Better animal health

Annual Report for the year ended 31 December 2022

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Our Purpose

Animalcare Group plc is an international, development focused sales and marketing organisation driven by a collective belief that healthy animals can have a hugely beneficial effect on their owners and wider society

Animalcare is a passionate organisation staff

Animalcare is a passionate organisation staffg

HIGHLIGHTS

£71.6m

3.3%

Revenue

£13.1m

2.4%

UNDERLYING EBITDA

12.6p

5.0%

Underlying EPS

£5.4m

£0.1m

NET DEBT

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JAN BOONE

Non-Executive Chair

Animalcare’s performance in 2022 highlighted the resilience of our business and of the animal health markets in which we operate

Our Strategy

We are pursuing our strategic ambition of becoming a leading player in all our markets. In 2022 we continued to focus on the five pillars of our growth strategy.

DELIVERING ON OUR STRATEGY

Orthros Medical

In March 2022 we took a major step forward in the development of our longer-term pipeline through a collaboration and licensing deal with Orthros Medical, a Netherlands-based company focused on novel VHH antibody technology.

We are delighted with how the relationship with Orthros Medical is working and the progress made in the initial phase of the collaboration. One year into our agreement, it’s clear that supporting earlier stage research in tandem with experts in the field fits our model well and provides an opportunity to develop innovative products that can deliver sustainable future growth.

Derived from llamas, VHH antibodies have been shown to possess a number of clinical uses.

WHY ANIMALCARE?

Pipeline of novel products

The Group has shifted its R&D and business development focus from branded generics to novel, differentiated products with higher margin and growth potential.

Daxocox, our medication for osteoarthritis-related pain in dogs, successfully emerged from our pipeline in 2021 while Plaqtiv+ dental health range reached the market with a series of launches in 2022. Adding to a series of life cycle management projects designed to expand the value of marketed brands, the Group further strengthened the pipeline in March 2022 through an early-stage licensing and collaboration agreement with Orthros Medical to develop innovative VHH antibody-based therapies.

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Well positioned in attractive markets

The market for animal pharmaceuticals has enjoyed a period of robust global growth, a trend that is widely forecast to continue.

While the Production Animals segment is benefiting from increasing demand for protein, the Companion Animals sector is growing at a faster rate, largely driven by exceptionally high levels of pet ownership and a greater willingness to spend on health and wellbeing. In 2022, we derived approximately 78% (2021: 77%) from Companion Animals and Equine. Consequently, Animalcare is structurally well positioned in a fast-growing and attractive market with strong long-term fundamentals.

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Streamlined portfolio

Rationalisation of the Group’s product portfolio in recent years has delivered positive results.

Focusing attention on the larger selling, higher potential Top 40 brands while disposing of several smaller, lower value “tail” products has created a more streamlined and manageable portfolio with improved margins.

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Financial flexibility enabling growth

Our focus on strengthening the Group’s financial position in recent years has significantly reduced net debt levels.

As a result, the Group has the capacity to invest in value-creating opportunities that will add to our pipeline or can be leveraged more immediately across our European operations and network of partners to accelerate growth.

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OUR STRATEGIC PRIORITIES

We are pursuing our strategic ambition of becoming a leading player in all our markets. In 2022 we continued to focus on the five pillars of our growth strategy.

Strong finances

Key leadership

Growth portfolio

Business development

Innovative pipeline

Financial sustainability through revenue growth, strong cash conversion, EPS growth and EBITDA margin growth

Revenue growth

Key initiatives

Focus on segments and products with highest potential
New product launches
Leverage strengths across all our direct markets
Maximise opportunities in other high growth markets through partnerships or acquisition

Progress

New product sales of £2.1m (2021: £2.2m) predominantly driven by Daxocox and launch of Plaqtiv+ (from the STEM biofilm range)
0.9% revenue decline in the Top 40 products due to loss of distribution and changes in the antibiotic market

2023 priorities

Continue to drive operational excellence in sales and marketing
Maximise growth potential of Daxocox in dynamic market and drive growth of Plaqtiv+ range in all markets

Cash conversion and net debt

Key initiatives

Maintain net debt to underlying EBITDA leverage ratio between one and two times
Optimise inventory turnover
Tax efficiency

Progress

Good underlying cash conversion of 78.3% (2021: 108.8%)
Strong balance sheet maintained with net debt at year end of £5.4m (2021: £5.3m)
Net debt comfortably below target range

2023 priorities

Support investment in growth strategy by sustaining strong cash conversion within a 80%-100% range
Maintain EBITDA leverage in the range of one to two times

Underlying EBITDA margin and EPS growth

Key initiatives

Focus on higher margin products
Operating efficiency and leverage

Progress

Total number of brands in portfolio close to steady state target of 150
Underlying EBITDA margin approximately in line with prior year supported by strong improvement in gross margins while managing SG&A investment
Underlying EPS of 12.6 pence (2021: 12.0 pence)

2023 priorities

Continue to drive operational excellence in sales and marketing
Evolve and align the organisation to the external market and internal opportunities to maximise effectiveness and efficiencies in order to scale profitability

Organisation for success; leadership strength and core capabilities

Attract, retain and develop talented people

Key initiatives

Strengthen leadership capabilities
Align reward to performance
One-team culture
Drive effective communication and collaboration
Improve diversity

Progress

Sandra Single joined SET as Strategic Product and Portfolio Director
Embedded “High Challenge, High Support” leadership programme and implemented “Pioneering Professional” talent management process
Annual mean employee engagement score of 3.88 (2021: 3.96)
Wellbeing programme uptake in line with expectations

2023 priorities

Implement actions from employee engagement survey
New Global People Portal intranet launched to improve two-way communication

Organisation for growth

Key initiatives

Create an organisation to drive sustainable and profitable growth

Progress

Senior Executive Team (SET) focused on delivery
Roll out of our own-branded commercial excellence programme, supported by Group-wide CRM implementation

2023 priorities

Evolve and align the organisation to the external market and internal opportunities to maximise effectiveness and efficiencies in order to scale profitability
Sustain strong momentum in embedding commercial excellence across all markets

Focused portfolio in key therapy areas in growing market segments

Focus on existing core brands that generate sustainable growth and margins

Key initiatives

Improve quality of portfolio; focus on smaller number of biggerselling, higher-margin brands

Progress

Focus on Top 40 products contributed to strengthened gross margins
Daxocox is now a Top 10 selling Animalcare product and we have successfully launched the Plaqtiv+ range

2023 priorities

Drive growth in Companion Animals and maintain strong presence in Production Animals
Continued focus on bigger-selling, higher-margin products
Further investment in product launch capability

Work with partners to build a pipeline of products that meets our criteria for growth

In-license or acquire products and develop network partnerships

Key initiatives

In-license or acquire innovativ pipeline or market-ready products
Establish Animalcare as partner of choice, especially for companies selling into Europe
Build partnerships to exploit growing global markets

Progress

Ongoing distribution partnership with Virbac for Daxocox extended to additional markets globally
UK Identibase business continues to develop and grow post carve out with focus on services centred around pet protection

2023 priorities

Continue to pursue value-creating partnerships and in-licensing opportunities

Building a pipeline of novel and differentiated products

Launch new products and develop differentiated and innovative pipeline of products for the future

Key initiatives

Strengthen internal pipeline of differentiated products through partnerships, in-licensing and acquisitions
Prioritise and accelerate in-house R&D projects

Progress

Research collaboration with Orthros Medical progressing well – focus on lead candidates and new indications for the VHH antibody technology
Daxocox clinical studies in new indications on track

2023 priorities

Continued development of lead indications for the Orthros technology including initiation of clinical programmes
Pursue potential additional indications for the Orthros technology

Strong finances

Key leadership

Growth portfolio

Business development

Innovative pipeline

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