Animalcare Group (LSE:ANCR) — Interim Results 2024

0:00 Good morning, and welcome to the ANIMALCARE GROUP PLC interim results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, they can be submitted at any time by the q and a tab situated in the right corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives through the meeting itself. Have the company camera view all the questions that have been submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to CEO, Jenny Winter. Good morning.

0:33 Good morning. And welcome to this is the second of the series of of these presentations we're doing. So delighted to share with you our interim results up to the end of June twenty twenty four. There's myself, the CEO, and Chris Brewster, and we'll try and handle any questions. We'll walk through the presentation and hopefully that answers some of the questions you may have as we go through. But as Alexandra says, do feel free to add questions onto the q and a session. So oh, sorry. My dog's my dog's going to eat an eat an invader. So just for those of you who aren't that familiar with animal care, we've just popped in a slide to make sure that we we share with you a little bit about ourselves.

1:20 So we are listed on AIM. We're an international veterinary pharmaceutical sales marketing organization. And what we focus on is bringing new and innovative products to market through both our own development pipeline, partnerships with third parties, but also by acquisitions. And we'll talk a little bit more about that. We actually operate in seven countries. When we talk about operating in seven countries, that means we have our own sales and marketing operations in those countries. So we actually have a footprint, we have and we sell our products through our own teams. And then we have an export business where we take our products and export them around the world to about 40 countries. Some of those are in Europe where we don't have a footprint, and the majority of those are around the rest of the world.

2:07 Just in summary, we're a profitable cash generative business with healthy margins, we've got strong cash resources. And in the first six months of the year, we moved to a position where we've got the financial means. We've always had the ambition to invest in organic and m and a growth. So we're we believe that we're in a really good place to maximize the footprint that we have, maximize the structure that we have, and scale. So this is our strategic this is how we express our strategic priorities. So three big big areas. Those of you who joined us last time will will know these. They haven't changed. So our organic growth, we've got a great portfolio of products that we've we sell through our sales marketing organization.

2:54 We're inorganic growth. This is looking for external opportunities in this development, licensing, m and a. We're gonna talk a little bit more about that. And then new product development. We have small new product development team. We work a lot with contract research organizations, and so we are developing our own pipeline. Strong balance sheet. We've got a great team of people, about 220 people. And we've got a lot of people who are customer focused, so about sixty sixty people sorry, 6% of customer focused. That means they're talking to our customers who are predominantly the vets. So we have a lot of vets ourselves and veterinary nurses, so it's a really capable team. And we focus on operational excellence. We are relatively small, but we want to make sure that we have the right capabilities and also the right processes to exploit all the opportunities that we find in front of us.

3:50 If we just look at the highlights for the first half, we're delighted with our delivery in terms of our organic growth. We had strong growth from PLCTIVE and DAXCOX. You'll hear a lot about these two products. They really are our kind of flagship products. They're the ones that are going to move us forwards in the future. Equine, we took a product back that was on distribution in The UK, and that's actually driving the Danilan business driving The UK business, the growth of Danilan. It's an equine pain product. And our production animal business, which is predominantly in our Southern European countries, so Spain, Portugal, and Italy, was grew at 14.3% in the first half of the year, which is great. And we're looking to further develop all three of those areas, particularly equine and production animals for the future. So we've got a balanced kind of portfolio.

4:45 We're very active in the inorganic area. And and the two things that happened that were really important in the first half was the disposal of IdentiCare, which was a microchipping business in The UK. And that was a very successful disposal. And we were delighted. We met our target in terms of cash value, but also timing. We were ahead of our timing, in fact. And STEM was a business that we had a minority share in Canada, we had a a very strong license as part of that STEM minority stake. And we sold our minority stake actually to DECPRA, but we retained all of the aspects of the license that we already had. New product development, we're continuing to move through. We've got some very exciting antibodies.

5:31 The the animal health market is moving towards these sorts of biologic products, the BHH antibodies, continuing with some work on those, expanding the indications and territories for our key products, Daxxocortis and PLCARE, and we're preparing a couple of new launches for 2025. Balance sheet transformed by those disposable disposals, sorry. We've just tweaked resources a bit because now we've got that financial power. We want to make sure that we're maximizing opportunities in mergers and acquisitions and business development. And in June, we changed our chair. So Ed Tore is now our non executive chair, which is good from from our perspective because Ed's background was at DECCRA, and at DECCRA, he led a lot of the business development and m and a activities.

6:20 And what we found working closely with Ed is there's very few people in animal health that he doesn't know. Continuing to build and enhance all those commercial capabilities as well. Okay. Just a very brief remind the animal health market continues to be a good market to operate in. It's a competitive sector, but it's got attractive long term fundamentals. So we see it's really difficult to get consistent and and good data on the growth of this market. There's lots of things that sit in the animal health market overall. But we see an average of about 5% sales growth reported by the top 10 animal health companies in the first half. Companion animal sector remains main the main driver of growth. The other two are very positive, but companion animal is driving a lot of that growth with novel products.

7:10 Pet ownership continues to be high. People spend on pets continues to be positive. We're seeing changing customer base with different demands, which means that we need to be agile to respond. We know particularly in companion animals that novel and innovative products are driving the growth, and they do tend to command higher margins. The veterinary corporates, those of you who may have familiarity with CVS, others including IBC, or particularly from a UK perspective, you may have familiarity with the

7:42 commission the mergers and act CMA reviews. Sorry. The words are all getting muddled, where they're actually looking at the corporate veterinary sector. And we've had quite a lot of questions as we've talked to investors about this. We see it as neutral. It doesn't necessarily impact us directly. But we and have seen on a different topic, we've seen an increased appetite for mergers and acquisitions of all types. So that's people who are looking to sell, people who are looking to buy. So it's quite energized. It's quite a dynamic environment at the moment, which is great. Over to Chris. Thanks Jenny. Morning everyone. Just to kind of set the scene for the figures on this slide. So you'll have seen in the RNS that all of these figures relate to our pharma business. Anything that related to IdentiCare is now classified as discontinued.

8:39 For those of you who've been on this deck, without the kind of overview slides on our website, so at the back, what we've done to help guide in terms of what the full year will look like is we've given an FY '23 P and L on the same basis of the half year, so everyone can kinda see what last year looked like without IdentiCare. So, just some headlines. So from organic growth perspective, grew up at 5% at actual exchange rates. As Jenny noted, if you look at the top 10 animal health companies, that's at least in line with those peers, those large peers. And actually, our CER growth was higher at 7%, and we'll come up to that. As historically, we've continued to focus and seen good progression on gross margins, and that's largely through sales mix.

9:32 Cash conversion significantly improved at the first half. We set ourselves a target this year of 85 to 90% for the full year, so we can see that we're well on track to deliver that. Jenny's noted about the transferable change in the balance sheet at the first half of the year. We had about 33,000,000 of cash in the bank. We'll come on to how we're planning on allocating that. Just linked to that funding capacity, you'll have seen that we refinanced our bank facilities in the run up to the half year. And they're now, those facilities are now out to 03/31/2029. So, the cash in those undrawn facilities are really the firepower that we're talking about in terms of M and A execution.

10:20 And then finally, talked about continuing positive momentum in trading post the half year end. I'll come onto that in particular when we talk about companion animals. But in terms of expectations in the market, we're expecting to deliver those for the full year. I'll cover revenue down to EBITDA in more detail. The only thing I'll touch on here is EPS, just to kinda confirm that. So what we'll have seen is that notwithstanding our profits are slightly up on a before tax level, the EPS is down and that's really driven by the tax and the effective tax rate which was 27%, which was a bit higher than we expected. Two reasons for that is the increase in The UK tax rate.

11:08 That's a two fold increase, obviously, is the absolute increase but also our Jenny noted our UK business is doing very well so the mix of profits in The UK is a bit higher. Then we've got lower innovation, so R and D relief there. We're expecting that effective tax rate to be there at the full year. And that will be in line with what we saw last year. So, just a high level, as I said, revenue is up 5%. So around 37,000,000.

11:42 When we've been talking, it's the first time for a while that we've seen, I'd say, some quite significant variances between actual and constant currency rates and this is really around the continuing strength of GBP Euro. Those that follow it, you know, it's still hanging around the 1.20 mark. Our expectation is that that variance of 2% AARC will probably be around. It may be a little bit higher by the end of the year. And just to give you a feel of kind of what FX does to our results because about over 80% of our sales are from denominated in Euros. For every cent movement in the GBP euro, that impacts revenue by around a million.

12:29 So GBP strength will negatively impact revenues, euro strength will be the converse and a relatively small impact on EBITDA of about point two million. So hopefully that gives you a kind of feel for where we are in that. In terms of overall sales growth, we'll come onto it like a bit. It's broadly fiftyfifty between price and volume at constant currency. The volume incorporates around 1,000,000 of revenues from new and recently launched products and that's predominantly in companion animals. On margin, as I said, this is really driven by sales mix. We'll come on to some of our biggest products, so Plativ and DaxCOX later. Jenny will cover those. They're high margin brands. They're growing quickly, so obviously they've had an additive effect to our margins.

13:19 To briefly touch on inflation, we continue to see COGS inflation. Certain, you know, that is what we've actually agreed to improve surety of supply. We'll come on to some comments later on about some supply disruption. And as historically, where possible, we're mitigating this inflation through price increases. On underlying EBITDA, you can see that's a nudge above last year, which really reflects the continuing investment in the business. So overheads were up around 8%, so that's about a million. Around 50% of that was people. So there's been some we have some mandatory inflation across certain countries in Europe, notably Spain this year. There's been a catch up post COVID. We expect that to normalize last year.

14:06 And also investments, continuing investments in people, in particular in commercial excellence and supply chain. And then marketing, we've invested a lot more this half, the first half versus last half. And again, you know, we'll see that, we can see that in in particular in the DAXCOX and PLATTIV revenue trajectories. And those investment areas, commercial excellence in particular, they'll continue to be a main focus for the remainder of this year and into next. So on companion animals, I think if we look at the overall how we grew in the first half, I think the overall level of growth was as we expected. However, the mix was not as we expected and really that kind of that's really centered around here in companion animals because what we can see is it's broadly flat.

15:01 So, if we talk about the good news, so we've seen Daxaclox and Plativ have grown really well, both strong double digit. Jenny's gonna come on to some more details on that a bit later.

15:16 Where we kind of position that success is really about some internal changes we've seen, we've done in our business rather than external factors. So, the market for where these are operating, you know, the Axis Cop market is broadly flat flat to the dental market is growing really well, probably a little bit higher than that 5% that we talked about. But note with Axis Cop, it's really around these commercial excellence changes that we've made into the business.

15:45 Those positive contributors to the revenue we also touched on, you know, there's around a million of new product revenue as well in there. They've been offset by what we've kinda termed as supply disruption, bringing everything together. And hopefully, that that centered around one particular supplier where we've had a few issues that have either affected sales sales in our own operations, so we've had some out stock sales in our international partner operations. So this is the export business where we might send, you know, one batch per year. So delays in sending those out, you know, half year one versus half year two can have an impact. And then, you know, we've had some new product delays as a result of some issues. The good news is that it was said on the bottom of that bullet is that these headwinds were expected to ease and have.

16:37 Companion Animals, we're guiding for the full year to be around mid single digit revenue growth rather than flat versus half year and that's where we are broadly today. So, you know, the good news is that this has returned to growth as expected. On production animals, this has grown really well in the first half. Jenny noted that most of our sales are coming from the Southern European operations. There's some international partners as well. We sell to New Zealand in particular. So the 14% growth was driven by quite a few of our kind of key brands.

17:18 But also notably, we've seen a little bit of phasing and also some benefits from competitor out of stocks. So the converse of what I was talking about earlier with companion animals, whereas, you know, that was flat and we're expecting that to have some, you know, mid single digit growth at the the full year. I'm expecting this to come down to broadly mid single digit growth by the full year because of those phasings or that competitor benefits, you know, starting to normalize. But on the whole, you know, I think we we feel it's a really good good performance from the reduction animals and and I think you can see on that on that bottom bullet on the right hand side, we are we are conducting a review at the moment because we think we've got some real expertise to build on this going forward.

18:08 On equine, so really good growth, 20%. Notably, you know, it's a small but the theme, large theme here is Danilong, which Jenny mentioned. So that's one of our largest brands. Think it's in the top five. 90% of the sales of Danilong are in The UK, so it's a really big market. And we bought that back in house from one of our partners a couple of years ago and we're seeing really good growth in that product. There are some other products that are growing as well into the acquired market. So and again, just to kind of finish off the first half, second half dynamics, the expectation is that we'll probably see revenue growth in equine similar to what we've seen in the half years where everything's relatively normalized from that perspective.

18:57 Jenny, I think this is your Yep. That's Sorry?

19:00 That's me. So in terms of our overall portfolio, one of the things that is helping to drive that growth of our organic business is the quality of that portfolio. So we've got some really important key brands and they're operating in growing markets. Chris referred to a few of the markets where we're seeing good growth. Dental is a is a fine example. And and we've got a lot of differentiation or strong and strong brands. So whilst they're mature products, they're pretty strong and we've seen in our in our top five brands, for example, continued positive growth. And with the percentage of the those products that we now either own outright or have very long term licensing licenses, we use this as a measure of sustainability really.

19:50 It's now about 65%. I think, you know, in the last five years, it's moved from about 50 up to 65. And that's great. And and that gives us that confidence that that organic portfolio will continue to deliver. And the other important thing is that we're moving the percentage of those products in the portfolio that is generic, I. It's something that the patent has expired and others others have similar products. We're moving that percentage towards a lower percentage of generic and a higher percentage of novel. And things like that's got some plaques and we're obviously having a big impact on that. The other good thing is we know that we're always going to see some products come out of our portfolio. In this in this environment, that's usually because technology advances, efficacy advantages, safety advantages, sometimes price, other people choose to compete on price.

20:45 So what's really important is that we continue to launch new products into the market. And one of the benchmarks is that you should have at least 10% of your recent launches, that's in the last three years accounting for 10% of your revenue accounted for by those products, and we're about at the 10%. Over the next few years, we anticipate that percentage will continue to increase. So we're we're looking to continue to refresh the portfolio, but actually the basic portfolio is also good. On the right hand side, this is really to say that if you think about the age of the pet and the lifetime value, we are seeing increased life expectancy in pets, are seeing increased pet population, and so there's actually more opportunities for the use of drugs.

21:30 And as the pet ages and they have arthritis, thyroid disease, heart disease, etc, we are very active in that area. We're much less active in the vaccines, in the sort of large scale vaccines, but we really are active in the long term chronic indications that we see are increasing. As Chris mentioned earlier, I'll just make a few extra comments on Dexcox and PLC. Dexcox is our product. We have the patent on it. It's growing very healthily for all those good reasons. It treats osteoarthritis, you give it once a week instead of most competitors are given daily.

22:15 So this is a real advantage. It's a really simple dosing convenience, etcetera.

22:21 We're also continuing to develop DAXICOX and looking at some new indications. So we're ready to submit on some more acute indications early twenty five. And this year we got approval for some different dose strengths. And that's that's really helpful because it makes sure that for whatever size of dog you have, there's an easy tablet strength that you can use. So it makes it a very simple offering. The other thing that we do, we partner with Verve back in countries where we don't have a big representation. And we're starting to expand the regulatory approvals for dactylates around the world. That's very active process at the moment. With Plaptive, we again saw great growth. Dental disease is growing, we're continuing to add to the range. What we know from feedback from our customers is what they like about Plaktiv is they can give it in a number of different ways. And we're continuing to increase the ways that they can give PLC to which treats the plaque in its name, but it works by breaking down the biofilm, which is a very successful way of treating gum disease and dental disease.

23:25 We're also starting to now sign global distribution agreements across the rest of the world. This is a slightly quicker process for Plaktiv because it doesn't need to go through a full regulatory process, but we're we're starting to expand in other other areas. I mentioned earlier that the sale of our minority stake in STEM, which was the company that originated these.

23:49 And part of that, we now have the opportunity to sell that Plativ in all sales channels in Europe, which we didn't have before. We only have the veterinary channel. So now we're starting to maximize that exciting opportunity, which is a really good thing for pet owners and vets.

24:10 Okay. Just on that slide, I think I covered most of the things on the highlights. So, we covered cash conversion, talked about the increase versus first half and the target of 85 to 90% for the full year. That target will be really driven by, in particular, whether we make some strategic stock build decisions. We talked about some supply disruption and sometimes, you know, carrying a little bit of safety stocks. You know, we view that as a good investment to protect sales into next year. So we'll see where we get to but the 85 to 90% target at the moment remains. If you look at the bottom chart, so what you can see is that, you know, there's 28,000,000 there from M and A predominantly.

25:01 Most of that was IdentiCare, about 24 of that after fees.

25:05 The balance was from the disposal of STEM. I think just to add to what Jenny says, the disposal was about minority equity stake in STEM Animal Health as an entity, which essentially had a retail operation in Canada and America. What you've seen on Jenny's company before is that the value that is really driven from the stem relationship comes through our license

25:33 and that's our license to sell platinum. He said actually, what we did in that deal is not only did we kind of, you know, get a really good return on our initial equity investment, it was probably, you know, two to two x. We've also managed to enhance the license. So we think that was a great deal for ANIMALCARE.

25:52 Just thought, I think, you know, we'll come on to later on, you know, we put free cash flow on there, you know, think that's really important measure. Obviously, operating cash flows is a really key measure for us in terms of our wherewithal to fund our business, but also you can see there, you know, some really strong free cash flows in the first half. So the question lots of people are asking us is how are we going to spend the money?

26:17 We've got the top two blue boxes are really areas of focus. And what we try to do here is to describe what we're trying to do. So geographic footprint, focusing on Europe, US, and selected rest of world markets. And the here we're looking for companies or brands, but mainly companies that will drive an immediate additional revenue and EBITDA.

26:43 So that's that's the one of the priorities. The second priority is to acquire license or license brands or companies. And this is really looking to find brands or companies that we could bring into the portfolio of of companies that may be bolt ons to an existing country. So Germany or Italy is, you know, they're quite small or brands that we can launch across all our markets. So any products that strengthen the existing portfolio.

27:15 And if I just talk about those two for a minute on the right hand side, we're just trying to give a scale for what we're trying to do. So we've got one that the NBO non binding offer. We've got one offer out there. We're in due diligence and that extends our geography. It also brings some other benefits, but the main thing is it extends the geography geographic reach.

27:37 And we've got three that are in relatively early discussion, things that we'd like to have a bit of a better look at. In terms of companies and brands, we've got six in-depth discussion. And this is something that we, you know, we know how much it's worth, we know how much we can make from it, we're going through some fine details about what either these products or companies look like. And then when we've got an early stage. If you look at the six, I think four of those are brands and two of them are companies. So give you a bit of a feel for how that breaks down. If you look at the value of these things, they're spread from, you know, tens of millions to, you know, 1,000,000. So there's a whole variety in terms of value as well as in terms of type of deal we're looking at. So very active on those. Just in the purple,

28:28 we are interested but keeping a look at keeping a watching eye on in licensing things that are relatively early stage that needs some development spend and some probably development activities and regulatory files. This these products, if we're looking at something like that, we're looking for game changing growth. So, you know, something that's up in the $2,030,000,000 not in the 1 to 2,000,000.

28:56 But we are we've got one pretty in-depth conversation going on there. We've got some early discussion. We're not focusing too much on this because we have in our new product development pipeline, we've got the BHH products that we brought in a couple of years ago. So we're trying to manage not getting into too high risk territory. But we keep an eye on what's out there, whether there's some good assets that would really and then it really has to be game changing.

29:26 And then within within our own new product development team, we are looking we're in launch planning of six areas. So there's two two new products that are coming through that we'll launch next year, two line extensions of DaxCOX and two other products that we're in launch planning. So this is to keep that portfolio fresh.

29:49 And then, you know, we've got another four that we internally are talking earlier about, you know, their new life cycle management, their new formulations, etcetera. So a busy agenda looking at making sure that that pipeline for the future comes through. Okay?

30:09 So when we when we talk about that, this is just a little bit more detail on on what we're trying to do. We're we're focused on new products that meet a need in an established market with a high probability of success, extending existing products to the comments I made about Daxacox and Plactib, adding indications or formant formulations that expand usage, and the novel products that are game changing are those ones down in that purple line. So they'll take a bit more time to develop. They're a bit

30:40 higher risk because they're novel and new and different to what's out there at the moment. So what we're what we're working hard to do is to get a balance. We don't want to have too much of a investment in any one of these three areas.

30:57 This is the the area that I mentioned. This is novel. It's different. It would be game changing if we can if we can do it. We've got some preclinical studies and some small proof of concept clinical studies ongoing. We're looking at equine indications. These are particularly suitable for equine indications. And we're looking at other indications of species as we move forward. So this is an exciting development program, but it's really early stage and we're taking it very carefully and and managing the risk and opportunity.

31:29 If these come through, yes, of course, they'll be game changing and fantastic. The the keyword is if they come through, and and we're managing the investment very carefully to make sure that we we know where we're going and and that we have clear milestones in place. But exciting.

31:47 So this slide, I don't think there's been any fundamental changes to what we presented in April for those that we spoke to at the full year, but I'll run down the left hand side. So, on organic growth that we've talked about, you know, the continuing focus is particularly on people and operational excellence. And people, it's again, you know, the usual things of we're really looking at increasing expertise and capability as well as the number of resources over time. And operational excellence is really centered around that commercial supply chain that we've talked about earlier. There's some really nice product projects that we're looking at in terms of investment in that area. The OTC dental franchise that we've now got the rights for from the license that we talked about earlier with STEM, you know, that's one area of fairly substantial investment that we're looking at now.

32:42 Inorganic growth, so really what we're saying is that the debt capacity that we've got with the cash on the balance sheet, really we're reserving for what we would term as accretive M and A. So this is really around businesses that have already got revenues and are profitable and cash generating and obviously EPS accretive.

33:04 We are maintaining what we call a disciplined approach to balance sheet management. We've got we've got a covenant of three and a half times EBITDA. We feel leveraging to two x kind of gives us, you know, some room for contingencies if events happen, but also leaves some firepower for some smaller opportunities. If we look at if we talk a bit about the allocation I've got on the bottom there So if we think about the cash in our balance sheet, we leverage our current, you know, EBITDA which is pro form a about 11.6 last year with the pharma business. We can also leverage two x of anything we're buying. We've got at least 50,000,000 of firepower to to fund inorganic and in licensing, late stage assets, which is really exciting.

33:52 I think the way we're looking at it is that the ideal outcome for us that we do something transformational, so that's in the kind of tens of millions of of size deal that Jenny noted earlier. But also, we want to make sure that we reserve some of the debt capacity in particular for some smaller bolt ons. So the other lot, mean, the transformation, they're probably free for smaller bolt ons. Some of them might be in licensing late stage assets. To give you a feel of kind of where we're trying to get to, we talked to investors for quite a while about getting to the target of a 100,000,000. I kind of feel that that level of revenues with the continuing improvements to gross margins, 60% is kind of a good benchmark in the animal health industry.

34:43 That's where we kind of feel that we'd start to see real drive in operating leverage. So a good benchmark again on EBITDA is probably 20 to 25. And then importantly, the scale of that business means we're going to be generating some pretty significant operating cash flows and that's what we use from a capital allocation perspective to fund the pipeline. Openly, if we look back over the five years, we've under invested where we want versus where we want to be, so probably two to 3% of revenues. We're targeting at least 5% of revenues going forward to build this balanced pipeline. And, know, a range there is probably five to 10% benchmark. You know, some companies like Dequera, if you follow them, you know, the the private equity is investing, you know, hundreds of millions in in innovation.

35:39 So we haven't yet got that firepower but we really want to kind of build that pipeline because, you know, we think that's where some game changing organic growth can come from. And then finally on dividends, we continue to pay a dividend. We declared a dividend of 2p at their interim. You can see on the right hand side that over the last five years, we've paid about 12,000,000 to shareholders. That includes the dividend that we paid in July. I think just to demonstrate that free cash flow we're getting, over that time we've returned 12,000,000 to shareholders, we've also reduced our debt by 20,000,000. So I think, you know, for me, the business is a really good cash engine which obviously helps for some of the strategic things that we're doing wanting to do going forward. So just just to summarize what Chris and I talked through and more than happy to answer questions, We're delivering revenue from our continuing operations across all the three segments. We're seeing nice growth in equine and production animals.

36:41 And as Chris mentioned, we're seeing improved growth in the second half. So the growth of Jack's got some Plattive, really happy with that. That's that's a good a good result given our investment in the sales and marketing focus there. Underlying EBITDA reflecting improved gross margins. IdentiCare and stem gives us the firepower for the next stage in our growth story. The BHH antibody project is developed is developing and ongoing. So really from our perspective, we've had a good first half, really positive, pleased with the results, and and looking forward to the second half. And we've got confidence that that that will be a positive outcome as well. So at that point, that concludes the the formal presentation part of the session.

37:35 Can see some Perfect. If I could just jump in, I'll just like to thank you for the presentation. Ladies and gentlemen, please do continue to submit your questions, and you can do that just by using the Q and A tab which is situated on the top right hand corner of your screen. Just while Jenny and Chris take a few moments to review the questions that have been submitted today, I'd like to remind you that the recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard. As you can see we have received a number of questions already throughout today's presentation and I'd just like to thank investors for their participation in submitting those. Jenny at this point if I could hand over to you to chair the Q and A that'd be great and then I'll pick up from you at the end. That's great. Thanks, Alexandra. I can see two questions at the moment.

38:21 I think we may have touched on both of them, but let's review. So the first question, what are the top priorities for your r and d investment? So I think we referred to what we called our balanced pipeline. So our top priorities are in in three main areas. One of which is finding products and opportunities that meet an currently unmet need. It that may be in terms of formulation, it may be in terms of new uses for an older product, that that kind of area. The second one is with our with our own products, things like Daxacox and PLC, building the life cycle management. So adding to those products with new indications, new ways of using them, maybe new species.

39:15 So that's that's the second priority is really life cycle management on our existing portfolio. And the third one is the one I referred to where the VHH antibodies currently fit, is really looking for novel game changing projects. So these are things that, you know, really will meet an unmet need and and probably change the expectation for treatment in that particular therapy area. So those are those are the three things that we're trying to do. Hopefully, that's answered the question. The second question, how do you plan to increase sales outside The UK and Europe? So currently, we do this with partners, distribution partners, and so we have pretty long standing distribution partners in most of the key animal health markets.

40:11 And so that's the way that we're currently selling outside of of Europe. And what we're planning to do is to gradually over time build our geographic footprint either by working with another company more closely in a country that we're not currently represented or through acquiring businesses in new geographies. So all of those things will continue to increase our sales. And and we we're really looking to also increase within Europe. So currently, we're not very we're not represented in France with our own footprints, so we'd like to do that. So all of those things will build that overall global picture. One of the things to note is that that's really important for us because things like DAXCOX Plativ is everywhere but North America, DAXCOX is global.

41:04 And so where we're developing products where we have the rights globally, it's really important for us to start building a bigger footprint. And and so it's getting the balance between working with great distribution partners plus building our own footprint. So that's the plan there. Okay. And There are some there's a few other questions, Jenny. So if I I'll I'll read down. So the good question. Do you plan to distribute any of the the free cash to shareholders? I think that probably referring to the the the cash on our balance sheet. The short answer is no, not yet. We've had some discussions at the board around capital buybacks, for example, and obviously the special dividends. I think where we're all at is we see some really value accretive opportunities in deployment of that capital.

41:55 If I look at a capital buyback and what we could do, because obviously it's relative to volumes, you know, you're talking kind of, you know, very low single digit millions and the EPS accretion is like less than 1%. So, we feel really the best use of our cash and our debt in terms of growing value for shareholders is through all the things that we've talked about particularly on that slide 14. I think there's another question which is a geographic one. Are you too stretched geographically? We've been very cautious about expanding too quickly geographically. We feel that the the scale and the stability that we have in our existing existing portfolio as of countries is is good and it's stable. And so we think now is the time to start looking at expanding geographically.

42:48 And we'll do it carefully, and we'll do it with partners if appropriate, and we'll do it between small acquisitions. But certainly, the infrastructure and the platform that we have is built specifically to enable extent expansion around good markets. So I think we're in a good place to do that. We will be careful, but we're in a good place. Things like our financial platform, our regulatory platform, all of those things were put in in place with a view to be able to expand. Jenny, was the question before that on CMA investigation? Do you want to what would it have? Do want to pick that one up? Yeah. So the CMA, which is The UK investigation into the work of the corporates and the vet practices, We're we think it's pretty neutral for us.

43:40 We're continuing to work with the corporates in the way that we've always worked with the corporates. We've seen pricing pressures from buying groups and corporates and we continue to see those, But we're not seeing any really impact either way for us. We remain pretty neutral, but watching carefully. Okay. Next question, when do you expect M and A investments to actually happen? Are we looking at '25 or '26? So I could tell you when we hope it will happen, which is within the next kind of year eighteen months, so '25. You know, what you'll know is that there's always kind of risk on these. You know, we've had some things that have come right to the wire and then we've lost out to private equity for example because they decided that they didn't need to do any due diligence and obviously, you know, that's not where we are in terms of making sure we manage risk. So, within the next twelve to eighteen months, you know, we're really hoping that some of those things on slide 14 will execute.

44:46 Next one was insights into the types of M and A and partnering opportunities. We've probably covered that on Yeah. I think we've covered that. Maybe maybe the author can just pop another question if we haven't covered that. I think the next one's important, is the share price. I'm I'm happy to have a go at that. Our share price is always a is always a mystery to me. So why why when we've got such a strong record of of performance? I think there's some pieces about liquidity. We what we do notice is that our share price responds more to other people's news than it does to our own news, but that may just be my my opinion on it. Chris, do you want to say anything else about the share price?

45:41 Yeah. I think if if we look at some of the recent movement, I think if we if we to the, you know, the start of October sorry, September, we've probably lost 10 to 15% on the share price. And really, from what we can see, this is centered around the run up to the budget and the worries around CGT in particular. So the movement's really around So the sellers are, you know, private investors with large holdings. The good news is what you can see is that they're being picked up by institutions. So we had a tier one last week where Howard, you know, bought another block of shares. There's also some worries, you know, about the IHT relief. Interestingly, the funds that hold us in IHT stocks like Octopus seem to be less worried than people overall on the basis that their view is that if there's a really if a good business with a strong track record, you know, strong future, etcetera, then, you know, their view is that, you know, they'll continue to invest so we'll see where we get to. So I I think there's a lot of noise recently.

46:49 I think it's really in the run up to what our labor actually going to do in their budget. So so you're right. I think if you look at the multiple that we're trading on, particularly when you start to look at some of the multiples that are in the M and A market for private businesses, then, you know, our multiple is trading on a on a discount versus what we see. So hopefully, we'll our job is to resolve that as we move forward. But I think the the second part of that question was about, you know, continuing to do what we do and do it really well, you know. And I think that's the best way that we can we can increase the share price in the multiple and and, you know, provide a a really strong sustainable business. Okay. The next question was, can you elaborate on delays to product launches in companion animals? Chris mentioned this in his section on companion animals. I'll just make a couple of comments and hand over to to Chris.

47:48 The the delays were really about our accuracy in planning and also some frustrating errors that were either from the supplier, the third party supplier. There are things like a line missed off the artwork so we had to go back. They were, you know, wrong color here or, you know, those sorts of things. So I don't think I don't think we're gonna be losing permanent market share in those areas, but what we have put in place is a launch excellence program, and we've tightened up all our processes and procedures. I think there was an element of optimism in some of the timing, and the realism meant that they were delayed from the timing that we planned.

48:37 So I think there's a whole mix of things going on in there. I think we've put in place some things to make sure it doesn't happen in the future. Chris, do want say anything more on No. I think that's that's good, Jenny. Yep. Next question I've got is how do you see medium term top line growth? So our target is to grow at least in line with the market. So, you know, we've noted earlier that, you know, that looks like it's been it's about 5% now. If you look over the last kind of few years, I think the last five if you catch COVID, it's about eight percent. If you take out COVID, it's about five percent. So, we think five percent is probably a good benchmark. Obviously, at least in line in the market, it means we'd like to grow by a bit more and that's really coming new products coming through. So, I think five, mid single digit is probably a good benchmark to think about without any m and a, etcetera.

49:31 I'm just gonna go back to the CMA investigation because I think from one of the questions that I didn't really answer or I didn't kind of catch exactly what what the interest was. You say you're carefully watching CMA investigation. What initiative by then would negatively impact you? So I think the biggest negative impact for us is disruption in the existing model because because we work very closely with our customers. That's the relationship that is most important. Whether that customer is either the corporate themselves or a vet practice that is owned by a corporate or an independent vet, And that's the really important relationship. And and so once the corporates or the corporate vets get distracted by the CMA investigation, I think that's the biggest, you know, potential negative is just that level of distraction.

50:31 Because what you what we know is that the pet continues to need the treatment. And so the vet's not gonna stop using, but it's just that, you know, moment of whenever whenever anything significant is changing in a business, you get a bit of distraction from people. But but I think what we need to bear in mind is that that won't change what is actually happening with our products. So that I think is is where we see it. But we're carefully watching it because it's it's impacting our customers. And, you know, anything that impacts our customers has an impact on our relationship with them, but not in terms of our business as a manufacturer. Do want to add anything? Chris, do you think I've No. I think that's covered it. You've it? Yeah. Rationalizing number of CMOs, constant conversation, and I think we probably said when we did the final the year end last year that we brought in a new head of supply chain and it's one of his areas of focus.

51:32 The we're we're kind of trying to get that balance between, you know, having the right CMO for the particular product because obviously we have gels and liquids and topicals and tablets and all of, you know, a whole range of things. So you need to use enough CMOs so that you can have that specialty. But I think we've probably got a a few too many, so there's a constant attempt to rationalize. One of the things that in a business with prescription medicines that are highly regulated is that it's not very easy to move CMOs because you you actually need to do a full tech transfer, which in a regulated regulated environment is actually quite significant. And we just actually reviewed and and it's in the final stage of approving a a plan of tech transfers over the next period of time to try and rationalize CMOs.

52:25 So it's getting that balance between having the right people doing the right thing versus too many people doing too many things. But we're we're working on it, and Alex, our supply chain head, has got that on on his agenda. Yeah. That's it. Jenny, I can't see anymore. Perfect. Thank you very much for answering all those questions from investors. If one more has come in No. No. No. It was just That's good feedback. Thank you. We like good feedback. Thank you. What we will do is we will publish the responses on the investment company platform. But just before redirecting investors, provide you with their feedback, Sheena is particularly important to you both. Jenny, could I just ask you for a few closing comments? Yes. Thank you very much. And my closing comments are, look, we we're really excited by this business and and we hope you have got what you needed from our presentation.

53:15 We thank you very much for attending and thank you very much for the good questions and we hope to continue to deliver good news. So thank you very much, and thanks to Alessandro for sorting us out. Jenny, Chris, thank you once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. Behalf of the management team of ANIMALCARE GROUP PLC, we'd like to thank you for attending today's presentation, and good morning to you all. Thank you very much. Thank you.