ECO ANIMAL HEALTH GROUP PLC

Annual Report • Jul 15, 2024

National Storage Mechanism | Additional information RNS Number : 3150W Eco Animal Health Group PLC 15 July 2024 15 July 2024 ECO Animal Health Group plc ("ECO", the "Company" or the "Group") (AIM: EAH) Results for the year ended 31 March 2024 HIGHLIGHTS Financial �� Revenue in-line and adjusted EBITDA ahead of market expectations �� Group sales increased by 5% to ��89.4m o North America growth 22% o Latin America growth 10% �� Constant currency revenue increased by 11% to ��94.5m �� North America, Latin America contributing a growing share of Group revenues �� Gross margin declined to 42% (2023: 45%) due to currency volatility �� Adjusted EBITDA increased to ��8.0m (2023: ��7.2m) �� Adjusted EBITDA margin improved to 9.0% (2023: 8.5%) �� Research and development expenditure ��8.3m (2023: ��8.3m), as planned �� Earnings per share 1.55p (2023: 1.49p) �� Net cash at the end of the period ��22.4m (2023: ��21.7m), reinforcing the Group's strong balance sheet with 36% of cash held outside China (2023: 19%) �� RCF facility (��10m) and overdraft (��5m) available and undrawn Operational �� Aivlosin�� demand continues to be robust in key markets, with particular strength in the Americas �� The Group has continued to streamline its operating structure and pipeline focus with the disposal of Ecomectin�� Horsepaste to ACME Drugs S.r.l in Italy for ���1.3m �� Continuing positive progress towards regulatory filing for poultry mycoplasma vaccine ECOVAXXIN��, on track for first launch in 2025 �� Broader progress across R&D pipeline, with 9 products expected to reach US and EU approval in the next 5 - 6 years Post year end highlights �� Targeted recruitment underway to support commercial growth �� Appointment of two distribution partners in South East Asia to support commercial operation �� Continued progress in building regulatory approval/label extension for Aivlosin�� David Hallas, Chief Executive Officer of ECO Animal Health Group plc, commented: "These results show that ECO continues to maintain a robust market leading position with Aivlosin�� while at the same time positioning itself well for future growth with a launch of its first product in the ECOVAXXIN��, poultry vaccine portfolio. ECOVAXXIN�� launches are expected to commence from 2025 with a broader portfolio of next-generation animal health products being rolled out in future years. We are seeing robust growth in a number of our key territories and despite continuing volatility in currency, we have generated EBITDA above market forecasts at year end. "Our focus is on supporting our core business while investing prudently in R&D pipeline which is our growth engine, and these results show us achieving these key objectives. We're cautiously encouraged by trading as we move into the 2025 financial year, despite continuing volatility in currency, with robust activity in key markets. We look forward to what we believe will be another year of positive momentum in core markets as we start to crystallise our R&D efforts." 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") as it forms part of United Kingdom domestic law by virtue of the European Union (Withdrawal) Act 2018. Upon the publication of this announcement via a Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain. Forward-Looking Statements This announcement contains certain forward-looking statements. The forward-looking statements reflect the knowledge and information available to the Company and Group during preparation and up to the publication of this announcement. By their very nature, these statements depend upon circumstances and relate to events that may occur in the future and thereby involving a degree of uncertainty. Therefore, nothing in this announcement should be construed as a profit forecast by the Company or Group. Contacts ECO Animal Health Group plc David Hallas (Chief Executive Officer) Christopher Wilks (Chief Financial Officer) 020 8447 8899 ICR Consilium (Financial PR) Mary-Jane Elliott Jessica Hodgson 020 3709 5700 Singer Capital Markets (Nominated Adviser and Joint Broker) Philip Davies Sam Butcher 020 7496 3000 Investec (Joint Broker) Gary Clarence Lydia Zychowska 020 7597 5970 Equity Development Hannah Crowe Matt Evans 020 7065 2692 CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S COMBINED STATEMENT FOR THE YEAR ENDED 31 MARCH 2024 Overview ECO Animal Health Group plc strives to provide best in class, scientifically validated, ethical solutions to optimise the health, productivity and wellbeing of pigs and poultry. We are pleased to report on another positive year for the Group, with growing revenues and profitability driven by sustained demand for our products in key territories. This has been achieved despite currency headwinds and volatility that have impacted our sector globally throughout the period, influenced by several factors including fluctuations in pork prices in Asia and inflationary pressure. We are especially pleased to have maintained financial momentum and growth while continuing to invest heavily in our promising R&D pipeline, which we believe has significant potential to drive future growth and value for shareholders. Strong product sales and robust profitability Total revenues for the period increased to ��89.4m (2023: ��85.3m), benefiting from strong performance in the second half of the year. This was driven primarily by the growth of sales of Aivlosin��, the Group's patented antimicrobial used under veterinary prescription for the treatment of economically important respiratory and gastrointestinal diseases in pigs and poultry. Aivlosin�� saw sales of ��82.4m, an increase of 9% compared to last year (2023: ��75.9m). Sales of our parasite solution range, Ecomectin�� were ��3.3m (2023: ��3.6m) with sales of all other products of ��3.7m (2023: ��5.8m). ECO generated particularly strong growth in North America +22% with the USA performing robustly, Latin America +10% where Brazil and Mexico grew +13% and +11% respectively. South and South East Asia delivered +4% growth. The presence of ECO in all major swine and poultry producing countries globally helps to mitigate the impact from individual market conditions. Gross margin was at 42.1% (2023: 45.0%), impacted by currency movements. EBITDA increased to ��8.0m (2023: ��7.2m). Research and development pipeline and regulatory progress The Board has dedicated significant efforts to the progression of the Group's R&D pipeline, which we believe will be a critical driver of future growth. We are pleased with the progress made across the portfolio, having committed substantial investment into R&D throughout the year, with ��8.3m spent this year (2023: ��8.3m), the increased spend reflecting the clinical and regulatory costs of our maturing late-stage projects. As part of our strategy of advancing our R&D pipeline, we received trademark approval for the ECOVAXXIN�� family in the EU, offering extensive protection in key markets for animal health products including the first two planned products, ECOVAXXIN�� MS, a vaccine against Mycoplasma synoviae, and ECOVAXXIN�� MG, a vaccine against Mycoplasma gallisepticum. This supports ECO's plan for multiple product launches and sales growth in key territories, expected to commence in 2025 and continue over the next decade. Over the period the Group reported key regulatory progress. We received notification from the U.S. Department of Agriculture that we had successfully completed key safety studies for our future ECOVAXXIN�� MS poultry product. We also received additional label claims for Aivlosin�� in the key US and Canadian markets, having received a new 'sow safety' indication from the US Food & Drug Administration (FDA) with female swine intended for breeding, opening another market segment. In addition, having engaged and worked alongside an experienced Contract Manufacturing Organisation (CMO) we have further advanced our new biological products including ECOVAXXIN�� MS and MG. Collaborations and partnerships With strong partnerships and collaborations with prestigious institutions, the Group is well poised to further enhance its R&D programme and we look forward to updating the market with our progress. Disposal of non-core assets During the period we disposed of freehold properties including our former registered office in New Malden and another freehold property in Mitcham. This has freed resources and given us additional capital to further advance the Group's growth aspirations, including a share buyback programme, to cover possible future vesting of employee share-based incentives. Post period we successfully disposed of our non-core product line Ecomectin�� Horsepaste to ACME Drugs S.r.l. in Italy for a total consideration of ���1.3m (��1.1m). In addition, ACME Drugs S.r.l. has purchased the stock on hand at cost and taken over fulfilment of the current order book. This will allow ECO to continue to focus on its core product range of treatment and prevention of disease in pigs and poultry, and further advance the Group's R&D pipeline. People On behalf of the Board we would like to thank our team across the globe for their hard work and commitment over the year. Our staff have shown great professionalism and ingenuity in supporting our customers, partners and other stakeholders during what has been another successful year. The wellbeing of our staff is our highest priority. Our inaugural Group-wide engagement survey undertaken last year was a great success and the feedback received has enabled us to implement a number of initiatives to benefit our staff, the working environment at ECO and the business as a whole. We are pleased that the second survey, undertaken this year, has shown a improvement in the overall satisfaction of our employees. We look forward to building on this momentum over the coming years. We were also pleased to achieve the highest possible ESG rating score with Integrum ESG. In line with its ongoing strategy, the Group has continued to strengthen the research and development and Commercial teams through strategic new hires including strengthening our scientific, development and laboratory capabilities and our geographic commercial reach. Dividend ECO's current investment strategy is to reinvest to support its exciting R&D pipeline, which the Board believes will become the core driver of revenue growth in the medium to long term and will create significant shareholder value. As such, no dividend will be recommended in respect of the year ended 31 March 2024. The Board keeps this under review as it recognises the value of dividends to shareholders. Outlook Aivlosin�� continues to perform robustly and to take market share in key territories particularly North America, Latin America and India, which are ahead of expectations and where we expect to continue to increase our market share in the coming months. These fast-growing regions are contributing a growing share of Group revenue. Meanwhile, there is evidence of an improvement in the pork price in China. We maintain tight control on costs. In line with our usual seasonal trading pattern, we currently expect financial year 2025 to be second half weighted. The Group continues to build a strong R&D pipeline from which we see the potential to deliver medium and long-term growth. We expect the ECOVAXXIN�� pipeline to generate multiple product launches from 2025 and look forward to updating the market as we advance towards launch. Dr Andrew Jones David Hallas Non-executive Chairman Chief Executive Officer REPORT OF THE CHIEF FINANCIAL OFFICER FOR THE YEAR ENDED 31 MARCH 2024 Introduction I am pleased to report a further strong year of financial performance. Operationally the business continues to deliver from a sound base of increasing market share in robust markets, converting this operational performance into strong cash flow, providing the required investment capital to progress the research and development programme at pace and ushering in the next phase of revenue and profit growth from new products. I am proud of the support the finance team provided to the business; this is very much an enabler of growth at the same time as undertaking the fundamental custodianship which is inherent in the function. Trading Previous years have seen a pattern of stronger trading in the second half of the year. This is associated with disease prevalence in pigs during the northern hemisphere winter. This pattern of trading has continued in the year ended 31 March 2024 with the second half accounting for 57% (2023: 59%) of the annual revenue. The main contributors to the second half weight this year were China/Japan with a 61% H2 weight and Latin America also with a 61% H2 weight. The geographical analysis of revenue corresponding to the Group's operating segments is as follows: Revenue summary - actual exchange rates Year ended 31 March 2024 2023 % change (��'m) (��'m) China and Japan 24.7 26.4 (6%) North America (USA and Canada) 18.5 15.2 22% South and Southeast Asia 17.4 16.8 4% Latin America 19.9 18.1 10% Europe 6.5 6.1 7% Rest of World and UK 2.4 2.7 ( 11%) 89.4 85.3 5% All markets showed revenue growth year on year except for the China/Japan segment and Rest of World. As noted in our interim report, the exchange rates in the first half proved to be a headwind; in the second half of our financial year the exchange rates were more consistent with the prior year. The geographical analysis of revenue on a constant currency basis is as follows: Revenue summary - constant currency Year ended 31 March 2024 2023 % change (��'m) (��'m) China and Japan 26.8 26.4 2% North America (USA and Canada) 19.4 15.2 28% South and Southeast Asia 18.2 16.8 8% Latin America 20.9 18.1 15% Europe 6.7 6.1 10% Rest of World and UK 2.5 2.7 ( 7%) 94.5 85.3 11% China revenue on a constant currency basis declined by 3% (��0.7m) but this decline was compensated by very strong trading in Japan (an increase of ��1.2m year on year). The China revenue performance was reasonable when set against the backdrop of continued poor commodity prices - pork prices below cost of production for 10 out of 12 months of the year. The strength in the Japanese market arose from increased usage of Aivlosin�� by the primary customer complemented by business with other, new, customers. At ��18.5m (constant currency ��19.4m), North America recorded its greatest revenue in a single financial year. The previous highest revenue was ��16.4m in the year ended 31 March 2022. The strength in this market arose from market share gains and was achieved despite depressed pork prices and producer margins. South and South East Asia revenue growth was 4% (15% on a constant currency basis) compared with the average growth rate of 36% since March 2021. The demand in India for Aivlosin�� to support the poultry industry continues to buoy this market, Thailand and Vietnam are demonstrating sustained strength and Philippines and Indonesia remain as untapped opportunity. Latin America, comprises Brazil and Mexico (where the Group operates through wholly owned subsidiaries) and a group of other countries in South America where trade is conducted through exclusive distribution arrangements. Brazil has seen particularly strong trading in the year ended 31 March 2024 - 13% and Mexico grew by 11% in the year. Argentina and Columbia made up the majority of the balance of Latin America where the growth was a more modest 5%. The European market segment is dominated by sales into Spain - ��1.8m (2023: ��1.2m) and Poland - ��1.3m (2023: ��1.0m). Spain accepted the resumption of sales of Aivlosin�� Pre-Mix formulation in the period, reversing a hiatus in sales of this product in the year ended 31 March 2023. Sales into the UK at ��1m (2023: ��1.3m) declined due to the termination in sales of Ecomectin�� pour-on formulation. An increase in manufacturing costs made this product no longer viable in the UK and Ireland markets. Gross margins were 42.1% in the year ended 31 March 2024 (2023: 45.0%). This decline in gross margins arose in the main from the foreign exchange impact of Sterling compared with the US Dollar and the Chinese Yuan. As noted above, on a constant currency basis the revenues for the year are ��94.5m; recalculating the gross margin based on constant currency revenue would provide a gross margin of 45.3%. The foreign exchange effect on cost of sales (a corresponding benefit) was offset by geographical mix effects and depreciation of the Chinese manufacturing plant (now included within cost of sales - prior year was part of administrative expenses). As anticipated in our interim report for the six months ended 30 September 2023, there was a partial recovery in the gross margins in the second half of the financial year from 40.8% to 42.1% for the full year. During the financial year a programme of foreign exchange hedging was implemented. This comprised a layering of four forward contracts covering the four successive financial quarters and a portion of the anticipated US Dollar generation. On a quarterly basis these forward contracts are supplemented by additional layers, thus providing an averaging effect to the US Dollar- Sterling exchange rate. The hedging policy provides protection to net profit, earnings per share and cash but has no effect on gross profit or gross margin because the gains and losses are accounted for in finance costs. Administrative expenses, at ��29.4m (2023: ��27.9m), showing a 5% overall increase, were controlled through the course of the year. Increases of 8% in personnel costs and 17% in marketing were offset by savings in legal, audit and professional costs. All R&D programmes progressed well during the year and previously capitalised R&D remained in good standing at the year end with no indications of impairment. The two mycoplasma projects for vaccination of poultry continued to be capitalised; all incurred costs continuing to meet the tests for capital treatment in the accounts. Total cash expenditure on R&D (inclusive of that amount capitalised) in the year was ��8.3m (2023: ��8.3m). The total expenditure on R&D can be analysed as follows: Year ended 31 March 2024 ��000's 2023 ��000's Research and development expenses - expensed in period 4,169 5,920 Development expenditure - capitalised in intangible assets 4,122 2,419 Total expenditure 8,291 8,339 Whilst the overall R&D expenditure in the year was comparable to the prior year the portion capitalised was 50% compared with 29% in the prior year. This was due to the late-stage phase of development of the poultry mycoplasma projects, the commencement of the capitalisation of the costs incurred on the EcoFlor project (now in the final development phase) and the costs of running the late-stage trials. Nevertheless, the Group continued to deploy 50% of its R&D budget in the year on research and earlier stage discovery programmes where there is considerable opportunity for groundbreaking new approaches to the prevention of disease in pigs and poultry. EBITDA has historically represented a key performance measure for the Group; the removal of amortisation (which is a significant annual non-cash charge to profits), depreciation and other non-cash charges to profit provides a good indication of the underlying cash trading performance of the business. The charge for amortisation of intangible assets in the year was ��1.2m (2023: ��1.1m). The adjusted EBITDA (Operating profit excluding exceptional items, share based payments, depreciation, amortisation and foreign exchange gains and losses) at ��8.0m (2023: ��7.2m) reflected a strong revenue performance offset by lower gross margins (arising in the main from foreign exchange headwinds) and good overhead cost control, together with the evolution of the R&D programme into later stage resulting in greater capitalisation of expenditure. Furthermore, the adjusted EBITDA margin (excluding foreign exchange movements and expressed as a percentage of revenue in the period) was 9.0% in the year ended 31 March 2024 compared with 8.5% in the year ended 31 March 2023. Profit before income tax was lower in the year ended 31 March 2024 at ��3.0m (2023: ��4.4m). This reduction (compared to an increase in adjusted EBITDA described above) arose because the Group recorded an exceptional item of ��0.7m in the year (2023: ��nil) and also recorded an exchange rate loss of ��0.6m compared with a profit of ��0.5m in the year ended 31 March 2023. The exceptional item of ��0.7m (2023: ��nil) related to a loss incurred on the cessation of the distribution of a third party product (the impairment of associated intangible asset, stock write off and customer goodwill payments) offset by the gains made on the sale of two unoccupied freehold properties in the year. The Group's effective tax rate was 32% for the year ended 31 March 2024 (2023: 30%). Factors causing the effective tax rate to be greater than the headline UK rate of 25% are non-deductible expenses, timing differences on the recognition of intangible assets, partly offset by R&D allowances and reduced income tax rates under patent box. The 2% increase in rate to 32% (2023: 30%) is due to lower chargeable R&D credits under the new UK R&D regime, timing differences on recognition of intangible assets, partly offset by the reduced impact of different tax rates in foreign subsidiaries on the group rate and an increased level of profit attracting a lower tax rate under patent box. Earnings per share (EPS) has improved from 1.49 pence in the year ended 31 March 2023 to 1.55 pence per share in the year ended 31 March 2024 and diluted EPS has improved from 1.47 pence in the year ended 31 March 2023 to 1.52 pence per share in the year ended 31 March 2024, due to improved profitability attributable to the owners of the parent Company and a reduction in the profit attributable to the minority interest in the Chinese subsidiary. Operating cash inflow before movements in working capital was ��7.7m (2023: ��7.2m). Continuing close management of working capital - in particular inventories and receivables - has resulted in operating cash flow of ��10.5m (2023: ��18.4m). Cash balances at 31 March 2024 can be analysed as follows: At 31 March 2024 (��'m) 2023 (��'m) Held in UK 6.2 2.9 Held in non-China subsidiaries 1.9 1.2 Held in China 100% owned subsidiary 2.4 2.7 Held in China 51% owned subsidiary 11.9 14.9 22.4 21.7 The Group repatriates cash from China by annual dividend declaration; this is subject to withholding taxes of 5% and is paid according to the relevant shareholdings. On a day ��� to ��� day basis, the Board considers the cash held in the Group's joint venture subsidiary in China to be unavailable to the Group outside of China; accordingly, cash management and funds available for investment in R&D are based upon the cash balances outside of China. During June 2024, two dividends totalling ��2.8m (post withholding tax) were received from China. The Group's committed banking facilities remain at ��15.0m, being a ��5.0m overdraft facility and a ��10m revolving credit facility. These facilities expire on 30 June 2026 and were undrawn as at 31 March 2024. The Group's inventory balance reduced to ��17.0m on 31 March 2024 from ��22.4m on 31 March 2023. This reduction was in finished goods and work in progress - the proportion of which reduced from 59% to 47% of the total - and reflected the phasing of revenue towards the end of the financial year. Overall inventory days expressed as an average of the annual cost of sales reduced from 174 days to 120 days. Trade receivables increased from ��26.9m at 31 March 2023 to ��32.2m on 31 March 2024. As noted above, the timing of revenue recorded during the fourth quarter caused a temporary increase in the level of receivables at the year end and an increase in the average debtor days (expressed as an average of the annual revenue) from 115 days to 132 days. Post balance sheet event As separately announced, the Group disposed of its non-core business manufacturing and selling horsepaste for the treatment of equine parasites. This transaction was completed on 3 April 2024 for a total consideration of ���1.3m. The consideration is payable in three tranches (���0.5m on completion, ���0.4m 18 months later and ���0.4m 36 months after completion of the transaction). In addition, the buyer has purchased the stock on hand at cost and taken over fulfilment of the current order book. The revenue derived from this product was ��0.8m in the year ended 31 March 2024 (2023: ��1.0m). The horsepaste product was never treated as a separate segment and together with the relative immateriality of the revenue has resulted in not treating this as a discontinued operation. Christopher Wilks Chief Financial Officer CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 202 4 2024 2023 Notes ��000's ��000's Revenue 3 89,422 85,311 Cost of sales (51,739) (46,935) Gross profit 37,683 38,376 42.1% 45.0% Administrative expenses (29,394) (27,866) Research and development expenses (4,169) (5,920) Other income 4 66 357 Exceptional items 5 (651) - Operating profit 3,535 4,947 Share of profit of associate 15 53 45 Finance income 6 150 104 Profit before financing and income tax 3,738 5,096 Finance costs 6 (764) (656) Profit before income tax 2,974 4,440 Income tax charge 8 (966) (1,349) Profit for the year 2,008 3,091 Profit attributable to: Owners of the parent Company 1,048 1,008 Non-controlling interest 26 960 2,083 Profit for the year 2,008 3,091 Earnings per share (pence) 7 1.55 1.49 Diluted earnings per share (pence) 7 1.52 1.47 Adjusted EBITDA (Non-GAAP measure) 5 8,046 7,235 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 202 4 2024 2023 Notes ��000's ��000's Profit for the year 2,008 3,091 Other comprehensive loss: Items that may be reclassified to profit or loss: Foreign currency translation differences (1,828) (586) Items that will not be reclassified to profit or loss: Remeasurement of defined benefit pension schemes 23 43 100 Other comprehensive loss for the year (1,785) (486) Total comprehensive income for the year 223 2,605 Attributable to: Owners of the parent Company 1 798 Non-controlling interest 26 222 1,807 223 2,605 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 202 4 Share Capital Share Premium Revaluation Reserve Other Reserves Foreign Exchange Reserve Retained Earnings Total Non-controlling Interest Total Equity ��000's ��000's ��000's ��000's ��000's ��000's ��000's ��000's ��000's Balance at 31 March 2022 3,381 63,319 657 106 2,188 12,413 82,064 12,284 94,348 Profit for the year - - - - - 1,008 1,008 2,083 3,091 Other comprehensive income: Foreign currency differences - - - - (310) - (310) (276) (586) Actuarial gains on pension scheme assets - - - - - 100 100 - 100 Total comprehensive income for the year - - - - (310) 1,108 798 1,807 2,605 Transactions with owners: Share-based payments - - - - - 408 408 - 408 Dividends - - - - - - - (1,810) (1,810) Transactions with owners - - - - - 408 408 (1,810) (1,402) Balance at 31 March 2023 3,381 63,319 657 106 1,878 13,929 83,270 12,281 95,551 Profit for the year - - - - - 1,048 1,048 960 2,008 Other comprehensive income: Foreign currency differences - - - - (1,090) - (1,090) (738) (1,828) Actuarial gains on pension scheme assets - - - - - 43 43 - 43 Total comprehensive income for the year - - - - (1,090) 1,091 1 222 223 Transactions with owners: Issue of shares in the year 6 - - - - - 6 - 6 Revaluation reserve - - (386) - - 386 - - - Share-based payments - - - - - 413 413 - 413 Dividends - - - - - - - (2,813) (2,813) Transactions with owners 6 - (386) - - 799 419 (2,813) (2,394) Balance at 31 March 2024 3,387 63,319 271 106 788 15,819 83,690 9,690 93,380 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2024 Company Share Capital Share Premium Revaluation Reserve Other Reserves Retained Earnings Total ��000's ��000's ��000's ��000's ��000's ��000's Balance at 31 March 2022 3,381 63,319 386 106 8,429 75,621 Loss for the year - - - - (1,701) (1,701) Other comprehensive income: Actuarial gains on pension scheme assets - - - - 100 100 Total comprehensive income for the year - - - - (1,601) (1,601) Transactions with owners: Share-based payments - - - - 408 408 Transactions with owners - - - - 408 408 Balance at 31 March 2023 3,381 63,319 386 106 7,236 74,428 Loss for the year - - - - (1,158) (1,158) Other comprehensive income: Actuarial gains on pension scheme assets - - - - 43 43 Total comprehensive income for the year - - - - (1,115) (1,115) Transactions with owners: Issue of shares in the year 6 - - - - 6 Revaluation reserve - - (386) - 386 - Share-based payments - - - - 413 413 Transactions with owners 6 - (386) - 799 419 Balance at 31 March 2024 3,387 63,319 - 106 6,920 73,732 STATEMENTS OF FINANCIAL POSITION (CO. NUMBER: 01818170) AS AT 31 MARCH 2024 Group Company 2024 2023 2024 2023 Notes ��000's ��000's ��000's ��000's Non-current assets Intangible assets 11 38,351 35,636 - - Property, plant and equipment 12 4,802 6,097 - 565 Right-of-use assets 14 3,672 4,282 59 71 Investments 15 268 252 21,451 21,165 Amounts due from subsidiary company 17 - - 51,078 51,526 Deferred tax assets 18 1,437 559 - 12 Total non-current assets 48,530 46,826 72,588 73,339 Current assets Inventories 16 16,955 22,409 - - Trade and other receivables 17 32,175 26,850 1,698 1,073 Income tax recoverable 13 2,687 2,947 - - Other taxes and social security 526 395 - 43 Cash and cash equivalents 19 22,374 21,658 363 388 Assets held for sale 18 230 - 230 Total current assets 74,735 74,489 2,061 1,734 TOTAL ASSETS 123,265 121,315 74,649 75,073 Current Liabilities Trade and other payables 20 (17,353) (14,523) (804) (520) Provisions 22 (5,859) (5,178) - - Income tax payable 13 (687) (1,017) - - Other taxes and social security payable (632) (516) - - Lease liabilities 21 (646) (884) (50) (41) Dividends (50) (50) (50) (50) Total current liabilities (25,227) (22,168) (904) (611) Net current assets 49,508 52,321 1,157 1,123 Total assets less current liabilities 98,038 99,147 73,745 74,462 Non-current liabilities Deferred tax liabilities 18 (1,279) - - - Lease liabilities 21 (3,379) (3,596) (13) (34) TOTAL ASSETS LESS TOTAL LIABILITIES 93,380 95,551 73,732 74,428 EQUITY Issued share capital 25 3,387 3,381 3,387 3,381 Share premium account 63,319 63,319 63,319 63,319 Revaluation reserve 27 271 657 - 386 Other reserves 27 106 106 106 106 Foreign exchange reserve 27 788 1,878 - - Retained earnings 15,819 13,929 6,920 7,236 Shareholders' funds 83,690 83,270 73,732 74,428 Non-controlling interests 26 9,690 12,281 - - TOTAL EQUITY 93,380 95,551 73,732 74,428 STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2024 Group Company 2024 2023 2024 2023 Notes ��000's ��000's ��000's ��000's Cash flows from operating activities Profit/(loss) before income tax 2,974 4,440 (1,349) (1,793) Adjustment for: Finance income 6 (150) (104) (1,708) (1,225) Finance cost 6 764 656 62 151 Foreign exchange loss/(gain) 5 572 (468) 204 5 Depreciation 12 958 812 19 183 Amortisation of right-of-use assets 14 683 452 33 22 Revaluation of investment property - (3) - (3) Amortisation of intangible assets 11 1,154 1,087 - - Impairment of right-of-use assets 5 80 - - - Share of associate's results 15 (53) (45) - - Share based payment charge 24 413 408 127 179 Exceptional items 5 306 - (282) - Operating cash flows before movements in working capital 7,701 7,235 (2,894) (2,481) Decrease in inventory 4,741 7,776 - - (Increase)/decrease in receivables (4,961) (1,843) (133) 1,109 Increase in payables 2,456 3,802 284 202 Increase in provisions and pensions 554 1,439 43 100 Cash generated from/(used in) operations 10,491 18,409 (2,700) (1,070) Finance costs 6 (473) (451) (51) (139) Income tax (601) (2,052) (23) (14) Net cash from/(used in) operations 9,417 15,906 (2,774) (1,223) Cash flows from investing activities Acquisition of property, plant and equipment 12 (502) (3,562) - - Proceeds from sale of property, plant and equipment 1,058 - 1,058 - Purchase of intangibles 11 (4,122) (2,419) - - Finance income 6 150 104 1,708 1,225 Dividends received - - 225 144 Net cash (used in)/from investing activities (3,416) (5,877) 2,991 1,369 Cash flows from financing activities Proceeds from issue of share capital 6 - 6 - Interest paid on lease liabilities 21 (291) (205) (11) (12) Principal paid on lease liabilities 21 (593) (387) (34) (21) Dividends paid (2,813) (1,810) - - Net cash used in financing activities (3,691) (2,402) (39) (33) Net increase in cash and cash equivalents 2,310 7,627 178 113 Foreign exchange movements (1,594) (283) (203) (4) Balance at the beginning of the period 21,658 14,314 388 279 Balance at the end of the period 19 22,374 21,658 363 388 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 202 4 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 The Grange, 100 High Street, Southgate, N14 6BN. 2. Summary of the Group and Company's significant accounting policies 2.1 Basis of preparation These fi nancial statements have been prepared in accordance with UK-adopted International Financial Reporting Standards. There were no changes to accounting policies on adoption of UK IFRSs. The preparation of financial statements, in accordance with UK-adopted international accounting standards, 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 and 2.31. The principal accounting policies are set out below and have been applied consistently in dealing with items which are considered material in relation to the financial statements. They are prepared under the historical cost convention with the exception of certain items which are measured at fair value as described in the accounting policies below. 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 Group and Company 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, having due regard to the identified strategic risks. The Directors concluded that the likelihood of such a reduction was remote, and therefore that no material uncertainty exists in respect of going concern. 2.2 Adoption of new and revised standards No new standards or amendments that became effective in the financial year had a material impact in preparing these financial statements. There are a number of standards and amendments to standards which have been issued by the IASB that are effective in future accounting periods that have not been adopted early. The following standard is effective for annual reporting periods beginning on or after 1 January 202 4 : �� IFRS 17 - Insurance Contracts . The following amendments are effective for annual reporting periods beginning on or after 1 January 202 4 : �� Classification of liabilities as current or non-current (Amendments to IAS 1); �� Deferred t ax related to a ssets and l iabilities arising from a s ingle t ransaction (Amendments to IAS 1 2 ); �� Lease Liability in a Sale and Leaseback (Amendments to IFRS 16); �� Classification of Financial Instruments (Amendments to IFRS 9 ); �� Non-current liabilities with covenants (Amendments to IAS 1); and �� Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7). The following amendments are effective for annual reporting periods beginning on or after 1 January 202 5 : �� G uidance on the exchange rate to use when a currency is not exchangeable (Amendments to IAS 21 ); �� A ccounting treatment for the sale or contribution of assets (Amendments to IFRS 1 0 and IAS 28 ). The following standard s are effective for annual reporting periods beginning on or after 1 January 202 7 : �� IFRS 18 Presentation and Disclosure in Financial Statements ; �� IFRS 19 Subsidiaries without Public Accountability: Disclosures . 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 202 4 2.3 Basis of consolidation The consolidated financial statements comprise the accounts of the Company and its subsidiaries drawn up to 31 March 2024. 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 initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling 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. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation. The Group initially recognises any non-controlling interest in the acquiree at the non-controlling interest's proportionate share of the acquiree's net assets. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses. The Group has not elected to take the option to use fair value in acquisitions completed to date. Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 202 4 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 and Company financial statements are presented in Pounds Sterling, which is the Group and the Company's functional 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. (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 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 with reference to historical data adjusted by forward-looking information. 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, 12-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 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. The group uses forward foreign exchange contracts to manage its currency exposure. Certain foreign currency inflows that would typically be translated to sterling at spot to meet liabilities are sold forward to reduce the Group's exposure to fluctuations in exchange rates. The group has not opted to use hedge accounting for these instruments, and any changes in fair value are recognised in the income statement. Financial liabilities 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 202 4 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); and �� 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. 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. 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 202 4 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��, vaccines or other technologies, or an approval for marketing new technologies of applications 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 recently announced projects, on vaccine development, for example, 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. The Group's R&D team prepare a technical profile for new products in development, with timings for development activity reflecting the technical challenges that must be overcome in order to obtain a marketing authorisation for the relevant regulator. In turn the R&D team work with the Group's marketing team to develop a business case for a new product by considering a number of additional factors. These additional factors will include local intelligence on the appetite for new products gathered through the Group's global network of existing sales channels, third-party data on the size of potential markets for new products, and suitable pricing strategies in the context of potential competitor products. 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. Where it is possible to allocate an individual capitalised cost to a single identifiable project 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 Vaccines 5% on cost Trade marks and patents 10% on cost NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 202 4 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 Leasehold improvement 18%-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 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 cash flows 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. 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 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. Non-current assets, or disposal groups comprising assets and liabilities, are classified as held-for-sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets, investment property or biological assets, which continue to be measured in accordance with the Group's other accounting policies. Impairment losses on initial classification as held-for-sale or held-for-distribution and subsequent gains and losses on remeasurement are recognised in profit or loss. Once classified as held-for-sale, intangible assets and property, plant and equipment are no longer amortised or depreciated, and any equity-accounted investee is no longer equity accounted. 2.12 Investments in subsidiaries An investment in a subsidiary is where the Group own a controlling interest in an entity. Investments in subsidiaries are stated at cost less impairment in the parent Company's statement of financial position. Other 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 are assessed for impairment at the end of each reporting period. An impairment is recognised in profit or loss when the recoverable amount of an asset is less than its carrying amount, with the value of any impairment being the difference between the recoverable amount and carrying amount. Impairments can be reversed in subsequent periods where there is any indication that the impairment loss recognised in a prior period may no longer exist or have decreased. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 202 4 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. 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; or - 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 cash flows 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 equal or exceed 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 202 4 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, 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 remeasurement 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. 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 section 2.10 for further details. 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 remeasured 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. The Group applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate. Recognition exemptions The Group applies the short-term lease recognition exemption to its short-term leases, being those leases that have a lease term of 12 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 applies a single discount rate to a portfolio of leases with reasonably similar characteristics. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 202 4 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 weighted 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. 2.18 Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held on call with banks, and other short���term highly liquid investments with original maturities of three months or less. For the purpose of the statement of cash flows, bank overdrafts are included in the presentation of cash and cash equivalents. 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 assets 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 there is a present obligation as a result of a past event and it is probable that an outflow of resources 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. The Group's revenue is principally derived from selling goods with revenue recognised at a point in time when control of the goods has transferred to the customer. This point in time is determined with reference to INCO terms with that customer, with control of goods deemed to have transferred as per the relevant INCO terms. The most common terms used by the Group are Carriage, Insurance and Freight (CIF), Free On Board (FOB), ExWorks (EXW) and Carriage and Insurance Paid to (CIP). �� For transactions under CIF and FOB, the revenue is recognised at the point the goods are loaded onto the vessel or aircraft and a bill of lading or airway bill is issued. �� For transactions under EXW, the revenue is recognised at the point the goods are collected from the Group's warehouses or factory. �� For transactions under CIP, the revenue is recognised at the point the goods are loaded on to a truck at the designated point of departure and a loading note is issued. 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 has 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 and royalty income, which are recognised on an accrual basis. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 202 4 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 for those options granted with non-market performance conditions. 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. In addition, the binomial model has been used to model future market outcomes for those options granted with a market performance condition. Further details of the inputs to the Black-Scholes and the binomial model can be found in note 24 to the accounts. Share-based payment charges are credited to 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. 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 IFRIC 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 202 4 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 are recorded within retained earnings. The cost of its own shares bought into treasury 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. 2.28 Non-controlling 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 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 as follows: 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 non-financial 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. The Group measures a number of items at fair value, including: �� land and buildings (note 12); �� investment property; �� forward foreign exchange contracts; �� pension and other post-retirement benefit commitments (note 23); �� share-based payments (note 24); and �� initial recognition of financial instruments (note 31). For more detailed information in relation to the fair value measure of the items above, please refer to the applicable notes. 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 number of options expected to vest and various other inputs to the Black-Scholes and the binomial 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. Those options that contain market conditions have been valued using the binomial model, and those without have been calculated using the Black-Scholes model. Management assesses whether the charge or vested portion should be amended based on an annual reassessment of the likelihood of non-market based vesting conditions being met. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 202 4 2.30 Critical accounting estimates (continued) 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. 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 the lessee companies and has 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 a 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%. The following are the critical judgements that have been made in the process of applying the Group's accounting policies and have the most significant effects on the amounts recognised in financial statements. Income taxes The Group is subject to income taxes in the United Kingdom and also in other jurisdictions. Significant judgements are required in determining the provision for income taxes including the use of tax losses and in estimating deferred tax assets arising from unused tax losses or credits. There are some transactions and calculations for which the ultimate tax determination is uncertain, including tax credits for research and development expenditures. 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 the Directors estimate that future profits will be generated to utilise the underlying costs or losses to which they relate. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 202 4 2.31 Critical accounting judgements Capitalisation of intangible assets The Group assesses development costs incurred for capitalisation in accordance with the requirements of IAS 38 and the Group's accounting policy described in note 2.8. In carrying out its assessment the Group considers a range of factors, each of which requires the use of judgement, in consultation with the new product development team. Factors considered include: the stage of development and assessment of technical and commercial feasibility of the project; the size of the markets in which the Group currently sells products; and the size of any additional markets in which the Group intends to sell the product. For key development projects, where there is a higher degree of estimation uncertainty over future product releases, independent external consultants are engaged to validate both technical progress and the overall market appetite for the new product in order to ensure that it remains reasonable to capitalise associated project costs. Impairment review of intangible assets The Group tests annually whether goodwill or other 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 (CGUs) 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 assumption of an indefinite future life for the assets giving rise to the cash flows. Where intangible assets relate to future product releases the key assumptions also relate to forecasts for market share and product pricing. 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 11 of the financial statements. Provisions Certain aspects of a sales tax related to imported products in a Group subsidiary might have been applicable. The subsidiary has been importing an increasing volume of product in recent years but has recently implemented for its largest customer a new system to avoid this possible dispute. This matter has been reviewed by the groups local tax experts but is subject to further review of the tax legislation and ongoing case law. No tax payment has yet been determined. However, a substantial tax settlement may be required in due course and a provision has been recognised due to IFRIC 23 Uncertainty over Income Tax Treatments. Accounting for ECO Biok as a subsidiary The Group has determined that it has control over Zhejiang ECO Biok Animal Health Products Limited ('ECO Biok') and its results are therefore consolidated within the Group accounts. The Group owns a 51% interest in ECO Biok, although decisions are made jointly, it is the entity through which the Group has chosen to enter the Chinese market. ECO Biok depends on the Group for the right to sell Aivlosin�� products, which gives the Group power over ECO Biok's activities. Therefore it is appropriate to treat ECO Biok as a subsidiary. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 202 4 3. 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 Southeast 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 ('Adjusted EBITDA'), adjusted to exclude share-based payments, revaluation, impairment and personnel related litigation matters. Adjusted EBITDA is a non-GAAP measure used by the management to assess the underlying business performance. The details of Adjusted EBITDA is given in note 5. Corporate /UK 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 2024 Sale of goods 925 24,656 18,480 17,440 19,891 6,452 1,529 89,373 Royalties - - - - - - 49 49 Revenue from external customers 925 24,656 18,480 17,440 19,891 6,452 1,578 89,422 Adjusted EBITDA (17,281) 7,007 7,229 5,610 3,578 488 843 7,474 Year ended 31 March 2023 Sale of goods 1,303 26,374 15,172 16,759 18,107 6,073 1,338 85,126 Royalties - - - - - - 185 185 Revenue from external customers 1,303 26,374 15,172 16,759 18,107 6,073 1,523 85,311 Adjusted EBITDA (19,101) 9,340 5,463 6,767 3,059 1,486 689 7,703 A reconciliation of Adjusted EBITDA for reportable segments to profit from operating activities is provided as follows: 2024 2023 ��000's ��000's Adjusted EBITDA for reportable segments 7,474 7,703 Depreciation (958) (812) Amortisation of right-of-use assets (683) (452) Revaluation of investment property - 3 Amortisation (1,154) (1,087) Impairment of right-of-use assets (80) - Exceptional items (651) - Share-based payment charges (413) (408) Profit from operating activities 3,535 4,947 Foreign exchange differences 572 (468) Adjusted EBITDA for the Group 8,046 7,235 Adjusted EBITDA reported for the segments includes foreign exchange gains and losses. The Adjusted EBITDA for the Group is presented in note 5 . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 3. Segment information (continued) Product revenues 2024 2023 ��000's ��000's Aivlosin�� 82,436 75,942 Ecomectin�� 3,340 3,595 Others 3,646 5,774 Total 89,422 85,311 All product revenues are recognised at a point in time. Contract balances 2024 2023 Within one year or on demand ��000's ��000's At 1 April 1,079 203 Amounts included in contract liabilities that were recognised as revenue during the period (1,079) (203) Cash received in advance of performance and not recognised as revenue during the period 3 1,079 At 31 March 3 1,079 The Group recognised contract liabilities of ��3,000 at 31 March 2024 (2023: �� 1 ,079 ,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. 4. Other income 2024 2023 ��000's ��000's Sundry income 66 357 66 357 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 5. Result from operating activities 2024 2023 Notes ��000's ��000's Result from operating activities is stated after charging/(crediting): Cost of inventories recognised as an expense 51,108 46,461 Employee benefits expenses 29 16,795 15,461 Amortisation of intangible assets 11 1,154 1,087 Depreciation 12 958 813 Amortisation of right-of-use assets 14 683 452 Revaluation of investment property 13 - (3) (Loss)/gain on foreign exchange transactions (572) 468 Research and development 4,169 5,920 Impairment losses on trade receivables 17 603 533 Fees payable to the Company's auditor for the audit of the parent Company and Group annual accounts 246 535 Subsidiary audit fees payable 66 70 Total fees payable to the Company's auditor for the audit of the parent Company and Group annual accounts, for the year ended 31 March 2024, are ��311,750 (2023: ��290,000), and fees payable to the Company's auditor and its component auditor for the audit of the Company's subsidiaries are ��24,222 (2023: ��24,000). Alternative performance measures Earnings before interest, tax, depreciation, amortisation, revaluation, impairment, share-based payments and foreign exchange differences (Adjusted EBITDA) 2024 2023 ��000's ��000's Profit from operating activities 3,535 4,947 Depreciation 958 812 Amortisation of right-of-use assets 683 452 Revaluation of investment property - (3) Amortisation 1,154 1,087 Impairment of right-of-use assets 80 - Exceptional items 651 - Share-based payments 413 408 7,474 7,703 Foreign exchange differences 572 (468) Adjusted EBITDA 8,046 7,235 Exceptional items 2024 2023 ��000's ��000's Cessation of distribution business1 (933) - Profit on disposal of properties2 282 - (651) - 1. These costs relate to the cessation of the distribution of a third party product, which was not part of the group's core product portfolio. This was a one-off cessation and the product generated no revenue in the year. The exceptional cost includes impairment of intangible assets (��234,000), stock write-off (��133,000), goodwill payments made to customers (��345,000) and provision for future goodwill payments (��221,000). 2. This profit relates to the sale of the freehold of the former head office of the Group (New Malden) and the sale of an investment property (Mitcham). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 5. Result from operating activities (continued) Management believe that adjusted EBITDA is an 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. Impairment of right-of-use assets This item is 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. Exceptional items These items are a result of one-off changes to cessation of distribution business and property disposals 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 6. Finance income/(expense) 2024 2023 ��000's ��000's Finance income Interest received on short-term bank deposits 150 104 Finance costs Interest paid (473) (451) Interest paid on lease liabilities (291) (205) (764) (656) Net finance costs (614) (552) 7. 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. 2024 2023 Earnings Weighted average number of shares Per share amount Earnings Weighted average number of shares Per share amount ��000's 000's pence ��000's 000's pence Earnings attributable to ordinary shareholders on continuing operations after tax 1,048 67,745 1.55 1,008 67,722 1.49 Dilutive effect of share options - 1,335 - - 918 - Diluted earnings per share 1,048 69,080 1.52 1,008 68,640 1.47 The diluted EPS figure reflects the impact of historic grants of share options and is calculated by reference to the number of options granted for which the average share price for the year was in excess of the option exercise price. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 8. Taxation 2024 2023 ��000's ��000's Current tax charge / (credit) Foreign corporation tax on profits for the year 1,745 2,405 Foreign withholding tax 180 325 Research and development tax credits claimed in the year (1,027) (1,391) Research and development tax credits - adjustment for prior year (333) 46 Deferred tax Origination and reversal of temporary differences 401 (36) Income tax charge 966 1,349 2024 2023 ��000's ��000's Factors affecting the tax charge for the year Profit on ordinary activities before taxation 2 , 974 4,440 Profit on ordinary activities before taxation multiplied by the applicable rate of UK corporation tax of 25% (2023: 19%) 743 844 Effects of: Non-deductible expenses 1,403 1,207 Non-chargeable credits (10) (571) Right-of-use assets depreciation (55) (37) Withholding tax on inter-company dividends 180 325 Enhanced allowance on research and development expenditure (627) (573) Adjustment in respect of prior years (169) 98 Different tax rate for foreign subsidiaries (57) 506 Intra-Group dividend 34 - Origin and reversal of temporary differences 720 - Unused tax losses carried forward (367) (363) Tax effect of share-based payments (71) (14) Patent Box claim (758) (73) Income tax charge 966 1,349 Effective income tax rate 3 2 % 30% 9. Loss for the financial year 2024 2023 ��000's ��000's Parent Company's (loss) for the financial year (1,158) (1,701) 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 2024 10. Dividends The Board of Directors does not propose that a dividend be paid for the year ended 31 March 2024 (2023: Nil). Proposed dividends on ordinary shares are subject to approval at the Annual General Meeting and are not recognised as a liability as at the date of the statement of financial position. 11. Intangible assets Group Goodwill Distribution rights Drug registrations, patents and licence costs Total ��000's ��000's ��000's ��000's Cost At 31 March 2022 17,930 407 23,292 41,629 Additions - - 2,419 2,419 At 31 March 2023 17,930 407 25,711 44,048 Additions - - 4,122 4,122 Disposal - - (287) (287) At 31 March 2024 17,930 407 29,546 47,883 Amortisation At 31 March 2022 - (158) (7,167) (7,325) Charge for the year - (20) (1,067) (1,087) At 31 March 2023 - (178) (8,234) (8,412) Charge for the year - (20) (1,134) (1,154) Disposal - - 268 268 Impairment - - (234) (234) At 31 March 2024 - (198) (9,334) (9,532) Net b ook v alue At 31 March 2024 17,930 209 20,212 38,351 At 31 March 2023 17,930 229 17,477 35,636 At 31 March 2022 17,930 249 16,125 34,304 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 3 to 20 years. The acquisition of ECO Animal Health Limited in October 2004 gave the Group ownership of the intellectual property and established distribution networks in respect of Aivlosin�� and Ecomectin��. The acquisitions of Zhejiang Eco Biok Animal Health Products Limited in 2007 and ECO Animal Health Japan Inc in 2009 opened further distribution and sale opportunities for Aivlosin�� and Ecomectin��. Goodwill acquired in a business combination is allocated at acquisition to the cash-generating units (CGUs) that are expected to benefit from the business combination. The Group has recalculated the headroom as it would have been at March 202 4 when comparing the net present value of cash flows to the carrying value of goodwill. The goodwill impairment review uses cash flows from the Group's global revenues in respect of Aivlosin�� and Ecomectin��. Expected future cash flows in respect of new vaccines - both the outflows on research and development of these new products and the forecast revenues from sales - are excluded. Intangible assets in respect of new vaccines are tested for impairment separately. This approach is appropriate given that the acquisitions which gave rise to the goodwill balance were made to enhance the Group's global capacity to sell Aivlosin�� and Ecomectin�� products rather than new products expected to be introduced following successful completion of current R&D projects. The recoverable amount of the CGU is 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 11. Intangible assets (continued) The Group prepares cash flow 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. In the current year management estimated the applicable rate to be 10 % (2023: 7%). Management considers that there is adequate headroom when comparing the net present value of the cash flows 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 ��8 6 m (2023: ��1 62 m). 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 �� 74 m (2023: ��141m) more than the carrying value and no impairment would be necessary. The Group estimates that the discount rate applied when calculating the value in use would have to increase to a rate in excess of 39 % before there was an indication that the goodwill balance would need to be impaired (2023: recalculated as 45%). The net book value of drug registrations, patents and licence costs can be broken down as follows: 2024 2023 ��000's ��000's Aivlosin�� 12,655 13,353 Ecomectin�� 500 637 Vaccines 7,001 3,386 Others 56 101 20,212 17,477 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 ranges between 7 and 20 years, where the shortest period relates to assets on the balance sheet which received regulatory approval a number of years ago and have been amortised over a number of years, and where the remaining useful life of 20 years relates to capitalised assets which have not yet received regulatory approval and whose amortisation has not yet commenced. Ecomectin�� is an endectocide that controls worms, ticks, lice and mange in grazing stock and pigs. The remaining useful life is 2 years. At 31 March 2024 intangible assets included �� 7 , 173 ,000 (2023: ��5,453,000) of assets capitalised that had not commenced their useful life, of which approximately �� 75 ,000 (2023: ��2,307,000) were Aivlosin�� related products. The impairment review for intangible assets relating to ongoing development activity, for which regulatory approval is expected to be received at a future date, is performed with reference to cash flow projections modelled in each development project's business case. The cash flows in these business cases reflect the expected economic life of the new product (a period of more than 5 years) and the variables captured include the costs to complete the development activity, the future product sale price, expected future market share, the rate of market penetration for new product releases and overall market size. The market size comprises a number of factors, including the total population of the target animal species, the replacement rate (which in the case of poultry is the length of time during which they are productive layers), the proportion of the species population prone to the diseases to which ECO's product is directed and the proportion of the population which is subject to vaccination. In determining these factors uses the expertise of own teams, particularly members of the R&D, marketing, sales and finance teams. Third-party data is reviewed to enhance the accuracy of the estimates used. For key development projects, independent external consultants are engaged to validate both technical progress and the overall market appetite for the new product. 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 Corporate/UK reporting segment. The Group continuously reviews the status of its research and development activity, paying close attention to the likelihood of technical success and the commercial viability of development projects. During the year to March 2024 the Group identified a diminution in the efficacy of one of its non-core products sold in one geography in South America. The Group has discontinued the sale of this product and has impaired to nil the value of the previously capitalised value of the intangible assets associated with this product. The expense in respect of the impairment was ��234,000 (2023: no impairment). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 12. Property, plant and equipment Group Freehold land and buildings 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 31 March 2022 709 605 2,187 2,012 287 5,800 Additions 31 146 2,813 465 107 3,562 Disposals (18) - (355) (46) (16) (435) Foreign exchange movements (2) - (41) (33) (6) (82) At 31 March 2023 720 751 4,604 2,398 372 8,845 Additions - - 366 82 54 502 Disposals (615) - (90) (737) (35) (1,477) Foreign exchange movements (7) - (144) (127) (18) (296) At 31 March 2024 98 751 4,736 1,616 373 7,574 Depreciation At 31 March 2022 (40) (215) (571) (1,263) (246) (2,335) Charge for the year (32) (116) (194) (443) (27) (812) Disposals 9 - 265 44 16 334 Foreign exchange movements - - 49 11 5 65 At 31 March 2023 (63) (331) (451) (1,651) (252) (2,748) Charge for the year (26) (129) (453) (333) (17) (958) Disposals 69 - 90 737 35 931 Foreign exchange movements 1 - 2 - - 3 At 31 March 2024 (19) (460) (812) (1,247) (234) (2,772) Net book value At 31 March 2024 79 291 3,924 369 139 4,802 At 31 March 2023 657 420 4,153 747 120 6,097 At 31 March 2022 669 390 1,616 749 41 3,465 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 12. Property, plant and equipment (continued) 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 Group considers the fair value of the property determined. This property will continue to be valued on a regular 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 freehold land and buildings level 3 fair value inputs are used. 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. Depreciation has been included in the administrative expenses line in the income statement, except for ��260,000 (2023: ��275,000) 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 2024 12. Property, plant and equipment (continued) Company Freehold land and buildings Fixtures, fittings and equipment Total ��000's ��000's ��000's Cost or valuation At 31 March 2022 615 183 798 Additions - - - At 31 March 2023 615 183 798 Additions - - Disposals (615) (182) (797) At 31 March 2024 - 1 1 Depreciation At 31 March 2022 (24) (26) (50) Charge for the year (26) (157) (183) At 31 March 2023 (50) (183) (233) Charge for the year (19) - (19) Disposals 69 182 251 At 31 March 2024 - (1) (1) Net book value At 31 March 2024 - - - At 31 March 2023 565 - 565 At 31 March 2022 591 157 748 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 13. Income tax recoverable and payable Income tax recoverable 2024 2023 ��000's ��000's UK repayable tax credit in respect of R&D expenditure 2,743 2,939 Other overseas tax (payable)/receivable (56) 8 2,687 2,947 Income tax payable 2024 2023 ��000's ��000's Overseas tax payable (687) (1,017) (687) (1,017) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 14. Right-of-use assets Group Property Vehicles Other Total ��000's ��000's ��000's ��000's Cost or valuation At 31 March 2022 2,555 195 7 2,757 Additions 3,022 100 2 3,124 Disposals (29) - - (29) Foreign exchange movements (161) - - (161) At 31 March 2023 5,387 295 9 5,691 Additions 412 52 - 464 Disposals (315) - (9) (324) Foreign exchange movements (238) - - (238) At 31 March 2024 5,246 347 - 5,593 Depreciation At 31 March 2022 (888) (95) (1) (984) Charge for the year (402) (50) - (452) Disposals - - - - Foreign exchange movements 27 - - 27 At 31 March 2023 (1,263) (145) (1) (1,409) Charge for the year (620) (63) - (683) Disposals 187 - 1 188 Impairment (52) - - (52) Foreign exchange movements 35 - - 35 At 31 March 2024 (1,713) (208) - (1,921) Net book value At 31 March 2024 3,533 139 - 3,672 At 31 March 2023 4,124 150 8 4,282 At 31 March 2022 1,667 100 6 1,773 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 14. Right of use assets (continued) Company Vehicles Total ��000's ��000's Cost or valuation At 31 March 2022 106 106 Additions 34 34 At 31 March 2023 140 140 Additions 21 21 At 31 March 2024 161 161 Depreciation At 31 March 2022 (47) (47) Charge for the year (22) (22) At 31 March 2023 (69) (69) Charge for the year (33) (33) At 31 March 2024 (102) (102) Net book value At 31 March 2024 59 59 At 31 March 2023 71 71 At 31 March 2022 59 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 15. I nvestments Group Investment in associate Unlisted investments Total ��000's ��000's ��000's At 31 March 2022 203 9 212 Share of associate's result for the year 45 - 45 Foreign exchange differences (5) - (5) At 31 March 2023 243 9 252 Share of associate's result for the year 53 - 53 Foreign exchange differences (37) - (37) At 31 March 2024 259 9 268 Company Unlisted investments (subsidiaries) Total ��000's ��000's Cost At 31 March 2022 Restated 21,230 21,230 Disposed (65) (65) At 31 March 2023 21,165 21,165 Additional investment 286 286 At 31 March 2024 21,451 21,451 Impairment At 31 March 2022 (20) (20) Impairment charge - - Disposal 20 20 At 31 March 2023 - - Impairment charge - - Disposal - - At 31 March 2024 - - Net book value At 31 March 2024 21,451 21,451 At 31 March 2023 21,165 21,165 At 31 March 2022 21,210 21,210 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 15. Investments (continued) 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 ECO Animal Health Limited The Grange, 100 High Street, Southgate, N14 6BN England & Wales Ordinary 100 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 51 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 51 Zhejiang ECO Animal Health Limited Zhongguan Industrial Area, Deqing, Zhejiang Province 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 USA Ordinary 100 Interpet LLC. 3775 Columbia Pike, Ellicott City, Maryland, 21043 USA 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 2024 15. 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 Zhejiang ECO Biok Animal Health Products Limited Manufacture of animal drugs Shanghai ECO Biok Veterinary Drug Sale Company Ltd. Distribution of animal drugs Zhejiang ECO Animal Health Limited Procurement of raw materials 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 Interpret 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 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 15. Investments (continued) Zhejiang ECO Biok Animal Health Products Limited, Zhejiang ECO Animal Health Limited and ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda all 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. Interpet 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 2024. 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. Please note that as Shanghai ECO Biok is a 100% owned subsidiary of Zhejiang ECO Biok, the summarised results below are consolidated at Zhejiang ECO Biok level, before wider Group eliminations. Summarised statement of comprehensive income 2024 2023 For the year ended 31 March ��000's ��000's Revenue 21,599 24,122 Cost of sales (13,322) (13,504) Gross profit 8,277 10,618 Administrative expenses (5,394) (4,927) Operating profit/(loss) 2,883 5,691 Other income 32 345 Finance income (142) (94) Profit before tax 2,773 5,942 Tax expense (814) (1,691) Profit after tax 1,959 4,251 Profit allocated to NCI 960 2,083 Other comprehensive (loss)/income allocated to NCI (738) (276) Summarised balance sheet 2024 2023 As at 31 March ��000's ��000's Assets: Property, plant and equipment 570 860 Right-of-use assets 3,002 3,445 Deferred tax assets 189 - Inventories 3,963 5,047 Trade and other receivables 4,528 3,925 Cash and cash equivalents 11,948 14,877 24,200 28,154 Liabilities: Trade and other payables 2,873 1,742 Contract liabilities 3 1,080 Lease liabilities - short term 255 585 Lease liabilities - long term 3,050 3,061 6,181 6,468 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 15. Investments (continued) Summarised cash flows 2024 2023 For the year ended 31 March ��000's ��000's Cash flows from operating activities 4,357 15,802 Cash flows from investing activities (75) (2,772) Cash flows from financing activities (6,221) (3,924) Foreign exchange movements (989) (376) Net increase/(decrease) in cash and cash equivalents (2,928) 8,730 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 USA. Pharmgate Animal Health LLC distributes the Group's products in the USA. 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 2024 15. 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 2024 2023 2024 2023 ��000's ��000's ��000's ��000's Non-current assets - 2 - - Current assets 2,012 1,175 473 614 Current liabilities (1,984) (1,149) (473) (613) Sales 14,912 11,672 3,568 3,499 Profit after tax - - - - 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. 2024 2023 ��000's ��000's Investments (share of net assets) At 1 April 243 203 Share of results for the year 53 45 Foreign exchange movement (37) (5) At 31 March 259 243 2024 2023 Summarised financial information ��000's ��000's At 31 March Current assets 813 831 Non-current assets 71 37 Current liabilities (239) (224) Non-current liabilities (101) (134) Net assets (100%) 544 510 Group share of net assets (47.62%) 259 243 Year ended 31 March Revenue 2,106 2,122 Net profit 110 95 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 16. Inventories Group Company 2024 2023 2024 2023 ��000's ��000's ��000's ��000's Raw materials and consumables 9,039 9,252 - - Finished goods and goods for resale 5,425 7,660 - - Work in progress 2,491 5,497 - - 16,955 22,409 - - The above total includes the provision of inventory amounting to ��631,000 (2023: ��384,000). 17. Trade and other receivables Group Company 2024 2023 2024 2023 ��000's ��000's ��000's ��000's Non-current : Amounts owed by Group undertakings - - 51,078 51,526 The inter-company 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 2024 2023 2024 2023 ��000's ��000's ��000's ��000's Current: Trade receivables 29,835 24,813 - - Other receivables 1,816 1,312 1,444 825 Prepayments and accrued income 524 725 254 248 32,175 26,850 1,698 1,073 The ageing analysis of these trade receivables is as follows: Group 2024 Trade receivables ECL rate ECL allowance Net of impairment ��000's % ��000's ��000's Current 24,458 0.66% 161 24,297 Up to 3 months past due 4,115 4.41% 181 3,934 3 to 6 months past due 1,137 9.11% 104 1,033 Over 6 months past due 1,564 63.49% 993 571 31,274 1,439 29,835 Group 2023 Trade receivables ECL rate ECL allowance Net of impairment ��000's % ��000's ��000's Current 20,241 1.58% 319 19,922 Up to 3 months past due 4,097 4.02% 165 3,932 3 to 6 months past due 711 4.73% 34 677 Over 6 months past due 609 53.74% 327 282 25,658 845 24,813 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 17. Trade and other receivables (continued) The Group measures its trade receivables at amortised cost and estimates the allowance for expected credit loss ("ECL") using a provision matrix based on the Group's historical credit loss experience. The loss rates are then adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast conditions. This approach enables the Group to determine unbiased and probability-weighted estimates of credit losses for the lifetime of those trade receivables as required by IFRS 9. The allowance for ECL in FY24 makes up 4.3% of all trade receivable balances while in FY23, the allowance made up 3.4% of total trade receivable balances. The allowance for ECL in FY24 makes up 19.2% of all overdue balances. The increase in the provision is driven by: - Worsening age profiles of outstanding trade debtors; - Worsening loss rates observed in the past 12 months; and - A full provision provided for PharmChem International's balance due to the economic circumstances surrounding Egypt. Movement on the Group provision for impairment of trade receivables is as follows: Group 2024 2023 ��000's ��000's Balance at 1 April 845 194 Additional provision made 837 646 (Recovered) in the year (175) (80) Written off in the year (59) (33) Other (9) 118 Balance at 31 March 1,439 845 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 18. Deferred tax Group Deferred tax assets and liabilities are attributable to the following: Assets / (liabilities) Assets / (liabilities) 2024 2023 ��000's ��000's Trade-related temporary differences (3,875) (2,830) Property - 26 Plant and equipment (96) (96) Pension scheme (58) (45) Deferred tax on share options 128 56 Tax losses carried forward 2,622 3,448 Total deferred tax (liabilities) / assets (1,279) 559 Overseas deferred tax assets 1,437 - Total deferred tax assets 1,437 - Sum of assets minus liabilities 158 559 The movement on the deferred tax account can be summarised as follows: Deferred tax Trade related temporary differences Tax losses carried forward Property Plant and machinery Pension scheme Shares Overseas temporary differences Overseas tax losses Total ��000's ��000's ��000's ��000's ��000's ��000's ��000's ��000's ��000's At 31 March 2022 (2,830) 2,619 27 (109) - 43 250 523 523 (Charge) / credit for the year through income statement (255) 3 (1) 13 (45) 13 5 303 36 At 31 March 2023 (3,085) 2,622 26 (96) (45) 56 255 826 559 (Charge) / credit for the year through income statement (790) - (26) - (13) 72 141 215 (401) At 31 March 2024 (3,875) 2,622 - (96) (58) 128 396 1,041 158 Trade related temporary differences relate predominantly to research and development tax deductions claimed in advance of expense recognition in the income statement, carried forward trading losses and a provision for unrealised profit arising on consolidation. 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. Company Property Pension scheme Share options Total ��000's ��000's ��000's ��000's At 31 March 2022 27 - 23 50 Credit for the year through income statement (1) (45) 8 (38) At 31 March 2023 26 (45) 31 12 (Charge)/credit for the year through OCI (26) (13) 27 (12) At 31 March 2024 - (58) 58 - At the year ended 31 March 2024 the Group has unused unrecognised overseas tax losses amounting to ��547,000 (2023: ��1,319,000), and unused unrecognised UK tax losses amounting to ��6,311,000 (2023: ��4,613,000). These tax losses are not expected to expire. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 19. Cash and cash equivalents Cash and cash equivalents comprise cash and short-term deposits held by the Group net of amounts outstanding on bank overdraft. The carrying amount of these assets is not significantly different to their fair value. Group Company 2024 2023 2024 2023 ��000's ��000's ��000's ��000's Cash and cash equivalents 22,374 21,658 363 388 Cash and cash equivalents presented in the statement of cash flows 22,374 21,658 363 388 Balances drawn on the bank overdraft facility are repayable on demand and form an integral part of the cash management of the Group and Company. In the statement of cash flows, the Group and the Company have presented cash and cash equivalents net of balances outstanding on bank overdrafts. Amounts drawn and repaid on the overdraft facility are therefore considered as part of changes in cash and cash equivalents and are not presented as financing cash flows. Cash and short-term deposits held in China are subject to local exchange control regulations. These regulations provide for restrictions on exporting capital from those countries, other than through normal dividends. The carrying amount of the assets included within the consolidated financial statements to which these restrictions apply is ��14.3m (2023: ��17.6m). Significant non-cash transactions from investing activities are as follows: Group Company 2024 2023 2024 2023 ��000's ��000's ��000's ��000's Acquisition of property, plant and equipment by means of leases or not yet paid at year end 464 3,124 21 34 Acquisition of intangible assets not yet paid at year end 272 306 - - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 20. Trade and other payables Group Company 2024 2023 2024 2023 ��000's ��000's ��000's ��000's Trade payables 10,119 6,124 75 194 Contract liabilities 3 1,079 - - Other payables 1,205 667 167 45 Accruals and deferred income 6,026 6,653 562 281 17,353 14,523 804 520 21. Borrowings Group Company 2024 2023 2024 2023 ��000's ��000's ��000's ��000's Cash and cash equivalents 22,374 21,658 363 388 Lease liabilities (4,025) (4,480) (62) (75) Net cash 18,349 17,178 301 313 The Group has an overdraft facility in certain currencies in respect of a pool of bank accounts held with NatWest Bank plc. 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 the assets of the Group. Any drawdown of 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 overdraft facility. The facility has a gross and net limit of ��5,000,000, which may be borrowed and repaid at will. At 31 March 2024, the undrawn facility was ��5,000,000 (2023: ��5,000,000). At 31 March 2024, t he Group has an undrawn revolving credit facility ��10,000,000 (2023: ��10,000,000) with Natwest. This facility is interest bearing and can be drawn by the Group on demand, The facility expires on 30 June 2026. Reconciliation of lease liabilities Group Company 2024 2023 2024 2023 ��000's ��000's ��000's ��000's Opening lease liabilities (4,480) (1,910) (75) (62) New lease liabilities (416) (3,327) (22) (22) Repayment 884 387 45 21 Lease liabilities interest (291) (205) (11) (12) Disposal 92 - - - Foreign exchange 186 575 - - Closing lease liabilities (4,025) (4,480) (63) (75) Current lease liabilities (646) (884) (50) (41) Non-current lease liabilities (3,379) (3,596) (13) (34) The Group leases a number of properties and motor vehicles in the jurisdictions it operates in. At 31 March 2024 there were no termination or extension options on leases. The Group expensed ��71,000 for the year ended 31 March 2024 (2023: ��48,000) for short-term leases. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 21. Borrowings (continued) Group leases maturity At 31 March 2024 the Group held the following number of leases in each of the maturity categories below. At 31 March 2024 Property Vehicle Other Total Number Number Number Number Up to 1 year 4 1 2 7 Between 1 - 5 years 8 9 3 20 Over 5 years 2 - - 2 Total number of leases 14 10 5 29 Average remaining lease term (in years) 2.5 1.8 1.5 2.1 At 31 March 2023 Property Vehicle Other Total Number Number Number Number Up to 1 year 1 1 - 2 Between 1 - 5 years 5 8 3 16 Over 5 years 4 - - 4 Total number of leases 10 9 3 22 Average remaining lease term (in years) 8.3 2.7 3.3 5.3 Amounts payable under lease arrangements for the Group The undiscounted contractual cash flows payable under the existing lease arrangements at 31 March are analysed into the following maturity categories. Group 2024 2023 ��000's ��000's Up to 1 year 1,135 896 Between 1 - 5 years 2,055 2,503 Over 5 years 1,085 1,983 Total 4,275 5,382 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 22. Provisions Litigation Overseas tax Other Total ��000's ��000's ��000's ��000's At 31 March 2022 456 3,419 - 3,875 Charge for year through income statement - 1,214 124 1,338 Foreign exchange - (35) - (35) At 31 March 2023 456 4,598 124 5,178 Charge for year through income statement - 507 208 715 Foreign exchange - (34) - (34) At 31 March 2024 456 5,071 332 5,859 Provisions include an amount of ��456,000 in respect of personnel related litigation matters. Management has assessed the range of possible outcomes to these claims and the provision made represents a best estimate, and is mid-range of the possible outcomes, having taken legal advice. ECO management is vigorously defending the claims and the timing of any settlement is uncertain due to the varying nature of the claims and the availability of the relevant courts if required. Provisions also include an amount of ��5,071,000 in respect of overseas tax liabilities. Certain aspects of a sales tax related to imported products in a Group subsidiary might have been applicable. The subsidiary has been importing an increasing volume of product into this country in recent years. This matter remains uncertain and subject to further review of the tax legislation and case law. No tax payment has yet been determined. However, a substantial tax settlement may be required in due course and a provision has been recognised. 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 ��108,491 (2023: ��90,845). Defined benefit pension scheme The Group operates a defined benefit pension scheme in the UK for a number of ex-employees which is closed to new members. A full actuarial valuation was carried out at 6 April 2022 and updated on 31 March 2024 for IAS 19 purposes by a qualified independent actuary. The major assumptions used by the actuary were: 31 March 2024 31 March 2023 Discount rate 4.75% 4.85% RPI inflation 3.45% 3.30% Deferred revaluation rate CPI max 5% p.a. 2.45% 2.30% NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 23. Pension and other post-retirement benefit commitments (continued) Mortality rates No pre-retirement mortality is assumed (2023: 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 2022 projections with a 1.00 % long-term trend rate (2023: 1.25% ). U nder these mortality assumptions, the expected future lifetime for a member retiring at age 65 at the year-end would be 21.0 years for males (2023: 22.2 years) and 23.2 years for females (2023: 24.4 years). For members retiring in 20 years' time, the expectation of life would be 22.0 years for males (2023: 23.6 years) and 24.4 years for females (2023: 25.8 years). The weighted average term of the liabilities is 7 years (2023: 8 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 2024 2023 ��000's ��000's Assets at start of year 1,135 1,648 Defined benefit obligation at start of year (954) (1,569) Net asset/(liability) at 1 April 181 79 Return on assets 55 45 Interest cost (46) (43) 9 2 Gain/(loss) from asset return 40 17 Gain/(loss) from changes in assumptions (1) 43 Gain/(loss) from experience 4 40 Statement of other comprehensive income 43 100 Employer contributions (gross) - - Net assets at 31 March 233 181 Actual assets at end of year 1,202 1,135 Actual defined benefit obligation at end of year (969) (954) Gain/(loss) on changes in assumptions was ��nil (2023: �� nil ) relating to changes in demographic assumptions and a loss of ��1,000 (2023: ��43,000 gain) relating to changes in financial assumptions. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 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 contribution schedules - lies with trustees. Reconciliation of changes in the asset value during the year 2024 2023 ��000's ��000's Fair value of assets at 1 April 1,135 1,648 Return on assets 55 45 Gain/(loss) on asset return 40 17 Employer contributions (gross) - - (Decrease)/increase in secured pensioners' value due to scheme experience (28) (575) Benefits paid - - Fair value of assets at 31 March 1,202 1,135 Reconciliation of changes in the liability value during the year Defined benefit obligation at 1 April 954 1,569 Interest cost 46 43 Past service cost (4) (40) (Gain)/loss on changes in assumptions 1 (43) (Decrease)/increase in secured pensioners' value due to scheme experience (28) (575) Benefits paid - - Defined benefit obligation at 31 March 969 954 No annual contribution to be paid by the employer is expected (2023: ��58,000). Year ended 31 March 2024 2023 2022 2021 2020 ��000's ��000's ��000's ��000's ��000's Fair value of plan assets 1,202 1,135 1,648 1,795 1,795 Present value of defined benefit obligation 969 954 1,569 1,799 1,814 (Deficit)/surplus in plan 233 181 79 (4) (27) Experience (losses)/gains on plan liabilities 40 17 (5) - (2) Plan assets 2024 2023 ��000's ��000's Assets under management 345 291 Insured annuities 857 844 Total 1,202 1,135 Assets under management composition 2024 2023 Corporate bonds 42.6% 43.0% Overseas equities 37.1% 29.2% UK equities 12.5% 17.6% Property 7.0% 7.8% Cash 0.8% 2.4% 100.0% 100.0% NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 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 assumptions Reasonably possible change (Decrease)/increase in defined benefit obligation 2024 2023 ��000's ��000's ��000's ��000's Discount rate +/- 0.1% (56) 64 (62) 73 Members' life expectancy +/- 1 year (73) 73 62 (64) 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 2024 24. Share-based payments The expense recognised for share-based payments made during the year is shown in the following table: Group Company 2024 2023 2024 2023 ��000's ��000's ��000's ��000's Total expense arising from equity-settled share-based payments transactions 413 408 127 179 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 2024 2024 2023 2023 000's WAEP (��) 000's WAEP (��) Outstanding at 1 April 2,777 2.84 3,866 3.47 Granted during the year - Employee scheme 485 0.95 - - Granted during the year - LTIPs 418 0.05 551 0.05 Granted during the year - Deferred bonus 45 0.05 46 0.05 Cancelled during the period (142) 4.47 (1,686) 3.20 Exercised during the period (23) 0.05 - - Outstanding at 31 March 3,560 2.18 2,777 2.84 Granted < 3 years ago and not vested (1,559) (1,239) Exercisable at 31 March 2,001 3.62 1,538 4.47 2,001,493 options were exercisable at 31 March 202 4 (2023: 1,537,850). The WAEP of exercisable options at 31 March 2024 was 362.0p (2023: 447.0p). The average share price during the year was 106.9p (2023: 111.2p). 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 2024 had a weighted average exercise price of ��2.18 (2023: ��2.84) and a weighted average remaining contractual life of 5.4 years (2023: 4.7 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 Group. 484,900 share options have been granted in the year under this scheme (2023: none). In addition 417 , 704 options have been issued under the Group's Long Term Incentive Plan (2023: 550,953) and 4 4 , 562 under the Group's deferred bonus arrangements (2023: 45,606). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 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 2024 is given below: Date of grant Unapproved Approved Exercise price Expiry date 21 August 2014 - 11,400 �� 1.615 21 August 2024 13 February 2015 - 18,850 �� 2.005 13 February 2025 26 August 2015 - 21,350 �� 2.650 26 August 2025 19 January 2016 - 10,200 �� 3.150 19 January 2026 17 February 2016 - 19,600 �� 3.125 17 February 2026 01 March 2016 - 9,600 �� 3.125 01 March 2026 12 September 2016 - 23,100 �� 4.325 12 September 2026 12 September 2016 306,900 - �� 4.325 12 September 2023 15 September 2016 - 2,000 �� 4.350 15 September 2026 15 September 2016 398,000 - �� 4.350 15 September 2023 21 September 2017 - 36,650 �� 6.200 21 September 2027 21 September 2017 234,350 - �� 6.200 21 September 2024 12 April 2018 - 3,900 �� 5.450 12 April 2028 23 October 2018 - 56,050 �� 3.800 23 October 2028 23 October 2018 233,950 - �� 3.800 23 October 2025 19 December 2018 - 7,800 �� 3.800 19 December 2028 19 December 2018 2,200 - �� 3.800 19 December 2025 28 April 2021 * 326,679 - �� 0.050 28 April 2031 28 April 2021 - 154,149 �� 3.495 28 April 2031 28 April 2021 124,351 - �� 3.495 28 April 2028 24 September 2021 14,782 - �� 0.050 24 September 2031 12 December 2022 45,606 - �� 0.050 12 December 2032 27 February 2023 * 550,953 - �� 0.050 27 February 2033 25 April 2023 - 269,800 �� 1.011 24 April 2033 22 December 2023 44,562 - �� 0.050 22 December 2033 22 March 2024 * 417,704 - �� 0.050 22 March 2034 22 March 2024 - 215,100 �� 0.880 22 March 2034 2,700,037 859,549 These are the options where a TSR ("Total Shareholder Return") criterion affects the number of options that will vest. The market price of the shares at 31 March 2024 was 85.5p (2023: 96.5p) with a range in the year of 84.0p to 122.5p (2023: 82.5p to 165.0p). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 24. Share-based payments (continued) The Company uses a Black-Scholes model to value share-based payments for options with service conditions and/or non-market performance conditions and the following table lists the inputs to this model for the last five years. 2024 2023 2022 2021 2020 Vesting period (years) 3 - 4 3 - 4 3 - 4 n/a n/a Option expiry (years) 10 10 7 - 10 Dividends expected on the shares 0.00% 0.00% 1.00% Risk free rate (average) 3.74% - 4.13% 3.20% - 3.75% 0.18% Volatility of share price 40% 40% 40% Weighted average fair value (pence) 47.0 -106.2 84.0 -108.0 101.0 - 316.0 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. Long Term Incentive Plan Under this plan share options may be granted to certain Executive Directors and members of the Company's Executive Leadership Team. The share options awarded under the LTIP are subject to an exercise price of ��0.05 per share and performance conditions being achieved that have been set by the Remuneration Committee and relate to total shareholder return (TSR) and research and development targets. Subject to the performance conditions being met, the share options will vest after the end of a three-year vesting period. The proportion of share options relating to each performance condition is: (i) 75% in relation to the TSR conditions; and (ii) 25% in relation to the R&D targets. The TSR conditions mean that the share options subject to these conditions will vest subject to the following: (i) 25% of the share options will vest if the annual compound TSR over the performance period equals 7.5%; (ii) 50% of the share options will vest if the annual compound TSR over the performance period equals 10%; and (iii) 100% of the share options will vest if the annual compound TSR over the performance period equals 20%. The R&D targets mean that the share options subject to these targets will vest subject to the following: (i) 25% of the shares options will vest if specified R&D targets agreed between Executive management and the Remuneration Committee during the performance period are achieved; and (ii) 100% of the shares options will vest if specified R&D targets agreed between Executive management and the Remuneration Committee during the performance period are achieved. The R&D targets comprise a range of identifiable and quantifiable criteria relating to the introduction of new R&D projects, the progress of existing R&D projects to later stages of the development cycle, the submission of projects for approval to relevant regulators and for the approval of projects by the relevant regulators. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 25. Share capital 2024 2023 ��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 67,744,889 (2023: 67,721,916) ordinary shares of 5p each 3,387 3,381 During the year 22,973 shares were issued (2023: no shares were issued). The options were issued following the exercise of share options. The exercise price was 5 pence per option and consideration of ��1,000 was received. All share issued are non-redeemable and rank equally in terms of voting rights (one vote per share); rights to participate in all approved dividend distribution for that class of shares; and right to participate in any capital distribution on winding up. The shares in the original or any increased capital of the Company may be issued with such preferred, deferred or other special rights or restrictions, whether in regard to dividend, voting, return of capital as the Company may from time to time determine. 26. Non-controlling (minority) interests 2024 2023 ��000's ��000's Balance as at 1 April 12,281 12,284 Share of subsidiary's profit/(loss) for the year 960 2,083 Share of foreign exchange gain/(loss) on net investment (738) (276) 222 1,807 Share of dividend paid by subsidiary (2,813) (1,810) Balance as at 31 March 9,690 12,281 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 27. Other reserves The Group and Company held a revaluation reserve of �� 311 ,000 as at 31 March 2024 (2023: �� 311 ,000) relating to the freehold of the former head office of the Group (New Malden). The revaluation reserve has been transferred directly to retained earnings after the disposal of the property. The Group and Company held a revaluation reserve of �� 75 ,000 as at 31 March 2024 (2023: �� 75 ,000) relating to the investment property (Mitcham). The revaluation reserve has been transferred directly to retained earnings after the disposal of the property. The Group held a revaluation reserve of ��271,000 as at 31 March 2024 (2023: ��271,000) relating to the acquisition of ECO Animal Health Japan Inc in 2009 and corresponding to the carrying value of its assets. The Group and Company held a capital redemption reserve of ��106,000 as at 31 March 2024 (2023: ��106,000). Included in the Group's foreign exchange reserve are the following exchange movements on consolidation of the subsidiaries and joint operations listed below: At 31 March 2023 Movement in the year At 31 March 2024 ��000's ��000's ��000's In respect of: Zhejiang ECO Biok Animal Health Products Limited 1,098 (767) 331 Zhejiang ECO Animal Health Limited 319 (204) 115 ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda 220 (5) 215 ECO Animal Health Japan Inc. (20) (164) (184) ECO Animal Health USA Corp. (35) 20 (15) ECO Animal Health de Mexico, S. de R. L. de C. V. 340 30 370 ECO South Africa (49) - (49) Pharmgate LLC 5 - 5 Foreign exchange reserve movements charged to consolidated statement of comprehensive income 1,878 (1,090) 788 28. Directors' emoluments 2024 2023 ��000's ��000's Emoluments for qualifying services 1,211 999 Company pension contributions to money purchase schemes 25 25 Share-based payments 108 70 Benefits in kind 13 13 1,357 1,107 During the year no Directors exercised share options (2023: none) realising a gain of ��nil (2023: ��nil). The highest paid Director received ��619,000 (2023: ��497,000) including ��33,000 (2023: ��6,000) of share-based payments and ��nil (2023: ��nil) of pension contributions. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 29. Employees Number of employees The average number of employees (including Directors) during the year was: 2024 2023 Number Number Directors 5 6 Production and development 91 89 Administration 48 47 Sales 83 92 227 234 Employment costs (including amounts capitalised) 2024 2023 ��000's ��000's Wages and salaries 14,393 13,045 Share-based payments 413 408 Social security costs 1,558 1,600 Other pension costs 431 408 16,795 15,461 30. Related party transactions Dividends paid to related parties During the year Mr P Lawrence (a significant shareholder) and his family received no dividends (2023: ��nil). The other Directors and their families received dividends to the value of ��nil (2023: ��nil). 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 ��603,786 (2023: ��750,000) and charged interest of ��1,707,579 (2023: ��1,224,705) to the subsidiary company. Both of these transactions were made through the inter-company account and were eliminated on consolidation. During the year Zhejiang ECO Animal Health Ltd paid dividends to ECO Animal Health Ltd of ��449,560 (RMB 3,916,015). During the year Zhejiang ECO Biok Animal Health Products Limited paid dividends of ��255,029 (RMB 1,960,000) to ECO Animal Health Group plc (2023: ��144,828) and ��2,702,641 (RMB 23,540,000) to ECO Animal Health Limited (2023: ��1,739,409). During the year ECO Animal Health do Brasil Comercio de Produtos Veterinarios Ltda paid dividends to ECO Animal Health Ltd of ��1,398,471 (BRL 9,000,000) (2023: ��Nil). Key management compensation The Group regards the Board of Directors as its key management. 2024 2023 ��000's ��000's Emoluments for qualifying services 1,211 999 Retirement benefits 25 25 Share-based payments 108 70 Benefits in kind 13 13 1,357 1,107 The number of Directors for which retirement benefits were accruing was 1 (2023: 2). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 31. 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 risk 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 19, borrowings in note 21 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 2024, the Group was contractually obliged to make repayments as detailed below: 2024 2023 Within one year or on demand ��000's ��000's Trade payables 10,119 6,124 Other payables 1,205 565 Accruals 6,026 6,653 17,350 13,342 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. 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 31. Financial instruments (continued ) Foreign 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. US Dollar Euros Chinese RMB Japanese Yen Brazilian Real Canadian Dollar Mexican Peso Other 2024 ��000's ��000's ��000's ��000's ��000's ��000's ��000's ��000's Trade and other receivables 30,924 2,961 6,753 134 677 759 2,699 125 Trade and other payables (13,115) (681) (7,312) (1,074) (656) (494) (3,387) (80) Cash and cash equivalents 4,638 439 14,356 618 878 321 378 64 Total 22,447 2,719 13,797 (322) 899 586 (310) 109 US Dollar Euros Chinese RMB Japanese Yen Brazilian Real Canadian Dollar Mexican Peso Other 2023 ��000's ��000's ��000's ��000's ��000's ��000's ��000's ��000's Trade and other receivables 34,969 2,013 3,880 303 3,251 752 335 153 Trade and other payables (25,436) (479) (5,258) (449) (49) (673) - (125) Cash and cash equivalents 2,162 515 17,736 240 265 180 125 53 Total 11,695 2,049 16,358 94 3,467 259 460 81 At 31 March 2024 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 2024. 2024 2023 ��000's ��000's U S Dollar 2,278 1,300 Euro 265 228 Chinese RMB 1,450 1,818 Japanese Yen (39) 10 Brazilian Real 100 385 Canadian Dollar 65 29 Mexican Peso (41) 51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 31. Financial instruments (continued ) Analysis of financial instruments by category Group Financial assets Financial liabilities Total 2024 ��000's ��000's ��000's Trade and other receivables1 32,175 - 32,175 Cash and cash equivalents 22,374 - 22,374 Trade and other payables2 - (17,350) (17,350) Amounts due under leases - (4,025) (4,025) Borrowings - - - 1. This includes prepayments and accrued income ��524,000. 2. This excludes contract liabilities but includes accruals and deferred income (��6,026,000). 2023 ��000's ��000's ��000's Trade and other receivables1 26,850 - 26,850 Cash and cash equivalents 21,658 - 21,658 Trade and other payables2 - (13,339) (13,339) Amounts due under leases - (4,480) (4,480) Borrowings - - - 1. This includes prepayments and accrued income ��725,000. 2. This excludes contract liabilities but includes accruals and deferred income (��6,653,000). Company Financial assets Financial liabilities Total 2024 ��000's ��000's ��000's Trade and other receivables1 1,698 - 1,698 Cash and cash equivalents 363 - 363 Trade and other payables2 - (804) (804) Amounts due under leases - (62) (62) Borrowings - - - Amounts due from Group undertakings 51,078 - 51,078 1. This includes prepayments and accrued income ��254,000. 2. This excludes contract liabilities, but includes accruals and deferred income (��562,000). 2023 ��000's ��000's ��000's Trade and other receivables1 1,073 - 1,073 Cash and cash equivalents 388 - 388 Trade and other payables2 - (520) (520) Amounts due under leases - (76) (76) Borrowings - - - Amounts due from Group undertakings 51,526 - 51,526 1. This includes prepayments and accrued income ��248,000. 2. This excludes contract liabilities, but includes accruals and deferred income (��281,000). 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 MARCH 2024 32. Post balance sheet events Disposal of Horsepaste Business ACME Drugs S.r.l in Italy has acquired all the marketing authorisations held by ECO for the Ecomectin�� Horsepaste, together with the intellectual property ��18,000, manufacturing and distribution arrangements and existing inventory ��155,000. This transaction was completed on 3 April 2024 for a total consideration of ���1,300,000 (��1,120,000 at 31 March 2024). ���500,000 (��431,000 at 31 March 2024) was paid on signature of the sale and purchase agreement with an undertaking to pay two further payments of ���400,000 (��345,000 at 31 March 2024) each on the date which is 18 months after completion and 36 months after completion. These two elements of deferred consideration are unconditional and supported with a bank guarantee which will be put in place within 45 days. The revenue derived from this business in the year ending 31 March 2024 was ��814,000 (2023 ��988,000). The product was never treated as a separate segment and together with the relative immateriality of the revenue has resulted in not treating this as a discontinued operation. As at 31 March 2024, the ��18,000 has been included in the balance sheet as assets held for sale. This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com. RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. 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