across the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group's operations. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
2.15 Leasing (continued)
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term leases, being those leases that have a lease term of twelve months or less from the commencement date and do not contain a purchase option. The Group also applies the recognition exemption to leases of which the underlying asset is of low value, comprising assets below the Group's capitalisation threshold. Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.
Practical expedients
The Group used a number of practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17.
In particular, the Group applied:
• not to reassess whether a contract is, or contains, a lease at the date of initial application;
• application of a single discount rate to a portfolio of leases with reasonably similar characteristics;
• exclusion of initial direct costs from the measurement of the right-of-use asset at the date of initial application;
• hindsight to determine the lease term;
• exclusion of low-value leases - leases for which the underlying assets are below the Group's capitalisation threshold; and
• exclusion of short-term leases - leases with lease term ending within twelve months of the date of initial application.
2.16 Inventories
Inventories are valued at the lower of cost and net realisable value. Cost is determined using the historical batch price of the principal raw materials and the historical average cost for other ingredients and other product costs. The cost of finished goods comprises raw materials, packaging costs and sub-contracted manufacturing costs. Net realisable value is the estimated selling price in the ordinary course of business, less any costs which would be incurred in completing the goods ready for sale.
2.17 Trade receivables
Trade receivables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method. Trade receivables are presented net of discounts or other variable consideration adjustments earned, where the expectation and intention is to settle the balance net. Impairment provisions are recognised based on the simplified approach in accordance with IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. See impairment section in section '2.6 Financial instruments' for more details.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 20202.18 Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held on call with banks, other short-term highly liquid investments with original maturities of three months or less. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position.
2.19 Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
2.20 Bank borrowings and loans
Interest-bearing bank loans and overdrafts are recorded as the proceeds received, net of direct issue costs (which equate to fair value). Finance charges including premiums payable on settlement or redemption and direct issue costs are accounted for on an amortised cost basis in profit or loss using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
2.21 Trade payables
Trade payables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method.
2.22 Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be required to settle the obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation outstanding at the year end and are discounted to present value where the effect is material.
2.23 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the Group's activities. Revenue is shown net of value added tax, returns, rebates and discounts and after eliminating sales within the Group. Transaction price is determined by the contract and variable consideration relating to discounts, free goods or volume rebates have been constrained in estimating contract revenue that is highly probable by using the most likely amount method.
The Group's contracts for delivery of goods are less than 12 months, there are no warranties within its sales contracts.
Revenue is recognised when the performance obligation is fulfilled and the amount can be measured reliably. The performance obligation is fulfilled when control of the goods passes to the customer, which is normally in accordance with Incoterms or receipt by customer. No goods are dispatched on a sale or return basis. Distributors trade on their own account and not as agents.
The Group also receives interest, royalty income. The amounts are small and are recognised on an accruals basis.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
2.24 Pensions
Defined Contribution Scheme
The pension costs charged against operating profits represent the amount of the contributions payable to the schemes in respect of the accounting period.
Defined Benefit Scheme
The regular cost of providing retirement pensions and related benefits is charged to the income statement over the employees' service lives on the basis of a constant percentage of earnings. The present value of the defined benefit obligation less the fair value of the plan assets is disclosed as an asset or liability in the statement of financial position in accordance with IAS 19. The disclosure of a net defined benefit asset is limited to the present value of any economic benefit available in the form of refunds from the plan or reductions in future contributions to the plan.
Actuarial gains or losses are recognised through other comprehensive income.
2.25 Share-based payments
The Group issues equity-settled share options to certain employees in exchange for services from those employees. Equity-settled share options are measured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant.
The fair value determined at the grant date of such equity-settled share options is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non-market based vesting conditions (with a corresponding movement in equity).
Fair value is measured by use of the Black-Scholes model. The expected life used in the model has been established based on management's best estimate of the effects of non-transferability, exercise restrictions and behaviour considerations.
Further details of the inputs to the Black-Scholes model can be found in note 24 to the accumulating share based payment charges in reserves. Share-based payment charges are credited to retained earnings only; subsequent to the prior year adjustment explained in note 3, the share-based payment reserve account balance is subsumed within retained earnings.
2.26 Taxation
Tax expense for the period comprises current and deferred tax.
Current tax, including UK corporation tax and foreign tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted by the year end. Tax expenses are recognised in profit or loss or other comprehensive income according to the treatment of the transactions which give rise to them.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax basis of assets and liabilities and their carrying amount in the financial statements.
Deferred income tax is determined using tax rates (and laws) that have been enacted, or substantially enacted, by the date of the statement of financial position and are expected to apply when the related deferred tax asset is realised or deferred tax liability is settled.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
2.26 Taxation (continued)
Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.
IFRIC 23 Uncertainty over Income Tax Treatments
IFIRC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The interpretation requires:
· The Group to determine whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution;
· The Group to determine if it is probable that the tax authorities will accept the uncertain tax treatment; and
· If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty. The measurement is required to be based on the assumption that each of the tax authorities will examine amounts they have a right to examine and have full knowledge of all related information when making those examinations.
2.27 Equity
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
Amounts arising on the restructuring of equity and reserves to protect creditor interests are credited to the capital redemption reserve.
Amounts arising from share-based payment expenses recorded in the Group's results are recorded within retained earnings.
The cost of its own shares bought into treasury by the Company is debited to retained earnings as required by the Companies Act 2006. A subsequent sale of these shares would result in this entry being wholly or partly reversed with any profit on the sale being credited to Share Premium.
Amounts arising from the revaluation of non-monetary assets and liabilities held in foreign subsidiaries, and joint operations are held within the foreign exchange revaluation reserve.
Amounts arising from revaluations of assets not taken through the income statement or other comprehensive income are held within the Revaluation reserve.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
2.28 Non-controlling (minority) interest
For each business combination, the Group elects to measure any non-controlling interest in the acquiree either at fair value or at their proportionate share of the acquiree's identifiable net assets. Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as transactions with owners in their capacity as owner. Adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary. No adjustments are made to goodwill and no gain or loss is recognised in the statement of profit or loss.
2.29 Dividend distribution
Dividends are recorded when they become a legal obligation of the Company. For final dividends, this will be when they are approved by the shareholders at the AGM. For interim dividends, this will be when they have been paid.
2.30 Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are:
· Capitalisation and impairment review of intangible assets
The Group assesses development costs incurred for capitalisation in accordance with the requirements of IAS38 and the Group's accounting policy described in Note 2.8. The stage of development and assessment of technical and commercial feasibility, in particular, require the use of judgements and estimates in consultation with the new product development team.
The Group tests annually whether intangible assets with indefinite life, or not yet available for use, have suffered any impairment. Other intangible assets are reviewed for impairment when an indication of potential impairment exists. Impairment provisions are recorded as applicable based on Directors' estimates of recoverable values.
The recoverable amounts of the Cash Generating Units (CGU's) to which intangible assets are allocated are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding discount rates, growth rates and the estimated remaining useful life of the asset. The Group also reviews and quantifies the tax implications related to any recognised impairments and these are included within tax calculations as appropriate.
Further details of the impairment reviews performed can be found in note 12 of the financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
2.30 Critical accounting estimates and judgements (continued)
· Income taxes
The Group is subject to income taxes predominantly in the United Kingdom but also in other jurisdictions.
Significant estimates are required in determining the provision for income taxes. There are some transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises assets and liabilities based on estimates of the final agreed position.
Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
Deferred tax assets on timing differences are recognised to the extent by which future profits will be generated to utilise the underlying costs or losses to which they relate.
· Pension scheme
The Group maintains one defined benefit pension scheme which has been accounted for according to the provisions of IAS 19. Although the assumptions were determined by a qualified actuary, any change in those assumptions may materially impact the financial position and results of the Group. Details of the assumptions used can be found in note 23 of the financial statements.
· Share-based payments
The charge to the Income Statement in respect of share-based payments has been externally calculated using management's best estimates of the amount of options expected to vest and various other inputs to the Black-Scholes valuation model, as disclosed in note 24. Variations in those assumptions in the model may have a material impact on the Group's results and financial position at the time of valuation.
· Leases - estimating the incremental borrowing rate
Where the Group cannot readily determine the interest rate implicit in the lease, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the
Group 'would have to pay', which requires estimation when no observable rates are available or when they need to be adjusted to reflect the terms and conditions of the lease.
In practice, the Group considered the following aspects in the assessment of IBR. Once decided, the IBR will remain unchanged unless there are modifications in lease terms or changes in the assessment of an option to purchase the underlying asset.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
2.30 Critical accounting estimates and judgements (continued)
- A base rate that reflects economic environment and the term of the lease. This is mainly derived from the yield of a government bond issued by the country in which the Group has in scope leases. Where the term of the lease does not conform with the maturity period of the bond, the Group considered other available information such as yields on the bonds with the nearest maturity period, or the yield curve published by the country's treasury department. Considering there is often a difference in the cash flow profile between a lease and government bond, the Group has decided to reduce the base rate by 0.05% to 0.10%.
- Financing factors that reflect the lessee companies' risk premium on borrowing. Management considered the financial strength and credit risk of lessee companies and estimated the credit spread to be in the range of 1.50% to 5.00%.
- Asset factors that reflect the quality of hypothetical security. Depending on the location and type of underlying assets, the Group expects the quality of security in this hypothetical borrowing transaction to vary. For example, the right to use a warehouse in rural areas may provide less relevant security compared to commercial office in a major city's central business district. Based on the Group's assessment, the asset factor ranges between -0.45% to -0.50%.
At 31 March 2020, the Group used a weighted average discount rate of 7.10% (2019 restated: 7.84%).
2020
2019
Restated*
Transition date 1 April 2018
Property
5.9%
5.8%
5.9%
Vehicle
29.0%
29.0%
29.0%
Other
4.0%
4.0%
4.0%
Weighted average
7.10%
7.84%
7.03%
*Please refer to Note 3 for further details on prior year restatements.
· Fair value measurement
A number of assets and liabilities included in the Group's financial statements require measurement, and/or disclosure of, fair value.
The fair value measurement of the Group's financial and non0financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are (the 'fair value hierarchy'):
- Level 1 : Quoted prices in active markets for identical items (unadjusted)
- Level 2 : Observable direct or indirect inputs other than Level 1 inputs
- Level 3 : Unobservable inputs (i.e. not derived from market data).
The classification of an item into the above levels is based on the lowest level of inputs used that has a significant effect on the fair value measurement of the item.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
2.30 Critical accounting estimates and judgements (continued)
The Group measures a number of items at fair value.
- Revalued land and buildings (note 13)
- Investment property (note 14)
- Pension and other post-retirement benefit commitments (note 23)
- Share-based payments (note 24)
- Initial recognition of Financial instruments (note 32)
For more detailed information in relation to the fair value measure of the items above please refer to the applicable notes.
3. Prior year restatements
The following corrections to the application of the Group's accounting policies to comply with International Financial Reporting Standards have been made as restatements of prior period financial statements for the correction of errors in accordance with IAS 8.
3.1 IFRS 15 Revenue from Contracts with Customers
The Group adopted IFRS 15 - Revenue from Contracts with Customers with effect from 1 April 2018. It was noted in the consolidated financial statements of the Group for the year ended 31 March 2019 that the effect of adoption of this standard was immaterial to the Group.
IFRS 15 provides a single, principles-based five step model to be applied to all sales contracts, based on the transfer of control of goods and services to customers. It replaced the separate guidance in IAS 11 for Construction Contracts and IAS 18 for Revenue. Under IAS 18, the guiding principle for determining when revenue should be recognised was to establish when the transfer of risk and reward of ownership in the goods had passed to customers. IFRS 15 requires a determination of when transfer of control has passed to customers in order to establish when revenue can be recognised.
IFRS 15 (and IAS 18) also requires that sales discounts, commissions, rebates and other sales incentives provided to customers are accounted for as an offset to Revenue.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
3.1 IFRS 15 Revenue from Contracts with Customers (continued)
3.1A Revenue recognition
Historical Treatment
Revised treatment and impact
Revenue has been recognised when goods have been dispatched from the Group's warehouses and factories (third party owned facilities). Historically certain revenue recognition has occurred prior to satisfying the performance obligation.
Having reference to the contractual trading terms with customers, the shipping and transportation methods, Incoterms guidance and other GAAP guidance the moment when control is judged to have passed to the customer was in most cases later than the date that the goods left the warehouse. Accordingly, some revenue previously incorrectly recorded shortly before the relevant period end was moved to the subsequent month and the subsequent accounting period.
The associated cost of sale was similarly moved to the subsequent accounting period.
The carrying value of Trade Debtors and Inventory at the relevant Statement of financial position date was consequently adjusted. A retained earnings adjustment reflects the cumulative value of net profit so adjusted in the financial period.
3.1B Sales Discounts
Historical Treatment
Revised treatment and impact
Sales incentives provided to customers comprising volume rebates, discounts and commissions have historically been incorrectly accounted for as a cost of sale.
These allowances have been set off against revenue in the relevant period and cost of sale appropriately adjusted.
Trade receivables are presented net of discounts or other variable consideration adjustments earned, where the expectation and intention is to settle the balance net.There is no impact on gross profit or net profit.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
3.2 IAS 38 - Intangible Assets
Historical Treatment
Revised treatment and impact
Certain costs relating to the Research and Development team including regulatory affairs were incorrectly capitalised and amortised over a period of 10 or 20 years. Amortisation commenced immediately from the date the costs were capitalised.
Historical costs have been considered in the light of IAS 38 and the ECO Animal Health R&D model. IAS 38 (and IAS 36 in respect of amortisation) have been applied to each year and where expenses meet the criteria for capitalisation such costs have remained as capitalised intangible assets, as explained in more detail in note 2.8. Development costs for projects not yet generating sales are subject to annual impairment reviews. Development costs are amortised over their useful economic lives starting from the half year after regulatory approval is obtained to commence product sales, which is the best estimate of when the asset is available for use.
All other expenses incurred in research, development, technical and regulatory affairs and technical support to the organization have been expensed.
The impact has been to increase the Research and Development expense (and reduce the amortisation) in the Income Statement in each year and to reduce the value of capitalised intangible assets on the Statement of financial position.
3.3 IFRS 11 - Joint Arrangements
IFRS 11 - Joint Arrangements defines an arrangement of which two or more parties have joint control. A joint arrangement has the following characteristics:
· The parties are bound by a contractual arrangement.
· The contractual arrangement gives two or more of those parties joint control of the arrangement.
A joint arrangement is either a joint operation or a joint venture. The classification of a joint arrangement as a joint operation or a joint venture depends upon the rights and obligations of the parties to the arrangement. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint venturers.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
3.3 IFRS 11 - Joint Arrangements (continued)
In assessing the relationship between the Group and its commercial collaborator in the USA and Canada management has considered the nature of the commercial arrangements, the legal agreement between the parties and other contractual arrangements.
Historical Treatment
Revised treatment and impact
The joint arrangements with Pharmgate in the USA and Canada have historically been correctly classified as joint operations. Accordingly, the Group has correctly included in into its income statement the revenue and cost of sale, together with any sales incentives provided to customers, for sales of Aivlosin in those territories. The Group has correctly brought 50% of all administrative costs into its income statement. However, the Group has incorrectly included 50% of each amount held in the Statement of financial position of the joint operation's legal entities into the Group's own Statement of Financial Position totals, being 50% of tangible fixed assets, 50% of trade and other receivables, 50% of cash and 50% of trade and other payables.
The Group has rights and obligations over the individual assets and liabilities in the Statement of financial position. Management considers that the nature of the commercial arrangements and the control that the Group has over the trade receivables and trade payables indicates that the joint arrangement should be also treated as a joint operation in the statement of financial position. The historical Income statement treatment correctly reflects that of a joint operation but on the Statement of financial position the Group should incorporate those assets and liabilities over which it has rights and obligations. Accordingly, the Group has restated past Statements of Financial Position to include the Group's own trade debtors (for Aivlosin sales) and related payable balance, together with 50% of any assets and liabilities pertaining to shared overheads (for example prepayments and accruals of administrative expenses).
There is no change to the net assets position of the group and the remaining balance of the specific assets and liabilities to be brought into the Group statement of financial position is either cash or a payable to the joint operation. Accordingly, together with trade receivables and payables, the cash/payable to the joint operation balance in the Group's Consolidated Statement of Financial Position has changed.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
3.4 Bonuses
An entity may have no legal obligation to pay a bonus. Nevertheless, in some cases, an entity has a practice of paying bonuses. In such cases, the entity has a constructive obligation because the entity has no realistic alternative but to pay the bonus.
Historical Treatment
Revised treatment and impact
Bonuses paid to Directors and Employees in the Group are discretionary, however no assessment was previously performed as to whether a constructive obligation to pay bonuses was present at each year end. As a result the historical treatment of Bonuses has been to account for them as an expense in the period in which they are paid - normally in October of each year.
Bonuses have been paid in each financial period. Notwithstanding that the bonuses are subject to management and Remuneration Committee discretion, they are customarily paid and the amount paid is considered by reference to individual performance and Group performance in the preceding financial period. Accordingly, it is considered that in accordance with IAS 19 a constructive obligation to pay bonuses has been created at 31 March 2018 and 2019 and the correct accounting treatment is to accrue for these bonuses in the year in which the employment services were received. All periods presented were adjusted.
3.5 IFRS 16 - Leases
Management reviewed the Group's existing list of identified leases under IFRS 16 and reassessed the reasonableness of key inputs used in calculating the lease liabilities and right-of-use assets. Comparing the results, material differences have been identified in the following four areas:
· Leases for two properties and three vehicles have been identified where the Group has only capitalised 50% of the actual lease payments in its original IFRS 16 calculation when 100% is required to be capitalised.
· Leases for one property, one vehicle and two pieces of equipment have not been captured by the original assessment.
· Two contracts have been incorrectly identified as leases as they do not meet the definition of lease under IFRS 16.
· The IBR for all identified leases was originally estimated at 4%. The Group re-estimated its incremental borrowing rate for each class of leases based on consideration over the economic, financing and asset factors. Please see Note 2.30 Critical accounting estimates and judgements for more details. The weighted average IBR based on the Directors' reassessment is 7.03% on transition at 1 April 2018, and 7.84% as at 31 March 2019.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
3.5 IFRS 16 - Leases (continued)
2019
Transition date 1 April 2018
Property
5.8%
5.9%
Vehicle
29.0%
29.0%
Other
4.0%
4.0%
Weighted average
7.84%
7.03%
Because of the findings above, the Directors consider it necessary to provide a corrected reconciliation between the lease commitment under IAS 17 and the Group's opening lease liabilities on transition date.
£000's
Operating lease commitments at 31 Mar 2018 under IAS 17 - restated
2,910
Recognition exemption for short-term leases
(36)
Extension and termination options reasonably certain to be exercised
549
Adjusted lease commitments at 31 Mar 2018 before discount
3,423
Discount on lease commitment
(945)
Lease liabilities recognised at 1 Apr 2018
2,478
of which are:
Current lease liabilities
782
Non-current lease liabilities
1,696
The following table gives details of the amounts introduced into the Group Statement of financial position at 1 April 2018, the IFRS16 transition date, split by category of asset.
Property
Vehicles
Other
Total
£000's
£000's
£000's
£000's
Restated
Restated
Restated
Restated
Right-of-use assets introduced
Cost
2,224
144
22
2,390
Accumulated Depreciation
(395)
(44)
(6)
(445)
Net book value
1,829
100
16
1,945
Lease liabilities introduced
(1,885)
(110)
(17)
(2,012)
Adjustment to opening reserves
(56)
(10)
(1)
(67)
The effect of IFRS 16 "Leases" on net profit for the year ended 31 March 2019 was a reduction in reported profit of £90,000 and the effect on net assets as at 31 March 2019 was a reduction of £157,000.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
3.6 Foreign exchange
IAS 21 - The Effects of Changes in Foreign Exchange Rates requires the accumulated foreign exchange gains or losses from the translation of foreign operations on consolidation to be presented as a separate component of equity. Previously this foreign exchange reserve was included in and presented as part of the Group's retained earnings. It was separately disclosed in the notes.
Additionally, the Group has corrected how the foreign exchange gains and losses on its consolidated income statement are presented. Previously they were spread across multiple captions, such as revenue, cost of sales and finance expenses. With this change the overall foreign exchange impact on translation in the income statement are only presented as part of administrative expenses.
3.7A Free Goods Incentive
Zhejiang ECO Biok Animal Health Products Limited (hereafter "ECO BIOK") offers to its customers goods with nominal price (hereafter "free goods") in December each year, based on a percentage of the year-to-date sales to the customer. To qualify for the free goods incentive, the customer will need to meet their annual sales target, which is set upfront in an annual contract at the beginning of each calendar year.
Historically, ECO BIOK assess whether each of the in-scope customers meet their annual target in December each year and ship out the free goods before the end of that month. The cost to ECO BIOK, as a result of this incentive, was recorded in the entity's cost of sales, at the value of the inventory that are shipped out as free goods.
Under IFRS 15, this free goods incentive is viewed as a material right given to customers for future purchases at a discounted price. Therefore, an element of the consideration received on normal sales throughout the year should be allocated to this future performance obligation to provide free goods, which should be in turn recognised as revenue only when the free goods are delivered.
Based on historical data and contractual terms management was able to establish which customers were expected to meet their annual sales targets, the actual percentage against reported sales to be used in the calculation of free goods and confirm the correct amount of contract liabilities to be recognised at the previous year ends. The year-on-year movements of the contract liabilities are reflected in the relevant year's revenue line.
3.7B Bonus accrual
Historically, ECO BIOK has accrued for its staff bonus in December, in respect of the calendar year then ended, with payment in January or February, prior to the Chinese New Year. At the Group's March year-end no bonus accrual was calculated on a pro rata basis, for the anticipated next December bonus. This was incorrect as, in accordance with IAS 19 the correct accounting treatment is to accrue for these bonuses in the corresponding year-end. The restatement has recalculated the year-end accrual to the correct level, which is calculated based on a proportion of the actual paid amount for the year.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
3.7C Other prior year adjustments
ECO BIOK incorrectly recognised, at 31 March 2018 and 31 March 2019, accruals for its national promotion conference planned for December each year. The restatement has released the overstated accrual.
3.7D Related party transactions disclosure
Certain related party transactions disclosures were not made in 31 March 2019 financial statements. The required disclosures, including 31 March 2019 comparative amounts, have been made in note 31.
3.8 Share-based payments
The Company and Group has adopted a change in policy to combine the previously reported reserve for share-based payment into retained earnings. The updated accounting policy is included in note 2.24.
Historically the Group has not recognised a deferred tax asset on the expected future tax deduction in respect of share options held at the statement of financial position sheet date. The prior year results have been restated to recognise a tax asset on share options, capped at a level for which there is a right of offset against the deferred tax liability arising on other temporary differences.
3.9 Share-based payments expense - Company only
Historically no separate accounting has been recorded for share based payment charges that related to options issued to employees of subsidiaries of ECO Animal Health Group PLC - the company. The share based payment charge has historically been incorrectly recognised in full in the company income statement.
Intercompany agreements exist which give the company the ability to recharge share-based payment charges to its subsidiary companies. Accordingly when the Directors have reassessed the company accounting for share based payments, they have determined that the expense should be recharged and a related intercompany receivable asset recognised.
Whilst not impacting the consolidated results, the company share based payment charge in the company income statement has decreased and the amounts due from subsidiary companies in the company statement of financial position have increased.
3.10 Impact of restatements of the financial statements
The following tables summarise the impact of adopting the changes, as described above in notes 3.1 to 3.9 on the Group's consolidated financial statements. Prior year adjustments impacting the Company only profit/loss for the year ended 31 March 2019 are presented in the Company Statement of Changes in Equity. References to the specific changes to which those adjustments relate are presented in the table headings as required.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Group statement of comprehensive income for the year to 31 March 2019
As reported
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Restated
Note 3.1A
Note 3.1B
Note 3.2
Note 3.4
Note 3.5
Note 3.6
Note 3.7A
Note 3.7B
Note 3.7C
Note 3.8
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
Revenue
74,578
(4,223)
(2,900)
-
-
-
(290)
88
-
-
-
67,253
Cost of sales
(40,725)
2,379
2,900
-
-
-
(2)
-
-
-
-
(35,448)
Gross Profit
33,853
(1,844)
-
-
-
-
(292)
88
-
-
-
31,805
Other income
35
-
-
-
-
-
-
-
-
-
-
35
Administrative expenses
(14,466)
-
-
-
311
68
-
-
(451)
354
-
(14,184)
R&D expense
-
-
-
(5,868)
-
-
-
-
-
-
-
(5,868)
Currency profits/(losses)
(138)
-
-
-
-
(1)
796
-
-
-
-
657
Amortisation of intangible assets
(3,982)
-
-
2,236
-
-
-
-
-
-
-
(1,746)
Share based payments
(631)
-
-
-
-
-
-
-
-
-
-
(631)
Profit from operating activities:
14,671
(1,844)
-
(3,632)
311
67
504
88
(451)
354
-
10,068
Net finance income/(costs)
562
-
-
-
-
(55)
(504)
-
-
-
-
3
Share of profit of associate
14
-
-
-
-
-
-
-
-
-
-
14
Profit before income tax
15,247
(1,844)
-
(3,632)
311
12
-
88
(451)
354
-
10,085
Income tax charge
(1,680)
348
-
59
(59)
-
-
(23)
117
(92)
91
(1,239)
Profit for the period
13,567
(1,496)
-
(3,573)
252
12
-
65
(334)
262
91
8,846
Attributable to:
Owner of parent company
11,755
(1,273)
-
(3,573)
252
4
-
33
(170)
134
91
7,253
Non-controlling interest
1,812
(223)
-
-
-
8
-
32
(164)
128
-
1,593
13,567
(1,496)
-
(3,573)
252
12
-
65
(334)
262
91
8,846
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Group statement of comprehensive income for the year to 31 March 2019 (continued)
As reported
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Restated
Note 3.1A
Note 3.1B
Note 3.2
Note 3.4
Note 3.5
Note 3.6
Note 3.7A
Note 3.7B
Note 3.7C
Note 3.8
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
Earnings per share (pence)
17.60
(1.91)
-
(5.35)
0.38
0.01
-
0.05
(0.25)
0.20
0.13
10.86
Diluted earnings per share (pence)
17.35
(1.88)
-
(5.27)
0.37
0.01
-
0.05
(0.25)
0.20
0.13
10.71
Earnings before interest, taxation, depreciation, amortisation
and share based payments (EBITDA)
19,949
(1,844)
-
(5,868)
311
66
504
88
(451)
354
-
13,109
Exclude foreign exchange differences
138
-
-
-
-
1
(796)
-
-
-
-
(657)
Adjusted EBITDA excluding foreign exchange differences
20,087
(1,844)
-
(5,868)
311
67
(292)
88
(451)
354
-
12,452
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Group statement of financial position as at 31 March 2019
As reported
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Restated
Note 3.1A
Note 3.1B
Note 3.2
Note 3.3
Note 3.4
Note 3.5
Note 3.6
Note 3.7A
Note 3.7B
Note 3.7C
Note 3.8
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
Non-current assets
Intangible assets
62,734
-
-
(21,839)
-
114
-
-
-
-
-
-
41,009
Property, plant and equipment
2,144
-
-
-
-
-
-
-
-
-
-
-
2,144
Investment property
200
-
-
-
-
-
-
-
-
-
-
-
200
Right of use assets
1,930
-
-
-
-
-
(255)
-
-
-
-
-
1,675
Investments
116
-
-
-
-
-
-
-
-
-
-
-
116
67,124
-
-
(21,839)
-
114
(255)
-
-
-
-
-
45,144
Current assets
Inventories
16,107
3,370
-
-
-
-
-
-
-
-
-
-
19,477
Trade and other receivables
29,537
(5,901)
(570)
-
11
-
-
-
-
-
256
-
23,333
Income tax recoverable
466
252
-
-
-
62
-
-
52
117
(122)
-
827
Other taxes and social security
462
-
-
-
-
-
-
-
-
-
-
-
462
Cash and cash equivalents
18,068
-
-
-
(1,205)
-
-
-
-
-
-
-
16,863
64,640
(2,279)
(570)
-
(1,194)
62
-
-
52
117
134
-
60,962
Total assets
131,764
(2,279)
(570)
(21,839)
(1,194)
176
(255)
-
52
117
134
-
106,106
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Group statement of financial position as at 31 March 2019 (continued)
As reported
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Restated
Note 3.1A
Note 3.1A
Note 3.2
Note 3.3
Note 3.4
Note 3.5
Note 3.6
Note 3.7A
Note 3.7B
Note 3.7C
Note 3.8
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
Current liabilities
Trade and other payables
(13,809)
-
570
-
1,194
(878)
-
-
(201)
(451)
212
-
(13,363)
Borrowings
-
-
-
-
-
-
-
-
-
-
-
-
-
Income tax
(1,000)
184
-
-
-
-
-
-
-
-
-
-
(816)
Other taxes and social security
(533)
-
-
-
-
-
-
-
-
-
-
-
(533)
Amounts due under leases
(415)
-
-
-
-
-
85
-
-
-
-
-
(330)
Dividends
(49)
-
-
-
-
-
-
-
-
-
-
-
(49)
(15,806)
184
570
-
1,194
(878)
85
-
(201)
(451)
212
-
(15,091)
Total assets less current liabilities
115,958
(2,095)
-
(21,839)
-
(702)
(170)
-
(149)
(334)
346
-
91,015
Non-current liabilities
Deferred tax
(1,616)
-
-
1,113
-
-
-
-
-
-
-
503
-
Amounts due under leases
(1,573)
-
-
-
-
-
133
-
-
-
-
-
(1,440)
Total assets less total liabilities
112,769
(2,095)
-
(20,726)
-
(702)
(37)
-
(149)
(334)
346
503
89,575
Equity
Capital and reserves
Issued share capital
3,372
-
-
-
-
-
-
-
-
-
-
-
3,372
Share premium account
62,650
-
-
-
-
-
-
-
-
-
-
-
62,650
Revaluation reserve
664
-
-
-
-
-
-
-
-
-
-
-
664
Other reserves
3,342
-
-
-
-
-
-
-
-
-
-
(3,236)
106
Foreign exchange reserve
-
-
-
-
-
-
-
467
-
-
-
-
467
Retained earnings
37,377
(1,905)
-
(20,726)
-
(702)
(33)
(467)
(76)
(170)
177
3,739
17,214
Shareholders' funds
107,405
(1,905)
-
(20,726)
-
(702)
(33)
-
(76)
(170)
177
503
84,473
Non-controlling interests
5,364
(190)
-
-
-
-
(4)
-
(73)
(164)
169
-
5,102
Total equity
112,769
(2,095)
-
(20,726)
-
(702)
(37)
-
(149)
(334)
346
503
89,575
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Group statement of financial position as at 31 March 2018
As reported
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Restated
Note 3.1A
Note 3.2
Note 3.3
Note 3.4
Note 3.6
Note 3.7A
Note 3.7C
Note 3.8
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
Non-current assets
Intangible assets
57,631
-
(18,207)
-
232
-
-
-
-
39,656
Property, plant and equipment
1,866
-
-
-
-
-
-
-
-
1,866
Investment property
200
-
-
-
-
-
-
-
-
200
Right of use assets
-
-
-
-
-
-
-
-
-
-
Investments
98
-
-
-
-
-
-
-
-
98
59,795
-
(18,207)
-
232
-
-
-
-
41,820
Current assets
Inventories
17,663
991
-
-
-
-
-
-
-
18,654
Trade and other receivables
17,193
(1,678)
-
(296)
-
-
-
-
-
15,219
Income tax recoverable
113
64
-
-
121
-
75
(30)
-
343
Other taxes and social security
1,160
-
-
-
-
-
-
-
-
1,160
Cash and cash equivalents
21,261
-
-
(918)
-
-
-
-
-
20,343
57,390
(623)
-
(1,214)
121
-
75
(30)
-
55,719
Total assets
117,185
(623)
(18,207)
(1,214)
353
-
75
(30)
-
97,539
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Group statement of financial position as at 31 March 2018 (continued)
As reported
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Restated
Note 3.1A
Note 3.2
Note 3.3
Note 3.4
Note 3.6
Note 3.7A
Note 3.7C
Note 3.8
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
Current liabilities
Trade and other payables
(10,715)
-
-
1,214
(1,307)
-
(289)
114
-
(10,983)
Borrowings
-
-
-
-
-
-
-
-
-
-
Income tax payable
(152)
24
-
-
-
-
-
-
-
(128)
Other taxes and social security
(108)
-
-
-
-
-
-
-
-
(108)
Lease liabilities
-
-
-
-
-
-
-
-
-
-
Dividends
(42)
-
-
-
-
-
-
-
-
(42)
(11,017)
24
-
1,214
(1,307)
-
(289)
114
-
(11,261)
Total assets less current liabilities
106,168
(599)
(18,207)
-
(954)
-
(214)
84
-
86,278
Non-current liabilities
Deferred tax
(1,293)
-
1,054
-
-
-
-
-
239
-
Lease liabilities
-
-
-
-
-
-
-
-
-
-
Total assets less total liabilities
104,875
(599)
(17,153)
-
(954)
-
(214)
84
239
86,278
Equity
Capital and reserves
Issued share capital
3,291
-
-
-
-
-
-
-
-
3,291
Share premium account
58,847
-
-
-
-
-
-
-
-
58,847
Revaluation reserve
664
-
-
-
-
-
-
-
-
664
Other reserves
2,823
-
-
-
-
-
-
-
(2,717)
106
Foreign exchange revaluation reserve
-
-
-
-
-
484
-
-
-
484
Retained earnings
34,065
(632)
(17,153)
-
(954)
(484)
(109)
43
2,956
17,732
Shareholders' funds
99,690
(632)
(17,153)
-
(954)
-
(109)
43
239
81,124
Non-controlling interests
5,185
33
-
-
-
-
(105)
41
-
5,154
Total equity
104,875
(599)
(17,153)
-
(954)
-
(214)
84
239
86,278
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Group statement of cash flows for the year ended 31 March 2019
As reported
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Restated
Note 3.1A
Note 3.1B
Note 3.2
Note 3.3
Note 3.4
Note 3.5
Note 3.7A
Note 3.7B
Note 3.7C
Note 3.8
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
Cashflows from operating activities
Profit before income tax
15,247
(1,844)
-
(3,632)
-
311
12
88
(451)
354
-
10,085
Adjustment for:
Finance income
(127)
-
-
-
-
-
-
-
-
-
-
(127)
Finance cost
69
-
-
-
-
-
55
-
-
-
-
124
Foreign exchange gain/(loss)
(504)
-
-
-
-
-
-
-
-
-
-
(504)
Depreciation
340
-
-
-
-
-
-
-
-
-
-
340
Amortisation of right-of-use assets
380
-
-
-
-
-
-
-
-
-
-
380
Revaluation of freehold property
(55)
-
-
-
-
-
-
-
-
-
-
(55)
Amortisation of intangible assets
3,982
-
-
(2,237)
-
-
-
-
-
-
-
1,745
Pension payments
(59)
-
-
-
-
-
-
-
-
-
-
(59)
Share of post-tax profits of equity accounted joint operations
(14)
-
-
-
-
-
-
-
-
-
-
(14)
Impairment of investments
-
-
-
-
-
-
-
-
-
-
-
-
Share based charge
631
-
-
-
-
-
-
-
-
-
-
631
Operating cash flow before movement in working capital
19,890
(1,844)
-
(5,869)
-
311
67
88
(451)
354
-
12,546
(Increase)/decrease in inventories
1,556
(2,379)
-
-
-
-
-
-
-
-
-
(823)
(Increase)/decrease in trade and other receivables
(11,646)
4,223
570
-
(307)
-
-
-
-
(256)
-
(7,416)
Increase/(decrease) in trade and other payables
3,540
92
(542)
42
(1,654)
801
88
828
27
(682)
(742)
2,828
Cash generated from operations
13,340
92
1,112
(5,827)
(1,961)
1,112
155
916
(478)
(584)
(742)
7,135
Finance costs
(69)
-
-
-
-
-
69
-
-
-
-
-
Income tax
(862)
-
-
-
-
-
-
-
-
-
-
(862)
Net cash from operating activities
12,409
92
1,112
(5,827)
(1,961)
1,112
224
916
(478)
(584)
(742)
6,273
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Group statement of cash flows for the year ended 31 March 2019 (continued)
As reported
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Adjustment
Restated
Note 3.1A
Note 3.1B
Note 3.2
Note 3.3
Note 3.4
Note 3.5
Note 3.7A
Note 3.7B
Note 3.7C
Note 3.8
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
Cash flows from investing activities
Acquisition of property plant and equipment
(566)
-
-
-
-
-
-
-
-
-
-
(566)
Disposal of property plant and equipment
5
-
-
-
-
-
-
-
-
-
-
5
Purchase of intangibles
(9,085)
-
-
5,873
-
114
-
-
-
-
-
(3,098)
Finance income
127
-
-
-
-
-
-
-
-
-
-
127
Net cash from investing activities
(9,519)
-
-
5,873
-
114
-
-
-
-
-
(3,532)
Cash flows from financing activities
Proceeds from issue of share capital
3,884
-
-
-
-
-
-
-
-
-
-
3,884
Interest paid on lease liabilities
67
-
-
-
-
-
(206)
-
-
-
-
(139)
Principal paid on lease liabilities
(406)
-
-
-
-
-
68
-
-
-
-
(338)
Dividends paid
(10,121)
-
-
-
-
-
-
-
-
-
-
(10,121)
Net cash from financing activities
(6,576)
-
-
-
-
-
(138)
-
-
-
-
(6,714)
Net decrease in cash and cash equivalents
(3,686)
92
1,112
46
(1,961)
1,226
86
916
(478)
(584)
(742)
(3,973)
Foreign exchange movements
493
-
-
-
-
-
-
-
-
-
-
493
Balance at the beginning of the period
21,261
-
-
-
(918)
-
-
-
-
-
-
20,343
Cash and cash equivalents at the end of the period
18,068
92
1,112
46
(2,879)
1,226
86
916
(478)
(584)
(742)
16,863
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Company statement of financial position as at 31 March 2019
As reported
Adjustment
Adjustment
Adjustment
Adjustment
Restated
Note 3.4
Note 3.5
Note 3.8
Note 3.9
£000's
£000's
£000's
£000's
£000's
£000's
Non-current assets
Intangible assets
-
-
-
-
-
-
Property, plant and equipment
769
-
-
-
-
769
Investment property
200
-
-
-
-
200
Right of use assets
30
-
27
-
-
57
Investments
20,077
-
-
-
-
20,077
Amounts due from subsidiary Company
58,510
-
-
-
1,478
59,988
79,586
-
27
-
1,478
81,091
Current assets
Inventories
-
-
-
-
-
-
Trade and other receivables
46
-
-
-
-
46
Income tax recoverable
-
14
-
-
-
14
Other taxes and social security
145
-
-
-
-
145
Cash and cash equivalents
4,236
-
-
-
-
4,236
4,427
14
-
-
-
4,441
Total assets
84,013
14
27
-
1,478
85,532
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Company statement of financial position as at 31 March 2019 (continued)
As reported
Adjustment
Adjustment
Adjustment
Adjustment
Restated
Note 3.4
Note 3.5
Note 3.8
Note 3.9
£000's
£000's
£000's
£000's
£000's
£000's
Current liabilities
Trade and other payables
(181)
(115)
-
-
-
(296)
Borrowings
-
-
-
-
-
-
Income tax
-
-
-
-
-
-
Other taxes and social security
(90)
-
-
-
-
(90)
Amounts due under leases
(16)
-
(20)
-
-
(36)
Dividends
(49)
-
-
-
-
(49)
(336)
(115)
(20)
-
-
(471)
Total assets less current liabilities
83,677
(101)
7
-
1,478
85,061
Non-current liabilities
Deferred tax
(85)
-
-
85
-
-
Amounts due under leases
(12)
-
(17)
-
-
(29)
Total assets less total liabilities
83,580
(101)
(10)
85
1,478
85,032
Equity
Capital and reserves
Issued share capital
3,372
-
-
-
-
3,372
Share premium account
62,650
-
-
-
-
62,650
Revaluation reserve
395
-
-
-
-
395
Other reserves
3,342
-
-
(3,236)
-
106
Foreign exchange revaluation reserve
-
-
-
-
-
-
Retained earnings
13,821
(101)
(10)
3,321
1,478
18,509
Shareholders' funds
83,580
(101)
(10)
85
1,478
85,032
Non-controlling interests
-
-
-
-
-
-
Total equity
83,580
(101)
(10)
85
1,478
85,032
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Company statement of financial position as at 31 March 2018 (continued)
As reported
Adjustment
Adjustment
Adjustment
Restated
Note 3.4
Note 3.8
Note 3.9
£000's
£000's
£000's
£000's
£000's
Non-current assets
Intangible assets
-
-
-
-
-
Property, plant and equipment
716
-
-
-
716
Investment property
200
-
-
-
200
Right of use assets
-
-
-
-
-
Investments
20,077
-
-
-
20,077
Amounts due from subsidiary Company
46,326
-
-
1,324
47,650
67,319
-
-
1,324
68,643
Current assets
Inventories
-
-
-
-
-
Trade and other receivables
213
-
-
-
213
Income tax recoverable
-
22
-
-
22
Other taxes and social security
518
-
-
-
518
Cash and cash equivalents
4,959
-
-
-
4,959
5,690
22
-
-
5,712
Total assets
73,009
22
-
1,324
74,355
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Company statement of financial position as at 31 March 2018 (continued)
As reported
Adjustment
Adjustment
Adjustment
Restated
Note 3.4
Note 3.8
Note 3.9
£000's
£000's
£000's
£000's
£000's
Current liabilities
Trade and other payables
(234)
(194)
-
-
(428)
Borrowings
-
-
-
-
-
Income tax
-
-
-
-
-
Other taxes and social security
(98)
-
-
-
(98)
Amounts due under leases
-
-
-
-
-
Dividends
(42)
-
-
-
(42)
(374)
(194)
-
-
(568)
Total assets less current liabilities
72,635
(172)
-
1,324
73,787
Non-current liabilities
Deferred tax
(90)
-
90
-
-
Amounts due under leases
-
-
-
-
-
Total assets less total liabilities
72,545
(172)
90
1,324
73,787
Equity
Capital and reserves
Issued share capital
3,291
-
-
-
3,291
Share premium account
58,847
-
-
-
58,847
Revaluation reserve
395
-
-
-
395
Other reserves
2,823
-
(2,717)
-
106
Foreign exchange revaluation reserve
-
-
-
-
-
Retained earnings
7,189
(172)
2,807
1,324
11,148
Shareholders' funds
72,545
(172)
90
1,324
73,787
Non-controlling interests
-
-
-
-
-
Total equity
72,545
(172)
90
1,324
73,787
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
3. Prior year restatements (continued)
Impact on the Company statement of cash flows for the year ended 31 March 2019
As reported
Adjustment
Adjustment
Adjustment
Restated
Note 3.4
Note 3.5
Note 3.9
£000's
£000's
£000's
£000's
£000's
Profit before income tax
15,050
71
(3)
154
15,272
Adjustment for:
Finance income
(937)
-
20
-
(917)
Finance cost
-
-
-
-
-
Depreciation
19
-
(2)
-
17
Amortisation of right-of-use assets
-
-
15
-
15
Revaluation of freehold property
(55)
-
-
-
(55)
Pension payments
(59)
-
-
-
(59)
Share based charge
631
-
-
(326)
305
Operating cash flow before movement in working capital
14,649
71
30
(172)
14,578
Change in inventories
-
-
-
-
-
Change in receivables
(11,644)
-
-
172
(11,472)
Change in payables
(39)
(79)
15
-
(103)
Cash generated from operations
2,966
(8)
45
-
3,003
Finance costs
(2)
-
-
-
(2)
Income tax
(13)
-
-
-
(13)
Net cash from operating activities
2,951
(8)
45
-
2,988
Cash flows from investing activities
Acquisition of property plant and equipment
(2)
-
-
-
(2)
Disposal of property plant and equipment
-
-
-
-
-
Purchase of intangibles
-
-
-
-
-
Finance income
938
-
-
-
938
Net cash from investing activities
936
-
-
-
936
Cash flows from financing activities
Proceeds from issue of share capital
3,884
-
-
-
3,884
Interest paid on lease liabilities
1
-
(23)
-
(22)
Principal paid on lease liabilities
(17)
-
(14)
-
(31)
Dividends paid
(8,478)
-
-
-
(8,478)
Net cash (used in)/from financing activities
(4,610)
-
(37)
-
(4,647)
Net decrease in cash and cash equivalents
(723)
(8)
8
-
(723)
Foreign exchange movements
-
-
-
-
-
Balance at the beginning of the period
4,959
-
-
-
4,959
-
Cash and cash equivalents at the end of the period
4,236
(8)
8
-
4,236
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
4. Segment information
Management has determined the operating segments based on the reports reviewed by the Board to make strategic decisions. The Board considers the business from a geographical perspective. Geographically, management considers the performance in the Corporate/UK, China and Japan, North America, South and South East Asia, Latin America, Europe and the Rest of the World.
Revenues are geographically allocated by the destination of customer.
The performance of these geographical segments is measured using Earnings before Interest, Tax, Depreciation and Amortisation ("EBITDA"), adjusted to exclude share based payments expenses.
Corporate/U.K.
China & Japan
North America
S & SE Asia
Latin America
Europe
Rest of World
Total
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
Year ended 31 March 2020
Total segment revenue
3,507
27,085
22,297
25,303
19,540
14,549
2,378
114,659
Inter-segment revenue
(1,739)
(3,937)
(10,662)
(11,128)
(6,939)
(6,959)
(1,189)
(42,553)
Revenue from external customers
1,768
23,148
11,635
14,175
12,601
7,590
1,189
72,106
Sale of goods
1,768
23,148
11,635
14,175
12,601
7,590
1,032
71,949
Royalties
-
-
-
-
-
-
157
157
1,768
23,148
11,635
14,175
12,601
7,590
1,189
72,106
Adjusted EBITDA
(15,011)
6,499
4,196
6,266
2,286
2,951
636
7,823
Total Assets
30,923
31,417
17,212
7,968
12,355
4,585
945
105,405
Year ended 31 March 2019
All 2019 figures have been restated
Total segment revenue
2,835
34,400
18,678
19,034
13,972
15,519
3,466
107,904
Inter-segment revenue
(1,418)
(7,613)
(8,135)
(10,943)
(3,193)
(7,616)
(1,733)
(40,651)
Revenue from external customers
1,417
26,787
10,543
8,091
10,779
7,903
1,733
67,253
Sale of goods restated
1,417
26,787
10,543
8,091
10,779
7,903
1,576
67,096
Royalties
-
-
-
-
-
-
157
157
1,417
26,787
10,543
8,091
10,779
7,903
1,733
67,253
Adjusted EBITDA
(1,771)
6,443
2,242
2,293
1,133
2,234
535
13,109
Total Assets
21,630
24,982
12,492
14,757
15,978
12,523
3,744
106,106
Goodwill and other intangible assets are initially allocated to the geographical segments on the basis of the proportion of sales achieved by each segment.
Adjusted EBITDA includes (Gain)/Loss on foreign exchange transactions.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
4. Segment information (continued)
A reconciliation of adjusted EBITDA for reportable segments to profit before tax is provided as follows:
2020
2019
£000's
£000's
Restated
Adjusted EBITDA for reportable segments
7,823
13,109
Depreciation
(334)
(340)
Amortisation of right of use assets
(389)
(380)
Revaluation of investment property
64
55
Amortisation
(1,685)
(1,745)
Share-based payment charges
(284)
(631)
Profit before tax on continuing activities
5,195
10,068
Product Revenues
2020
2019
£000's
£000's
Restated*
Aivlosin
60,686
52,212
Ecomectin
3,951
3,686
Others
7,469
11,355
Total
72,106
67,253
Contract Balances
2020
2019
Within one year or on demand
£000's
£000's
Restated*
At 1 April
847
289
Amounts included in contract liabilities that was recognised as revenue during the period
(847)
(289)
Cash received in advance of performance and not recognised as revenue during the period
594
847
At 31 March
594
847
*Please refer to Note 3 for further details on prior year adjustments
The Group recognised contract liabilities of £594,000 at 31 March 2020 (2019 restated: £847,000). The Group does not hold any long term sales contracts and any rebates, discounts or free goods incentives are settled and recognised as revenue within the next accounting period. Contract balances are reported within trade and other payables on the Statement of Financial Position.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
5. Other income
2020
2019
£000's
£000's
Management charges
7
30
Sundry income
98
5
105
35
6. Result from operating activities
2020
2019
£000's
£000's
Restated
Result from operating activities is stated after charging/(crediting)
Cost of inventories recognised as an expense
38,381
35,337
Employee benefits expenses
9,968
8,969
Amortisation of intangible assets (note 12)
1,685
1,745
Depreciation (note 13)
334
340
Amortisation of right of use assets (note 15)
389
380
Revaluation of investment property (note 14)
(64)
(55)
Loss/(Gain) on foreign exchange transactions
539
(657)
Research and development
8,775
5,868
Impairment losses on trade receivables
139
64
Fees payable to the Company's auditor for the audit of the parent Company and Group annual accounts
54
18
Fees payable to the Company's auditor and its associates for the audit of the Company's subsidiaries
47
66
Fees payable to the Company's auditor for the audit of the parent Company and Group annual accounts, for the year ended 31March 2020, were £414,000 (2019: £18,000), and fees payable to the Company's auditor and its associates for the audit of the Company's subsidiaries were £460,000 (2019: £66,000).
2020
2019
£000's
£000's
Restated
Earnings before interest, tax, depreciation, amortisation and impairment, share-based payments and foreign exchange differences (adjusted EBITDA)
Profit from operating activities
5,195
10,068
Depreciation
334
340
Amortisation of right of use assets
389
380
Revaluation of investment property
(64)
(55)
Amortisation
1,685
1,745
Share-based payments
284
631
7,823
13,109
Foreign exchange differences
539
(657)
8,362
12,452
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
6. Result from operating activities (continued)
Management believe that adjusted EBITDA is the most appropriate measure of the Group's performance as it is the initial source for all re-investment and for all returns to shareholders. Investors, bankers and analysts all focus on this important measure of underlying performance because it enables them to make judgements about the Group's ability to generate sufficient cash to meet all the re-investment needs of the business while still providing adequate returns to shareholders. Therefore, adjusted EBITDA has a direct relationship with the value of the Group and is seen by our investors as a Key Performance Indicator for management.
The following items are adjusted for in the calculation of adjusted EBITDA as defined by the Group.
Item
Rationale for Adjustment
Depreciation and Amortisation
These items are a result of past investments and therefore, although they are correctly recorded as a cost of the business, they do not reflect current or future cash outflows.
Additionally, Depreciation and Amortisation calculations are subject to judgement regarding useful lives and residual values of particular assets and the adjustment removes the element of judgement.
Revaluation of Investment Property
These are subject to judgement and do not reflect cash flows.
Gains and Losses on Disposal of Fixed Assets and Impairment of Intangibles
These items are a result of past investments and therefore, although they are correctly recorded as income or cost of the business, they do not reflect current or future cash outflows.
Share Based Payments
This item is subject to judgement and will never be reflected in the Group's cash flows.
Foreign Exchange differences
Since the key driver of this figure is the revaluation of monetary assets denominated in foreign currency at the period end, which may reverse prior to settlement, taking this figure out of the EBITDA figure removes volatility from the performance measure. Foreign exchange movements are largely outside of the Group's control, so this gives a better measure of the Group's progress than statutory profit measures which include them.
*Please refer to Note 3 for further details on prior year restatements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
7. Finance income/ (costs)
2020
2019
£000's
£000's
Finance income
Restated
Interest received on short term bank deposits
112
127
Finance costs
Interest paid
(18)
(1)
Interest paid on lease liabilities
(124)
(123)
(142)
(124)
(30)
3
8. Earnings per share
The calculation of basic earnings per share is based on the post-tax profit for the year divided by the weighted average number of shares in issue during the year.
2020
2019
Earnings
Weighted average number of shares
Per share amount
Earnings
Weighted average number of shares
Per share amount
2020
2020
2020
2019
2019
2019
£000's
000's
(pence)
£000's
000's
(pence)
Restated
Restated
Earnings attributable to ordinary shareholders on continuing operations after tax
2,582
67,530
3.82
7,253
66,794
10.86
Dilutive effect of share options
-
2,783
(0.15)
-
943
(0.15)
Fully diluted earnings per share
2,582
70,313
3.67
7,253
67,737
10.71
Diluted earnings per share takes into account the dilutive effect of share options.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
9. Taxation
2020
2019
Current tax year
£000's
£000's
Restated
Foreign corporation tax on profits for the year
1,520
1,493
Withholding tax on intercompany dividend
54
92
Research and development tax credits claimed in the year
(1,000)
(414)
Research and development tax credits - adjustment for prior year
196
(104)
Deferred tax
Origination and reversal of temporary differences
187
261
Due to change in effective rate
75
(89)
Income tax charge
1,032
1,239
Deferred tax recognised through reserves
Origination and reversal of temporary differences
373
(173)
Due to change in effective rate
1
-
374
(173)
2020
2019
£000's
£000's
Factors affecting the tax charge for the year
Restated
Profit on ordinary activities before taxation
5,207
10,085
Profit on ordinary activities before taxation multiplied by the applicable rate of UK corporation tax of 19% (2019: 19%)
989
1,916
Effects of:
Non-deductible expenses
324
1,451
Non-chargeable credits
(103)
(984)
Withholding tax on inter-company dividends
54
92
Enhanced allowance on research and development expenditure
(756)
(1,116)
Different tax rate for foreign subsidiaries
165
186
Reduced effective deferred tax rate
76
(89)
Origination and reversal of temporary differences
47
(91)
Unused tax losses carried forward
236
141
Patent box claim
-
(267)
Income tax charge
1,032
1,239
2020
2019
Restated*
%
%
Applicable tax rate per UK legislation
19.00
19.00
Effects of:
Non-deductible expenses
6.22
14.39
Non-chargeable credits
(1.98)
(9.76)
Withholding tax on inter-company dividends
1.04
0.91
Enhanced allowance on research and development expenditure
(14.52)
(11.07)
Different tax rate for foreign subsidiaries
3.17
1.85
Reduced effective deferred tax rate
1.46
(0.88)
Origination and reversal of temporary differences
0.90
(0.90)
Unused tax losses carried forward
4.53
1.40
Patent box claim
-
(2.65)
Effective tax rate
19.82
12.29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
9. Taxation (continued)
Future tax changes
Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2016 (on 6 September 2016). These include reductions to the main rate to reduce the rate to 17% from 1 April 2020. On 11 March 2020 the government announced that the reduction to 17% would not take effect and the prevailing rate of corporation tax would remain at 19%. Deferred taxes at the Statement of financial position date have been measured at 19% (2019: hybrid tax rate of 18%). At the year ended 31 March 2020 the Group had unused overseas tax losses amounting to £3.8 million (2019: £2.0 million) for which no deferred tax asset has been recognised. These tax losses are not expected to expire.
10. Profit for the financial year
2020
2019
£000's
£000's
Restated
Parent Company's profit/(loss) for the financial year
(151)
15,263
The Company has elected to take the exemption under Section 408 of the Companies Act 2006 not to present the Parent Company income statement.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
11. Dividends
2020
2019
£000's
£000's
Interim dividend for the year ended 31 March 2019 at 4.0p per ordinary share (settled 12 April 2019)
2,698
-
Final dividend for the year ended 31 March 2019 at 7.04p per ordinary share (settled 16 October 2019)
4,755
-
Special dividend for the year ended 31 March 2019 of 3.5p per ordinary share (settled 9 January 2019)
-
2,350
Interim dividend for the year ended 31 March 2018 at 3.2p per ordinary share (settled 12 April 2018)
-
2,106
Final dividend for the year ended 31 March 2018 at 6.0p per ordinary share (settled 17 October 2018)
-
4,029
7,453
8,485
In light of the economic situation caused by the coronavirus pandemic, the Board of Directors proposes that no dividend will be paid for the year ended 31 March 2020.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
12. Intangible fixed assets
Group
Goodwill
Distribution rights
Drug registrations, patents and license costs
Total
£000's
£000's
£000's
£000's
Cost
At 1 April 2018 - as reported
17,930
1,442
74,819
94,191
Prior year adjustment
-
-
(38,447)
(38,447)
At 1 April 2018 - restated
17,930
1,442
36,372
55,744
Additions - as reported
-
-
9,085
9,085
Prior year adjustment
-
-
(5,987)
(5,987)
At 31 March 2019 - restated
17,930
1,442
39,470
58,842
Additions
-
-
2,115
2,115
At 31 March 2020
17,930
1,442
41,585
60,957
Amortisation
At 1 April 2018 - as reported
-
(831)
(35,729)
(36,560)
Prior year adjustment
-
167
20,305
20,472
At 1 April 2018 - restated
-
(664)
(15,424)
(16,088)
Charge for the year - as reported
-
(72)
(3,910)
(3,982)
Prior year adjustment
-
1
2,236
2,237
At 31 March 2019 - restated
-
(735)
(17,098)
(17,833)
Charge for the year
-
(70)
(1,615)
(1,685)
At 31 March 2020
-
(805)
(18,713)
(19,518)
Net Book Value
At 31 March 2020
17,930
637
22,872
41,439
At 31 March 2019 - restated
17,930
707
22,372
41,009
At 31 March 2018 - restated
17,930
778
20,948
39,656
The amortisation and impairment charges are included within administrative expenses in the income statement.
Distribution rights are amortised over their estimated useful life of 20 years and reviewed for impairment when any indication of potential impairment exists. The remaining amortisation period at the date of the financial statements ranged from 5 to 15 years.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
12. Intangible fixed assets (continued)
The carrying value of goodwill is attributable to the following cash generating units:
Entity
Date of acquisition
2019 and 2020
£000's
ECO Animal Health Limited
1 October 2004
17,359
Zhejiang Eco Biok Animal Health Products Limited
1 April 2007
94
ECO Animal Health Japan Inc
24 December 2009
477
17,930
Goodwill acquired in a business combination is allocated at acquisition to the cash generating units (CGU's) that are expected to benefit from the business combination.
The recoverable amounts of the CGU's are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding discount rates, growth rates and the estimated remaining useful life of the asset.
The Group prepares cashflow forecasts that cover the two year period after the Statement of financial position date and then extrapolates them assuming a 3% annual growth rate which is well below the past performance of the business. The Directors believe that the long-term growth rate assumed does not exceed the average long-term growth rate for the relevant markets.
Management estimates discount rates using the pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU's. In the current year management estimated the applicable rate to be 8% (2019: 11%). Management considers that there is adequate headroom when comparing the net present value of the cashflows to the carrying value of goodwill to conclude that no impairment is necessary this year. On assumptions as at each period end the excess of recoverable amount over carrying value is over £130 million (2019 restated: £114 million).
Management believes that the most significant assumption in the calculation of value in use is the estimated growth rate. However, even if the growth rate were to be zero, the recoverable amount would still be over £119 million (2019 restated: £76 million) more than the carrying value and no impairment would be necessary.
The net book value of Drug registrations, patents and license costs can be broken down as follows:
2020
2019
£000's
£000's
Restated
Aivlosin
18,009
17,659
Ecomectin
4,310
3,993
Others
553
720
22,872
22,372
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
12. Intangible fixed assets (continued)
Aivlosin is a highly effective antibiotic that treats a range of specific enteric (gut) and respiratory diseases in pigs and poultry, ensuring a rapid return to health. In addition to the welfare benefits, healthy animals gain weight faster, digest food more efficiently and get to market earlier which all bring economic benefit to the farmer. Substantial ongoing product development covering more formulations, species and diseases is expected to substantially further increase its revenue generating potential. The remaining useful life is from 4 to 20 years.
Ecomectin is an endectocide that controls worms, ticks, lice and mange in grazing stock and pigs. The remaining useful life is 0 to 10 years.
At 31 March 2020 Intangible assets included £7,063,000 (2019 restated: £4,834,000) of assets capitalised that had not commenced their useful life, of which approximately £4,663,000 (2019: £3,234,000) were Aivlosin related products. The directors have conducted impairment reviews and no impairment is required. Following restatement, no impairment indicators have been identified in relation to intangible assets in commercial use.
Drug registrations and licences are amortised over their estimated useful lives of 10 to 20 years, which is the Directors' estimate of the time it would take to develop a new product allowing for the Group's patent protection and the exclusivity period which comes with certain registrations. All such costs are recorded in the UK/Corporate reporting segment.
The Directors have assessed the restated carrying value of intangible assets (as set out in note 3.2) for indicators of value impairment for the years ended 31 March 2019 and 31 March 2020 and have concluded that no impairment is necessary.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
13. Property, plant and equipment
Group
Land and Buildings (freehold)
Leasehold
improvements
Plant and machinery
Fixtures, fittings and equipment
Motor Vehicles
Total
£000's
£000's
£000's
£000's
£000's
£000's
Cost or valuation
At 1 April 2018
730
-
1,602
1,083
61
3,476
Additions
-
-
341
198
27
566
Disposals
-
-
(68)
-
-
(68)
Revaluation in the year
30
-
-
-
-
30
Foreign exchange movements
-
-
11
1
(6)
6
At 31 March 2019
760
-
1,886
1,282
82
4,010
Additions
-
555
40
157
15
767
Disposals
-
-
-
(432)
(6)
(438)
Revaluation in the year
(145)
-
-
-
-
(145)
Reclassification
53
-
(937)
648
236
-
Foreign exchange movements
-
-
(3)
(5)
(16)
(24)
At 31 March 2020
668
555
986
1,650
311
4,170
Depreciation
At 1 April 2018
(26)
-
(864)
(706)
(14)
(1,610)
Charge for the year
-
-
(171)
(154)
(15)
(340)
Disposals
-
-
63
-
-
63
Revaluation in the year
26
-
-
-
-
26
Foreign exchange movements
-
-
(6)
-
1
(5)
At 31 March 2019
-
-
(978)
(860)
(28)
(1,866)
Charge for the year
(15)
-
(44)
(241)
(34)
(334)
Disposals
-
-
-
426
4
430
Revaluation in the year
13
-
-
-
-
13
Reclassification
(7)
-
310
(137)
(166)
-
Foreign exchange movements
-
-
2
-
11
13
At 31 March 2020
(9)
-
(710)
(812)
(213)
(1,744)
Net Book Value
At 31 March 2020
659
555
276
838
98
2,426
At 31 March 2019
760
-
908
422
54
2,144
At 31 March 2018
704
-
738
377
47
1,866
The freehold land and buildings at 78 Coombe Road, New Malden was valued at £615,000 as at 31 March 2020 by Colliers International Valuation UK LLP (external independent qualified valuers). The fair value of the freehold property was determined by applying a 7.5% discount rate to the annual rental value of the property as determined by local market conditions. The property will continue to be valued on a regular basis.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
13. Property, plant and equipment (continued)
Plant and machinery held by Zhejiang ECO Biok Animal Health Products Limited has been reclassified from Plant and machinery to Land and buildings, and Furniture, fittings and equipment. FE. These adjustments have been made retrospectively to 1 April 2018.
Valuation Technique used
Significant unobservable inputs
Inter-relationship between key unobservable inputs and fair value
RICS Valuation - Global Standards ('Red Book Global Standards')
Estimated market rent
Capital Value
Price per square foot in local market.
Yield in local market
General condition
Statutory searches
Environmental matters
Reduced marketability and hence rent achievable by the property.
In determining the fair value of freehold land and buildings level-3 fair value inputs are used. The significant unobservable inputs used in establishing the fair value of freehold land and buildings are the estimated market rent and capital value. The Directors believe that the fair value of freehold land and buildings reflects the carrying value and a significant change in unobservable inputs would not significantly increase or reduce the fair value of the freehold land and buildings.
The freehold property of 78 Coombe Road, New Malden is subject to a legal charge held by the Company's bankers dated 20 March 1987.
Depreciation has been included in the administrative expenses line in the income statement, except for £129,000 (2019: £110,000) of depreciation of production equipment in the Chinese subsidiary ECO Biok, which is included within cost of sales.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
13. Property, plant and equipment (continued)
The value of the freehold property would have been recorded at £249,000 (2019: £259,000) on a historical cost basis.
Company
Land and Buildings (freehold)
Fixtures, fittings and equipment
Total
Cost or valuation
£000's
£000's
£000's
At 1 April 2018
730
165
895
Additions
-
2
2
Revaluation in the year
30
-
30
At 31 March 2019
760
167
927
Additions
-
1
1
Disposals
-
(154)
(154)
Revaluation in the year
(145)
-
(145)
At 31 March 2020
615
14
629
Depreciation
At 1 April 2018
(25)
(154)
(179)
Charge for the year restated
(13)
(4)
(17)
Revaluation in the year restated
38
-
38
At 31 March 2019
-
(158)
(158)
Charge for the year
(13)
(4)
(17)
Disposals
-
155
155
Revaluation in the year
13
-
13
At 31 March 2020
-
(7)
(7)
Net Book Value
At 31 March 2020
615
7
622
At 31 March 2019
760
9
769
At 31 March 2018
705
11
716
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
14. Investment property
Group and Company
Land and Buildings (freehold)
Total
£000's
£000's
At 1 April 2018 and 31 March 2019
200
200
Revaluation in 2020
105
105
At 31 March 2020
305
305
The property in Western Road, Mitcham was valued at £305,000 as at 31 March 2020 by Colliers International Valuation UK LLP (external independent qualified valuer). The fair value of the investment property was determined by applying a 7.75% discount rate to the annual rental value of the property as determined by local market conditions. This property was previously the Head Office of Lawrence plc (now ECO Animal Health Group plc) and is occupied by a charity at zero cost. The Directors believe that the open market value of this property is not significantly different to the carrying value.
The value of the investment property would have been recorded at £130,000 on a historical cost basis.
Valuation Technique used
Significant unobservable inputs
Inter-relationship between key unobservable inputs and fair value
RICS Valuation - Global Standards ('Red Book Global Standards')
Estimated market rent
Capital value
Price per square foot in local market.
Yield in local market
General condition
Statutory searches
Environmental matters
Reduced marketability and hence rent achievable by the property.
In determining the fair value of investment property level-3 fair value inputs are used. The significant unobservable inputs used in establishing the fair value of investment property are the estimated market rent and capital value. The Directors believe that the fair value of investment property reflects the carrying value and a significant change in unobservable inputs would not significantly increase or reduce the fair value of the investment property.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
15. Right of use assets
Group
Property
Vehicles
Other
Total
£000's
£000's
£000's
£000's
Cost
Introduction on inception of IFRS 16
2,297
203
7
2,507
Additions
118
85
-
203
Prior year adjustments*
(192)
(37)
15
(214)
Disposals
-
(19)
-
(19)
Foreign exchange movements
16
(3)
-
13
At 31 March 2019 - restated
2,239
229
22
2,490
Additions
370
-
-
370
Disposals
(494)
(33)
-
(527)
Foreign exchange movements
(2)
2
1
1
At 31 March 2020
2,113
198
23
2,334
Depreciation
Introduction on inception of IFRS 16
(328)
(70)
(2)
(400)
Charge for the year
(318)
(60)
(2)
(380)
Prior year adjustments*
(62)
18
(6)
(50)
Disposals
-
19
-
19
Foreign exchange movements
(6)
2
-
(4)
At 31 March 2019 - restated
(714)
(91)
(10)
(815)
Charge for the year
(323)
(61)
(5)
(389)
Disposals
494
33
-
527
Foreign exchange movements
1
-
-
1
At 31 March 2020
(542)
(119)
(15)
(676)
Net Book Value
At 31 March 2020
1,571
79
8
1,658
At 31 March 2019 - restated*
1,525
138
12
1,675
*Please refer to Note 3 for further details on prior year adjustments.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
15. Right of use assets (continued)
Company
Vehicles
Other
Total
£000's
£000's
£000's
Cost
Introduction on inception of IFRS 16
21
7
28
Additions
26
-
26
Prior year adjustments
70
-
70
Disposals
-
-
-
Foreign exchange movements
(2)
-
(2)
At 31 March 2019
115
7
122
Additions
-
-
-
Disposals
(19)
-
(19)
Foreign exchange movements
(1)
-
(1)
At 31 March 2020
95
7
102
Depreciation
Introduction on inception of IFRS 16
(7)
(2)
(9)
Charge for the year
(13)
(2)
(15)
Prior year adjustments
(42)
-
(42)
Foreign exchange movements
1
-
1
At 31 March 2019
(61)
(4)
(65)
Charge for the year
(31)
(1)
(32)
Disposals
19
-
19
Foreign exchange movements
1
-
1
At 31 March 2020
(72)
(5)
(77)
Net Book Value
At 31 March 2020
23
2
25
At 31 March 2019
54
3
57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
16. Fixed asset investments
Group
Investment in Associate
Unlisted investments
Total
(Equity)
(Cost)
£000's
£000's
£000's
At 31 March 2018
89
9
98
Share of associate's result for the year
14
-
14
Foreign exchange differences
4
-
4
At 31 March 2019
107
9
116
Share of associate's result for the year
42
-
42
Foreign exchange differences
8
-
8
At 31 March 2020
157
9
166
Company
Unlisted investments (subsidiaries)
Total
Cost
£000's
£000's
At 31 March 2018, 2019 and 2020
20,077
20,077
Impairment
At 31 March 2018, 2019
-
-
Impairment charge
(45)
(45)
At 31 March 2020
(45)
(45)
Net Book Value
At 31 March 2020
20,032
20,032
At 31 March 2018, 2019
20,077
20,077
The Company's subsidiary Petlove Limited became dormant during the financial year ended 31 March 2020 therefore was fully impaired at the year end.
The Company holds more than 20% of the share capital of the following companies:
Subsidiary undertakings held by the Company
Company
Registered office address
Country of registration or incorporation
Class
Shares held %
Zhejiang ECO Biok Animal Health Products Limited
Zhongguan Industrial Area, Deqing, Zhejiang Province
P. R. China
Ordinary
3*
Petlove Limited
78 Coombe Road, New Malden, Surrey, KT3 4QS
Great Britain
Ordinary
91
ECO Animal Health Limited
78 Coombe Road, New Malden, Surrey, KT3 4QS
Great Britain
Ordinary
100
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
16. Fixed asset investments (continued)
Subsidiary undertakings held by the Group
Company
Registered office address
Country of registration or incorporation
Class
Shares held %
ECO Animal Health Southern Africa (Pty) Limited.
228 Athol Road, Highlands North, Johannesburg 2192
South Africa
Ordinary
100
Zhejiang ECO Biok Animal Health Products Limited.
Zhongguan Industrial Area, Deqing, Zhejiang Province
P. R. China
Ordinary
48*
Shanghai ECO Biok Veterinary Drug Sale Company Ltd. (via Zhejiang ECO Biok Animal Products Ltd.)
Room 1502-3, Imago Plaza, No. 99 Wuning Road, Ptro District, Shanghai 200063
P. R. China
Ordinary
100
ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda.
Av. Dr. Cardoso de Melo, 1470, Cl311, Villa Olimpia, CEP 04548-005, Sao Paulo
Brazil
Ordinary
100
ECO Animal Health Japan Inc.
1-2-1, Hamamatsu-cho, Minato-Ku, Tokyo
Japan
Ordinary
100
ECO Animal Health USA Corp.
344 Nassau Street, Princeton, New Jersey, 08540
U.S.A.
Ordinary
100
Interpet LLC.
3775 Columbia Pike, Ellicott City, Maryland, 21043
U.S.A.
Ordinary
100
ECO Animal Health de Mexico, S de R.L. de C.V.
Av Techologico Sur 134-4, Unidad Habitacional Moderna, Queretaro, 76030
Mexico
Ordinary
100
ECO Animal Health de Argentina S.A.
Calle 4 E 43/44 N: 581 P.6 D:B La Plata, Buenos Aires
Argentina
Ordinary
100
ECO Animal Health Malaysia Sdn. Bhd.
10th Floor, Menara Hap Seng, No 1 & 3, Jalan P Ramlee, 50250 Kuala Lumpur
Malaysia
Ordinary
100
ECO Animal Health India (Private) Ltd.
No 33/5, Second Floor, Mount Kailash Building, Meanee Avenue Road, Ulsoor Bangalore, Karnataka, 560042
India
Ordinary
100
ECO Animal Health Europe Ltd.
6 Northbrook Road, Dublin 6, Eire
Republic of Ireland
Ordinary
100
*The Group's control over its China based subsidiary Zhejiang ECO Biok Animal Health Products Limited is achieved via a joint holding of 51% of the entity's Ordinary share capital between the Company (3%) and its UK based trading subsidiary ECO Animal Health Limited (48%).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
16. Fixed asset investments (continued)
Subsidiary undertakings held by the Group (continued)
The principal activity of these undertakings for the last relevant financial year was as follows:
Company Name
Principal activity
ECO Animal Health Limited
Distribution of animal drugs
ECO Animal Health Southern Africa (Pty) Limited
Non-trading
Petlove Limited
Non-trading
Zhejiang ECO Biok Animal Health Products Limited
Manufacture of animal drugs
Shanghai ECO Biok Veterinary Drug Sale Company Ltd.
Distribution of animal drugs
ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda
Distribution of animal drugs
ECO Animal Health Japan Inc.
Distribution of animal drugs
ECO Animal Health USA Corp.
Distribution of animal drugs
nterpret LLC
Non-trading
ECO Animal Health de Mexico, S. de R. L. de C. V.
Distribution of animal drugs
ECO Animal Health de Argentina S.A.
Non-trading
ECO Animal Health Malaysia Sdn. Bhd
Non-trading
ECO Animal Health India (Private) Ltd
Non-trading
ECO Animal Health Europe Ltd
Non-trading
The aggregate amount of capital and reserves and the results of these undertakings for the last relevant financial year were:
Equity
Profit/(loss)
Equity
Profit/(loss)
for the year
for the year
2020
2020
2019
2019
£000's
£000's
£000's
£000's
Restated
Restated
ECO Animal Health Limited
1,021
1,834
(1,146)
5,737
ECO Animal Health Southern Africa (Pty) Limited
276
19
276
19
Zhejiang ECO Biok Animal Health Products Ltd
11,965
3,473
10,794
3,363
ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda.
(227)
(571)
307
(163)
ECO Animal Health Japan Inc.
1,505
152
1,253
175
ECO Animal Health de Mexico, S. de R. L. de C. V.
141
99
118
53
ECO Animal Health USA Corp.
(1,648)
(997)
(604)
(725)
ECO Animal Health India (Private) Ltd
-
-
-
-
ECO Animal Health Europe Ltd
-
-
-
-
ECO Animal Health Malaysia Sdn Bhd
(21)
(7)
(21)
(7)
The equity and results of Shanghai ECO Biok Veterinary Drug Sale Company Ltd are included within those disclosed for Zhejiang ECO Biok Animal Health Products Limited.
All of the subsidiaries listed above were included in the consolidation for the year.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
16. Fixed asset investments (continued)
Zhejiang ECO Biok Animal Health Products Limited and ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda both have 31 December year ends. The Group receives management accounts for the three months to 31 March for these subsidiaries for use in preparing the consolidated financial statements.
Interpret LLC has been excluded from consolidation as it holds no assets or liabilities and has ceased trading.
The following trading subsidiaries have no requirement for audit under local legislation:
ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda.
ECO Animal Health Japan Inc.
ECO Animal Health USA Corp.
ECO Animal Health de Mexico, S. de R. L. de C. V.
ECO Animal Health Group PLC has given statutory guarantees against all the outstanding liabilities of ECO Animal Health Ltd, thereby allowing its subsidiary to be exempt from the annual audit requirement under Section 479A of the Companies Act, for the year ended 31 March 2020.
Non-controlling interests
Zhejiang ECO Biok Animal Health Products Limited (Zhejiang ECO Biok) and Shanghai ECO Biok Veterinary Drug Sale Company Limited (Shanghai ECO Biok), both 51% owned subsidiaries of the Group, have material non-controlling interests (NCI). Summarised financial information in relation to these two subsidiaries is presented below together with amounts attributable to NCI.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
16. Fixed asset investments (continued)
Please note as Shanghai ECO Biok is a 100% owned subsidiary of Zhejiang ECO Biok, the summarised results below are consolidated on Zhejiang ECO Biok level, before wider group eliminations.
2020
2019
For the year ended 31 March
£000's
£000's
Restated*
Revenue
20,169
24,300
Cost of sales
(10,374)
(14,311)
Gross Profit
9,795
9,989
Administrative expenses
(5,275)
(5,232)
Operating profit
4,520
4,757
Finance expense
(67)
(71)
Profit before tax
4,453
4,686
Tax expense
(1,201)
(1,435)
Profit after tax
3,252
3,251
Profit / (loss) allocated to NCI
1,593
1,593
Other comprehensive income allocated to NCI
39
(2)
Dividend paid to NCI
(968)
(1,643)
2020
2019
As at 31 March
£000's
£000's
Assets:
Property, plant and equipment
704
799
Right-of-use assets
891
816
Deferred tax assets
30
30
Inventories
3,150
4,055
Trade and other receivables
6,457
7,530
Cash and cash equivalents
5,339
4,045
16,571
17,275
Liabilities:
Trade and other payables
3,306
5,261
Contract liabilities
605
848
Lease liabilities - short term
96
87
Lease liabilities - long term
857
775
4,864
6,971
Accumulated NCI
5,766
5,102
*Please refer to Note 3 for further details on prior year restatements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
16. Fixed asset investments (continued)
Joint Operations
The Group also holds (by means of its ownership of ECO Animal Health USA Corp.), a 50% interest in Pharmgate Animal Health LLC, which is resident in the U.S.A. Pharmgate Animal Health LLC distributes the Group's products in the U.S.A.
The Group also holds (by means of its ownership of ECO Animal Health Ltd) a 50% interest in Pharmgate Animal Health Canada Inc, which distributes its products into Canada.
The Group also holds (by means of its ownership of ECO Animal Health Europe Ltd) a 50% interest in ECO-Pharm Limited, based in the Republic of Ireland. ECO-Pharm Limited has not yet commenced trading.
Both Pharmgate Animal Health LLC and Pharmgate Animal Health Canada Inc. have accounting years which end on 31 December.
The Group's holdings in each of the joint operations' share capital is given in the table below:
Pharmgate Animal Health Canada Inc
Holding
Shares
Holding
(shares)
in issue
%
Common Shares
100
200
50
Class A Shares
100
100
100
Class B Shares
-
100
-
Pharmgate Animal Health USA LLC
Holding
Shares
Holding
(shares)
in issue
%
Common Shares
100
200
50
Class A Shares
100
100
100
Class B Shares
-
100
-
ECO-Pharm Limited
Holding
Shares
Holding
(shares)
in issue
%
Common Shares
25,000
50,000
50
Class A Shares
1
1
100
Class B Shares
-
1
-
In the case of Pharmgate Animal Health Canada Inc and Pharmgate Animal Health USA LLC, A shares carry the rights to dividends payable out of profits attributable to the Group. These are made up of profits made by products supplied by the ECO Group plus 50% of any profit relating to new products developed jointly by the partners to the joint operation.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
16. Fixed asset investments (continued)
In the case of ECO-Pharm Limited, profits attributable to the Group are made up of profits made by products supplied by the ECO Group plus 33% of any profit relating to new products developed jointly by the partners to the joint operation.
The following amounts included in the Group's financial statements are related to its interest in these joint operations.
Pharmgate Animal Health LLC
Pharmgate Animal Health Canada Inc
2020
2019
2020
2019
£000's
£000's
£000's
£000's
Restated
Restated
Current assets
2,325
968
511
461
Current liabilities
(2,310)
(1,363)
(510)
(569)
Sales
7,612
9,161
3,358
3,764
Profit
-
-
-
-
Associated Company
The Group also holds (by means of its ownership of ECO Animal Health Japan Inc.) a 47.62% interest in EcoPharma.com which is resident in Japan. This Company distributes Animal Health products and other general merchandise within Japan.
ECO Animal Health Japan Inc's holding in EcoPharma.com is 10,000,000 shares out of a total of 21,000,000 shares.
The following amounts included in the Group's financial statements are related to its interests in this associated Company.
2020
2019
Investments (share of net assets)
£000's
£000's
At 1 April
107
89
Share of results for the year
42
14
Foreign exchange movement
8
4
At 31 March
157
107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
16. Fixed asset investments (continued)
2020
2019
Restated
Summarised financial information
£000's
£000's
At 31 March
Current assets
541
386
Non-current assets
19
19
Current liabilities
221
181
Non-current liabilities
12
5
Net assets (100%)
327
219
Group share of net assets (47.62%)
156
104
Year ended 31 March
Revenue
1,634
1,514
Net profit
79
30
17. Inventories
Group
Company
2020
2019
2020
2019
£000's
£000's
£000's
£000's
Restated
Raw materials and consumables
6,734
13,960
-
-
Finished goods and goods for resale
4,397
5,393
-
-
Work in progress
6,133
124
-
-
17,264
19,477
-
-
The cost of inventories recognised as an expense and included in cost of sales in the period amounted to £38,381,000 (2019 restated: £35,337,000).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 202018. Trade and other receivables
Group
Company
Non-current
2020
2019
2020
2019
Restated
£000's
£000's
£000's
£000's
Amounts owed by group undertakings
-
-
59,295
59,988
The intercompany debt is due on demand, however the company has classified the receivable as a non-current asset as it does not expect to realise the asset within 12 months after the reporting period.
Group
Company
Current
2020
2019
2020
2019
£000's
£000's
£000's
£000's
Restated
Restated
Trade receivables
25,974
22,525
-
-
Other receivables
1,884
339
30
35
Prepayments and accrued income
495
469
25
11
28,353
23,333
55
46
As at 31 March 2020, trade receivables of £11,402,000 (2019: £2,592,000) due to the Group and £nil (2019: £nil) due to the Company were past due but not impaired. These relate to long standing distributors with whom we have agreed settlement terms and with whom there is no history of default. The ageing analysis of these trade receivables is as follows:
Group
Company
2020
2019
2020
2019
£000's
£000's
£000's
£000's
Up to 3 months past due
6,974
1,547
-
-
3 to 6 months past due
2,899
515
-
-
Over 6 months past due
1,529
530
-
-
11,402
2,592
-
-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 202018. Trade and other receivables (continued)
As at 31 March 2020, impairment provisions of £419,000 on gross receivables of £705,000 (2019: £280,000 on gross receivables of £280,000) were recognised. The impaired receivables mainly relate to debt for which recovery is still being sought. The Group mitigates its exposure to credit risk by extensive use of commercial credit reference agencies, close management of its customers' trading against terms offered and use of retention of title clauses wherever possible.
The Group has experienced minimal bad debt history and concluded that a wholly immaterial expected credit loss provision would be required. This consideration includes the potential risks arising from COVID on its customers. Its experience with customers since 31 March 2020, is consistent with those considerations that credit risk has not increased. No collateral is held against customer receivable balances.
The ageing analysis of the impaired balances is as follows:
Group
Company
2020
2019
2020
2019
£000's
£000's
£000's
£000's
Current debt
152
1
-
-
Up to 3 months past due
4
-
-
-
3 to 6 months past due
2
68
-
-
Over 6 months past due
261
211
-
-
419
280
-
-
Movement on the Group provision for impairment of trade receivables is as follows:
Group
2020
2019
£
£
Balance at 1 April
280
470
Additional provision made
140
-
(Recovered) in the year
-
(33)
Written off in the year
(1)
(157)
Balance at 31 March
419
280
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 202018. Trade and other receivables (continued)
The carrying amounts of trade and other receivables are denominated in the following currencies:
Group
Company
2020
2019
2020
2019
£000's
£000's
£000's
£000's
Restated
Restated
Pounds Sterling
759
1,130
55
46
Euros
2,875
3,288
-
-
U S Dollars
12,875
7,053
-
-
Chinese RMB
6,757
7,805
-
-
Brazilian Real
2,233
946
-
-
Japanese Yen
841
695
-
-
Canadian dollars
511
816
-
-
Mexican Pesos
1,499
1,477
-
-
Other currencies
3
123
-
-
28,353
23,333
55
46
The carrying amounts of trade and other receivables are not significantly different to their fair values.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
19. Deferred tax
Group
Deferred tax assets and liabilities are attributable to the following:
Assets / (Liabilities)
Net
2020
2019
2020
2019
£000's
£000's
£000's
£000's
Restated
Restated
Trade related temporary differences
(2,487)
(2,152)
(2,487)
(2,152)
Overseas trade related temporary differences
30
-
30
-
Freehold property
(76)
(75)
(76)
(75)
Investment property
(19)
(10)
(19)
(10)
Plant and equipment
(77)
(49)
(77)
(49)
Deferred tax on share options
-
503
-
503
Tax losses carried forward
1,993
1,783
1,993
1,783
Amount (payable) after more than one year
(636)
-
(636)
-
The movement on the deferred tax account can be summarised as follows:
Trade related temporary differences
Freehold property
Investment property
Plant and machinery
Share options
Total
£000's
£000's
£000's
£000's
£000's
£000's
At 31 March 2019 - Restated
(369)
(75)
(10)
(49)
503
-
(Charge) for the year through income statement
(398)
-
(9)
(28)
(130)
(565)
Credit for the year through income statement
303
-
-
-
-
303
(Charge) for the year through reserves
-
(1)
-
(373)
(374)
At 31 March 2020
(464)
(76)
(19)
(77)
-
(636)
Trade related temporary differences are predominantly related to research and development tax deductions claimed in advance of expense recognition in the income statement.
The tax losses carried forward are not expected to expire under current legislation.
Any future dividend received from the Chinese subsidiary Zhejiang ECO Biok Animal Health Products Limited will be subject to a 5% withholding tax. The deferred tax liability in respect of this has not been recognised.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
19. Deferred tax (continued)
Company
Freehold property
Investment property
Share options
Total
Freehold property
Investment property
Share options
Total
2020
2020
2020
2020
2019
2019
2019
2019
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
At 1 April
(75)
(10)
85
-
(79)
(11)
90
-
(Charge) for the year through income statement
-
(9)
(22)
(31)
-
-
-
-
Credit for the year through income statement
-
-
-
-
4
1
34
39
(Charge) for the year through reserves
(1)
-
(63)
(64)
-
-
(39)
(39)
At 31 March
(76)
(19)
-
(95)
(75)
(10)
85
-
At the year ended 31 March 2020 the Group had a deferred tax asset of £nil on share options. (2019 restated: A deferred tax asset on share options of £139k was unrecognised).
At the year ended 31 March 2020 the Group has an unrecognised deferred tax asset in relation to unused overseas tax losses amounting to £700,000 (2019: £350,000). These tax losses are not expected to expire.
20. Cash and cash equivalents
Cash and cash equivalents comprise cash and short-term deposits held by the Group. The carrying amount of these assets are not significantly different to their fair value.
Group
Company
2020
2019
2020
2019
£000's
£000's
£000's
£000's
Restated
Cash and cash equivalents
11,877
16,863
177
4,236
Net funds per cash flow
11,877
16,863
177
4,236
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
21. Trade and other payables
Group
Company
2020
2019
2020
2019
£000's
£000's
£000's
£000's
Restated
Restated
Trade payables
7.608
9,520
189
17
Contract liabilities
594
847
-
-
Other payables
2,093
1,641
197
132
Accruals and deferred income
4,191
1,355
181
147
14,486
13,363
567
296
22. Borrowings
Reconciliation of movement in borrowings
Group
Group
Company
Company
2020
2019
2020
2019
£000's
£000's
£000's
£000's
Restated
Opening Borrowings
-
-
-
-
Overdraft drawn
2,032
-
2,001
-
Overdraft paid
-
-
-
-
Closing borrowings
2,032
-
2,001
-
Overdraft facility
The Group has the facility (up to £5,000,000) to overdraw in specific currencies but no net facility. The interest rate for all currency overdrafts is 1.8% over the relevant currency base rate and the borrowings are secured by two debentures held over all assets of the Company. This facility is repayable on demand. The Company and ECO Animal Health Limited have each given a guarantee to the Group's bankers for the foreign currency overdraft facility.
The undrawn facility is £2,968,000 (2019: no facility).
Group
Group
Company
Company
2020
2019
2020
2019
£000's
£000's
£000's
£000's
Restated
Cash and cash equivalents
11,877
16,863
177
4,236
Overdraft
(2,032)
-
(2,001)
-
Lease Liabilities
(1,766)
(1,770)
(27)
(67)
Net Cash
8,079
15,093
(1,851)
(4,169)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
22. Borrowings (continued)
Reconciliation of Lease Liabilities
Group
Group
Company
Company
2020
2019
2020
2019
£000's
£000's
£000's
£000's
Restated
Restated
Opening lease liabilities
(1,770)
-
(65)
-
Recognition of Lease liabilities on adoption of IFRS 16
-
(2,012)
-
(67)
New lease liabilities
(359)
(88)
-
(30)
Repayment of lease liabilities principal
364
338
38
31
Lease liabilities interest
(125)
(139)
(13)
(22)
Lease liabilities interest repayment
125
139
13
22
Foreign exchange
(1)
(8)
(2)
1
Closing lease Liabilities
(1,766)
(1,770)
(29)
(65)
Current lease liabilities
(342)
(330)
(24)
(36)
Non-current lease liabilities
(1,424)
(1,440)
(5)
(29)
The Group leases a number of properties and motor vehicles in the jurisdictions it operates in. At 31 March 2020 there were no termination or extension options on leases.
The Group expensed £47,000 for the year ended 31 March 2020 (2019 restated: £91,000) for short term and low value leases.
Group Leases Maturity
At 31 March 2020 the Group held the following number of leases in each of the maturity categories below.
Property
Vehicle
Other
Total
Up to 1 year
-
3
-
3
Between 2 - 5 years
5
8
3
16
Over 5 years
3
-
-
3
Total number of leases
8
11
3
22
Average lease term (in years)
10
4
5
The weighted average incremental borrowing rate applied to lease liabilities recognised in the statement of financial position was 7.10% at 31 March 2020 (2019 restated: 7.84%, initial application date: 7.03%).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
22. Borrowings (continued)
Weighted average incremental borrowing rate:
Group
Group
Group Transition
2020
2019
Restated
2018
Property
5.9%
5.8%
5.9%
Vehicle
29.0%
29.0%
29.0%
Other
4.0%
4.0%
4.0%
Weighted average
7.10%
7.84%
7.03%
Amounts payable under lease arrangements for the Group
The undiscounted contractual cash flows payable under the existing lease arrangements at 31 March 2020 are analysed into the following maturity categories.
Up to 1 year
Between 2 - 5 years
Over 5 years
Total
£000's
£000's
£000's
£000's
Amounts payable under lease arrangements
502
1,025
1,621
3,148
23. Pension and other post-retirement benefit commitments
Defined Contribution Pension Scheme
The Group operates defined contribution pension schemes. The assets of the schemes are held separately from the Group and independently administered by insurance companies. The pension cost charge represents contributions payable to the funds in the year and amounted to £262,000 (2019: £321,000).
Defined Benefit Pension Scheme
The Group operates a defined benefit scheme in the UK for ex-employees only. A full actuarial valuation was carried out at 6 April 2018 and updated to 31 March 2020 for IAS 19 purposes by a qualified independent actuary. The major assumptions used by the actuary were:
31 March
31 March
2020
2019
Discount rate
2.40%
2.15%
Pension revaluation
2.70%
2.25%
Inflation assumption with a maximum of 5% p.a.
2.70%
2.25%
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
23. Pension and other post-retirement benefit commitments (continued)
Mortality rates
No pre-retirement mortality is assumed (2019: none)
Post retirement mortality is based on 100% of the SAPS "S2" normal tables, based on the members' year of birth, improving in line with CMI 2019 projections with a 1.25% long term trend rate (2019: CMI 2018).
Under these mortality assumptions, the expected future lifetime for a member retiring at age 65 at the year-end would be 22.4 years for males (2019: 21.7 years) and 24.4 years for females
(2019: 23.7 years). For members retiring in 20 years' time, the expectation of life would be 23.7 years for males (2019: 23.0 years) and 25.9 years for females (2019: 25.2 years).
The weighted average term of the liabilities is 10 years (2019: 10 years).
The scheme is exposed to a number of risks including:
· Interest rate risk: Movements in the discount rate used could affect the present value of the defined benefit pension obligations.
· Longevity risk: Changes in the estimated mortality rates of former employees could affect the present value of the defined benefit pension obligations.
· Investment risk: Variations in the actual return from the scheme's investments could affect the scheme's ability to meet its future pension obligations
Results
2020
2019
£000's
£000's
£000's
£000's
Assets at start of year
1,802
2,503
Defined benefit obligation at start of year
(1,899)
(2,603)
Net (liability) at 1 April
(97)
(100)
Return on assets
38
61
Interest cost
(39)
(62)
Past service cost
-
(19)
(1)
(20)
(Loss) on asset return
(2)
(38)
Gain/(loss) on changes in assumptions
14
2
Statement of other comprehensive income
12
(36)
Employer contributions (gross)
59
59
Net (liability) at 31 March
(27)
(97)
Actual assets at end of year
1,787
1,802
Actual defined benefit obligation at end of year
(1,814)
(1,899)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
23. Pension and other post-retirement benefit commitments (continued)
The pension fund assets (principally made up of annuities for the benefit of active pensioners) are all held within a policy managed by an insurance company regulated by the Financial Conduct Authority of the United Kingdom and the United Kingdom Pensions Regulator. By law, the trustees are required to act in the best interests of participants to the schemes. Responsibility for governance of the plans - including investment decisions and contributions schedules lies with trustees.
Reconciliation of changes in the asset value during the year
2020
2019
£000's
£000's
£000's
£000's
Fair value of assets at 1 April
1,802
2,503
Return on assets
38
61
(Loss) on asset return
(2)
(38)
Employer contributions (gross)
59
59
(Decrease)/increase in secured pensioners' value due to scheme experience
(110)
(783)
Benefits paid
-
-
Fair value of assets at 31 March
1,787
1,802
Reconciliation of changes in the liability value during the year
Defined benefit obligation at 1 April
1,899
2,603
Interest cost
39
62
Past service cost
-
19
(Gain)/loss on changes in assumptions
(14)
(2)
(Decrease)/increase in secured pensioners' value due to scheme experience
(110)
(783)
Benefits paid
-
-
Defined benefit obligation at 31 March
1,814
1,899
The expected contribution to be paid by the employer during the next accounting year is £59,000 (2019: £59,000).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
23. Pension and other post-retirement benefit commitments (continued)
Year ended 31 March
2020
2019
Restated
2018
2017
2016
£000's
£000's
£000's
£000's
£000's
Fair value of plan assets
1,787
1,802
2,503
2,314
2,715
Present value of defined benefit obligation
1,814
1,899
2,603
2,435
2,431
(Deficit)/Surplus in plan
(27)
(97)
(100)
(121)
284
Experience (losses)/gains on plan liabilities
(2)
(38)
(7)
(300)
13
Plan Assets
2020
2019
£000s
£000s
Assets under management
145
102
Annuities
1,642
1,700
Total
1,787
1,802
Assets under management composition
2020
2019
£000s
£000s
Gilts
9.80%
9.40%
Corporate Bonds
37.00%
35.50%
UK Equities
15.60%
17.30%
Overseas Equities
26.10%
26.60%
Property
10.10%
9.90%
Cash
1.40%
1.30%
100.00%
100.00%
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
23. Pension and other post-retirement benefit commitments (continued)
Defined benefit obligation - sensitivity analysis
The following amounts are the effect (on the defined benefit obligation) of reasonably possible changes to the key actuarial assumptions, as required by IAS 19.
Actuarial assumption
Reasonably Possible Change
(Decrease)/Increase in Defined Benefit Obligation
2020
2019
£000's
£000's
£000's
£000's
Restated*
Discount rate
(+/- 0.25%)
(42)
44
(50)
50
Members' life expectancy
(+/- 1year)
(97)
101
(100)
110
*2019 figures have been recalculated in order to be comparable.
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognised in the Statement of financial position.
The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.
The Company has given a floating charge dated 1 December 2006 over all of its assets to the trustees of the pension fund to secure all present and future obligations and liabilities to the pension fund.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
24. Share-based payments
The expense recognised for share-based payments made during the year is shown in the following table:
2020
2019
£000's
£000's
Total expense arising from equity settled share-based payments transactions
284
631
The share-based payment plans are described below:
Movements in issued share options during the year
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the period:
Options
Options
2020
2020
2019
2019
000's
WAEP
000's
WAEP
£
£
Outstanding at 1 April
4,292
3.62
5,556
3.26
Granted during the period
-
-
387
3.82
Cancelled during the period
(668)
3.55
(33)
3.54
Exercised during the period
(105)
2.27
(1,618)
2.40
Outstanding at 31 March
3,519
3.68
4,292
3.62
Exercisable at 31 March
2,812
3.36
2,279
2.78
The average share price during the year was 319.10p (2019: 481.41p).
The maximum aggregate number of shares over which options may currently be granted cannot exceed 10% of the nominal share capital of the Company on the grant date. The options outstanding at 31 March 2020 had a weighted average share price of £3.68 (2019: £3.62) and a weighted average remaining contractual life of 3.1 years (2019: 4.4 years).
ECO Animal Health Group plc Executive Share Option Scheme
In accordance with the Executive Share Option Scheme, approved and unapproved share options are granted to Directors and employees who devote at least 25 hours per week to the performance of duties or employment with the Company.
Details of options granted to Directors can be found in the Directors Report and notes 29 (Directors' Emoluments) and 31 (Related Party Transactions).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
24. Share-based payments (continued)
The exercise price of the options is equal to the market price of the shares at the date of grant. The options vest three years from the date of grant and if the option holder ceases to be a Director or employee of the Company due to injury, disability, redundancy or retirement on reaching pensionable age or any other age at which they are bound to retire at in accordance with the terms of their contract of employment, the option may be exercised within a period of six months after the option holders so ceasing, although the Board may, at its discretion, extend this period by up to 36 months after the date of cessation.
If the option holder ceases employment for any other reason, the option may not be exercised unless the Board permits. The approved and unapproved options will be forfeited where they remain unexercised at the end of their respective contractual lives of ten and seven years respectively.
An analysis of the expiry dates of the outstanding options at 31 March 2020 is given below:
Date of grant
Unapproved
Approved
Exercise price (pence)
Expiry date
11 October 2011
11,000
186.50
11 October 2021
09 October 2013
23,340
196.00
09 October 2023
09 October 2013
3,050
196.00
09 October 2020
21 August 2014
14,400
161.50
07 August 2024
21 August 2014
14,000
161.50
07 August 2021
13 February 2015
34,500
200.50
13 February 2025
13 February 2015
138,500
200.50
13 February 2022
26 August 2015
35,400
265.00
26 August 2025
26 August 2015
572,100
265.00
26 August 2022
18 December 2015
600,000
312.50
18 December 2022
18 January 2016
10,200
315.00
18 January 2026
18 January 2016
286,800
315.00
18 January 2023
17 February 2016
19,600
312.50
17 February 2026
17 February 2016
400
312.50
17 February 2023
01 March 2016
9,600
312.50
01 March 2026
01 March 2016
40,400
312.50
01 March 2023
12 September 2016
25,100
432.50
12 September 2026
12 September 2016
423,900
432.50
12 September 2023
15 September 2016
5,900
435.00
15 September 2026
15 September 2016
544,100
435.00
15 September 2023
21 September 2017
53,475
620.00
21 September 2027
21 September 2017
287,525
620.00
21 September 2024
12 April 2018
3,900
545.00
12 April 2028
23 October 2018
75,200
380.00
23 October 2028
23 October 2018
276,800
380.00
23 October 2025
19 December 2018
7,800
380.00
19 December 2028
19 December 2018
2,200
380.00
19 December 2025
3,189,775
329,415
The market price of the shares at 31 March 2020 was 220.0p (2019: 440.0p) with a range in the year of 135.0p to 445.0p (2019: 367.0p to 581.0p).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
24. Share-based payments (continued)
The Company uses a Black-Scholes model to value share-based payments and the following table lists the inputs to this model for the last five years. No new options were issued in the year ended 31 March 2020.
2020
2019
2018
2017
2016
Vesting period (years)
n/a
3
3
3
3
Option expiry (years)
7-10 yrs
7-10 yrs
7-10 yrs
7-10 yrs
Dividends expected on the shares
1.90%
1.10%
1.50%
1.50%
Risk free rate (average)
1.00%
1.00%
1.00%
1.00%
Volatility of share price
20%
20%
20%
20%
Weighted average fair value (pence)
51.0
98.6
61.4
43.0
The risk-free rate has been based on the yield from UK Government Treasury coupons. The volatility of the share price was estimated based on standard deviation calculations on the historic share price.
The Company recognised £284,000 share-based payment expense in the income statement in the year ended 31 March 2020.
25. Share capital
2020
2019
£000's
£000's
Authorised
68,100,000 ordinary shares of 5p each
3,405
3,405
10,790 deferred ordinary shares of 10p each
1
1
32,334 convertible preference shares of £1 each
32
32
3,438
3,438
Allotted, called up and fully paid
67,547,626 (2019: 67,443,126) ordinary shares of 5p each
3,377
3,372
During the year 104,500 shares were issued at a premium of £232,000 as a result of the exercise of options by employees. (2019: 1,618,310 shares at a premium of £3,803,000).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
26. Non-controlling (minority) interests
2020
2020
2019
2019
£000's
£000's
£000's
£000's
Restated
Restated
Balance at 1 April 2019
5,102
5,154
Share of adjustment to reserves on implementation of IFRS 16
-
1
Prior year adjustment on IFRS 16 opening
-
(12)
Balance at 1 April 2019 - restated
5,102
5,143
Share of subsidiary's profit for the year
1,593
1,593
Share of foreign exchange gain/(loss) on net investment
39
9
1,632
1,602
Share of dividend paid by subsidiary
(968)
(1,643)
Balance at 31 March
5,766
5,102
27. Other reserves
The Group and Company held a Capital redemption reserve of £106,000 as at 31 March 2020 (2019 restated: £106,000, 2018 restated: £106,000).
Included in the Group's foreign currency revaluation reserve are the following exchange movements on consolidation of the subsidiaries and joint operations listed below:
At 1 April
Movement
At 31 March
2019
in the year
2020
£000's
£000's
£000's
In respect of:
Restated
Zhejiang ECO Biok Animal Health Products Limited
854
40
894
ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda
(381)
35
(346)
ECO Animal Health Japan Inc.
(5)
99
94
ECO Animal Health USA Corp.
(21)
(46)
(67)
ECO Animal Health de Mexico, S. de R. L. de C. V.
15
(75)
(60)
Pharmgate LLC
5
6
11
Foreign currency differences attributable to owner credited directly to reserves.
467
59
526
28. Capital commitments
The Group had no authorised capital commitments as at 31 March 2020 (2019: Nil).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
29. Directors' emoluments
2020
2019
£000's
£000's
Restated*
Emoluments for qualifying services
847
943
Company pension contributions to money purchase schemes
26
16
Share-based payments
70
404
Benefits in kind
11
16
954
1,379
During the year the Directors exercised nil (2019: 15,000) share options realising a gain of £nil (2019: £1,861,800).
The highest paid Director received £385,000 (2019 restated: £638,000) including £38,000 (2019: £191,000) of share-based payments and £10,000 (2019: £10,000) of pension contributions.
The bonus values have been restated to include the amount accrued for the financial year and not the amount related to performance of the previous financial year, as previously reported.
*Please refer to Note 3 for further details on prior year adjustments.
30. Employees
Number of employees
The average number of employees (including Directors) during the year was:
2020
2019
Number
Number
Directors
5
7
Production and development
66
70
Administration
45
47
Sales
88
93
204
217
Employment costs (including amounts capitalised)
2020
2019
£000's
£000's
Restated*
Wages and salaries
9,584
9,878
Share-based payments
284
631
Social security costs
764
914
Other pension costs
269
353
10,901
11,776
*The bonuses have been restated in accordance with note 3.4.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
31. Related party transactions
During the year ended 31 March 2020 Julia Trouse, a longstanding former Director and Company Secretary of the Group, withdrew cash from the Company totalling £25,748 (2019 - £46,920) which was recorded in the Company and Group's financial statements as administrative costs in each period.
Mrs Trouse withdrew further cash over an extended period starting in 2014, the cumulative amount of which was £322,109 as at 31 March 2020 (£296,361 as at 31 March 2019; and £249,441 as at 31 March 2018). These withdrawals were not approved, were outside the normal course of the Group's business and were in excess of Mrs Trouse's contractual remuneration levels. The highest total value of withdrawals in any year was £87,187. No reimbursement of these withdrawals was assured at any of the reporting dates to 31 March 2020, therefore all amounts remain expensed in the periods in which each payment was made and no asset for reimbursement has been included in the financial statements as at 31 March 2020. Mrs Trouse resigned as a director of the Company on 19 August 2019 and ceased employment with the Company on 31 January 2020.
The Group's Internal Audit department identified the payments and reported their findings to the Board in April 2020. Further work was performed to help assess the full extent of the withdrawals. Mrs Trouse agreed to repay these amounts to the Company and Group and repayment of £307,113 was made in August 2020. No interest was received. The reimbursement will be recorded as Other Income in the financial statements for the year ending 31 March 2021. Discussions are on-going with regard to repayment of the remaining £14,996.
During the year Clemo Consultancy Ltd, a company in which B Clemo is a director, shareholder and person with significant control received consultancy fees of £14,500 (2019: £nil).
During the year P Lawrence and his family received dividends to the value of £489,000 (2019: £882,000).
The other Directors and their families received dividends to the value of £1,000 (2019: £2,000).
During the year ended 31 March 2019, the Group provided management services to Anpario plc, a Company in which P A Lawrence is a Director and holds share options. Fees of £7,000 were charged (2020: £Nil).
During the year ended 31 March 2019, the Group provided management services to Amati Aim VCT plc, a Company in which P A Lawrence is a Director. Fees of £14,579 were charged (2020: £Nil)
During the year ended 31 March 2019, the Group employed two adult children of P A Lawrence and provided their services to Emmelle Construction Limited, a Company in which P A Lawrence is both a Director and shareholder. All employment costs of the two adult children, for five months of the year until August 2018 when the arrangement was terminated, of £18,000 (2020: nil) were fully recharged to Emmelle Construction Limited.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
31. Related party transactions (continued)
Interest and management charges from Parent to the other Group companies
During the year the Company made management charges on an arm's length basis to ECO Animal Health Limited amounting to £475,000 (2019: £473,000) and charged interest of £890,000 (2019: £910,000) to the Company. Both of these charges were made through the inter-company account and were eliminated on consolidation.
During the year Zhejiang ECO Biok Animal Health Products Limited paid dividends of £77,000 to ECO Animal Health Group plc (2019: £131,000) and £930,000 to ECO Animal Health Limited (2019: £1,578,000).
During the year ECO Animal Health Group plc received no dividend from ECO Animal Health Limited (2019: £15,000,000).
Key management compensation
The Group regards the Board of Directors as its key management.
2020
2019
£000's
£000's
Restated*
Salaries and short-term benefits
858
959
Retirement benefits
26
16
Share-based payments
70
404
954
1,379
* The bonus values have been restated to include the amount accrued for the financial year and not the amount related to performance of the previous financial year, as previously reported.
The number of Directors for which retirement benefits were accruing was 4 (2019: 3).
32. Financial instruments
The Group uses financial instruments comprising borrowings, cash and cash equivalents and various items, such as trade receivables, trade payables etc. that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the Group's operations. The Directors are responsible for the overall risk management.
The main risks arising from the Group's use of financial instruments are capital and liquidity risk, credit risk and foreign currency risks and they are summarised below. The policies have remained unchanged throughout the year.
Capital and liquidity risk
The Group manages its capital to ensure continuity as a going concern whilst maximising returns through the optimisation of debt and equity. As part of this, the Board considers the cost and risk associated with each class of capital. The capital structure of the Group consists of cash and cash equivalents in note 20, borrowings in note 22 and equity attributable to equity holders of the parent comprising issued capital, reserves and retained earnings as disclosed in the Group's statement of changes in equity.
Liquidity risk is managed by maintaining adequate reserves and banking facilities with continuous monitoring of the latest developments by management.
The Group's objectives when maintaining capital are:
- to safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and
- to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.
The Group sets the amount of capital it requires in proportion to risk. The group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.
As an AIM quoted company, our governance framework is underpinned by the AIM Rules and the Quoted Companies Alliance (QCA) Corporate Governance Code 2018 (the 'QCA Code'). In addition to the QCA Code, we monitor developments and guidance in the UK Corporate Governance Code, applicable to main market listed companies, to keep abreast of matters which we feel could also be embedded as best practice as part of a progressive approach. We also review the Investment Association guidelines and seek to comply with these where applicable.
At 31 March 2020, the Group was contractually obliged to make repayments as detailed below:
2020
2019
Within one year or on demand
£000's
£000's
Restated
Trade payables
7,608
9,520
Other payables
2,093
1,641
Accruals
4,191
1,355
Borrowings
2,032
-
15,924
12,516
Credit Risk
Credit risk is that of financial loss as a result of default by a counterparty on its contractual obligations. The Group's exposure to credit risk arises principally in relation to trade receivables from customers and on short term bank deposits. Customers' creditworthiness is wherever possible checked against independent rating databases and filing authorities, or otherwise assessed on the basis of trade knowledge and experience. Exposure and customer credit limits are continually monitored both on specific debts and overall.
The credit risk in relation to short term bank deposits is limited because the counterparties are banks with good credit ratings.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 202032. Financial instruments (continued)
The Group operates in certain geographical areas which are from time to time subject to restrictions in the free movement of funds. The Board seeks to minimise the Group's exposure to these markets but the nature of our business makes it impossible to eliminate this exposure completely.
None of those receivables has been subject to a significant increase in credit risk since initial recognition and, consequently, 12-month expected credit losses have been recognised, and there are no non-current receivable balances lifetime expected credit losses.
Currency risk
The Group operates in overseas markets particularly through its subsidiaries in China, Brazil, Mexico, the USA and Japan as well as its joint operation in Canada and is therefore subject to currency exposure on transactions undertaken during the year. The Group does some simple economic hedging of receivables when the Board feels it is appropriate to do so and foreign exchange differences on retranslation of foreign monetary items are recorded in administrative expenses in the income statement.
The table below shows the extent to which the Group companies have monetary assets and liabilities in currencies other than in Sterling:
Foreign currency of Group operations:
2020
US Dollar
Euros
Chinese RMB
Japanese Yen
Brazilian Real
Canadian Dollar
Mexican Peso
Other
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000')
Trade and other receivables
12,850
2,875
6,650
837
2,230
511
1,472
3
Trade and other payables
(1,183)
(12)
(3,375)
(233)
(131)
(129)
(329)
(1)
Cash and cash equivalents
4,527
525
5,609
80
360
452
200
123
Total
16,194
3,388
8,884
684
2,459
834
1,343
125
2019
Restated
US Dollar
Euros
Chinese RMB
Japanese Yen
Brazilian Real
Canadian Dollar
Mexican Peso
Other
£000's
£000's
£000's
£000's
£000's
£000's
£000's
£000's
Trade and other receivables
7,016
3,288
7,757
689
944
817
1,397
123
Trade and other payables
(644)
(7)
(2,680)
(107)
(51)
-
(13)
(114)
Cash and cash equivalents
5,239
906
4,340
256
433
1,104
175
34
Total
11,611
4,187
9,417
838
1,326
1,921
1,559
43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 202032. Financial instruments (continued)
At 31 March 2020 the Group was mainly exposed to the US Dollar, Euro, Chinese RMB, Japanese Yen, Brazilian Real, Canadian Dollar and Mexican Peso. The following table details the effect of a 10% movement in the exchange rate of these currencies against sterling when applied to outstanding monetary items denominated in foreign currency as at 31 March 2020.
2020
2019
Restated*
£000's
£000's
U S Dollar
1,799
1,290
Euro
376
465
Chinese RMB
987
1,046
Japanese Yen
76
93
Brazilian Real
273
147
Canadian Dollar
93
213
Mexican Peso
149
173
Analysis of financial instruments by category
Group
Financial assets
Financial liabilities
Total
2020
£000's
£000's
£000's
Trade and other receivables (excluding prepayments)
27,858
-
27,858
Cash and cash equivalents
11,877
-
11,877
Trade and other payables
-
(13,892)
(13,892)
Amounts due under leases
-
(1,766)
(1,766)
Borrowings
-
(2,032)
(2,032)
2019
£000's
£000's
£000's
Restated*
Restated*
Restated*
Trade and other receivables (excluding prepayments)
22,864
-
22,864
Cash and cash equivalents
16,863
-
16,863
Trade and other payables
-
(12,516)
(12,516)
Amounts due under leases
-
(1,770)
(1,770)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED 31 MARCH 2020
32. Financial instruments (Continued)
Analysis of financial instruments by category (continued)
Company
Financial assets
Financial liabilities
Total
2020
£000's
£000's
£000's
Trade and other receivables (excluding prepayments)
30
-
30
Cash and cash equivalents
177
-
177
Trade and other payables
-
(567)
(567)
Amounts due under leases
-
(29)
(29)
Borrowings
-
(2,001)
(2,001)
2019
£000's
£000's
£000's
Restated*
Restated*
Restated*
Trade and other receivables (excluding prepayments)
35
-
35
Cash and cash equivalents
4,236
-
4,236
Trade and other payables
-
(296)
(296)
Amounts due under leases
-
(65)
(65)
All financial assets and liabilities in the Group's and Company's statements of financial position are classified as held at amortised cost for both the current and previous year.
*Please refer to Note 3 for further details on prior year adjustments.
33. Post balance sheet events
Covid-19 Impact
The Group transitioned smoothly to home working during the final weeks of the year building on the new ways of communicating with customers developed during the African swine flu outbreak and without losses of efficiency. Outsourced manufacturing and the Group's supply chain operated smoothly through the year end.
Brexit
The Group's EU marketing authorisations have been transferred to the European subsidiary, ECO Animal Health Europe Ltd registered in Dublin, Republic of Ireland and all our Brexit contingency plans are in place. The financial and operational impact of Brexit is expected to be minimal, particularly given the recently announced trade deal between the UK and the EU. The Group's sales to the EU (excluding the UK) represented 8% of total revenue for the year.
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