ECO Animal Health Group plc
(‘’ECO” or “the Group”)
Trading, business update and board change
11 November 2019
ECO Animal Health Group plc issues an update today ahead of release of its interim results for the six months ended 30 September 2019, which will be announced during December 2019.
Whilst certain important markets for the Group have out-performed management’s expectations in the first half of the financial year, African Swine Fever (“ASF”) has continued to have an adverse impact on the Group’s trading performance in China.
The well publicised effects of the ASF outbreak in China have provided significant headwinds in our largest market. Further, the China-USA trade tensions have further exacerbated the effect due to the US swine producers having limited ability to capitalize on the anticipated export market created by the pork shortage in China leading to overproduction and depressed prices and margins in the USA. As we have previously guided, these factors have had a significant negative impact on Group revenues and in the six months to 30 September 2019 our unaudited sales in China have declined by approximately 60% compared to the same period in 2018.
We see some encouragement for the second half of the current financial year with a reported reduction in the rate of new ASF outbreaks in China and an indication of some restocking of pig herds in certain high value producers, including with some of our customers. However, there inevitably remains significant market uncertainty which we continue to monitor.
As a result of the challenging trading conditions in China, the Group’s trading results for the six months ended 30 September 2019 will be below those achieved in the first half of 2018. Despite a historical second half weighting to the Group’s trading performance, the continuing impact of ASF in China and South East Asia and the uncertainty as to timing of a market recovery in China, the Board would expect that full year trading performance will be significantly below current market forecasts if these trends continue.
Outside of China, Brazil and Mexico (pigs) and India (poultry) have traded ahead of management’s expectations due in part to continuing market penetration and market share gains as well as a benefit from swine exports to China in the wake of China-USA trading tensions. Unaudited revenues for the six months to 30 September 2019 (ex-China) have seen low, double digit percentage growth over the prior period in 2018.
Following the appointment of new financial leadership and external auditors, the Group has identified the requirement to correct the application of certain existing accounting policies in order to comply with International Financial Reporting Standards. Whilst this work is ongoing, areas of particular focus include changes in revenue recognition (including treatment of discounts and timing of shipments under IFRS 15) and the treatment of R&D expenditure as the Group transitions from a product and technical focus on Aivlosin, our flagship product, to a number of projects and collaborations with major research institutions focusing on the development of new vaccines (or biological products) in our target sectors of pigs and poultry. It is expected that changes to the accounting treatment of these items will lead to the restatement (incorporating Prior Period Adjustments) of the Company’s financial statements for the year ended 31 March 2019 and the six months ended 30 September 2018 which will be presented as comparatives in the unaudited interim financial statements for the six months ended 30 September 2019.
The Board is also reviewing the accounting treatment of the Company’s US joint venture although any changes are likely to affect balance sheet presentation only. This review of the application of our accounting policies is a further step in the Board’s efforts to provide greater clarity, comparability and consistency in the presentation of the Group’s financial statements as well as reflecting industry accounting best practice and better reflecting the Group’s current business model.
The Board is pleased to confirm the appointment of Dr Andy Jones as Chairman of the Board of ECO with immediate effect. This follows the three months during which Dr Jones was the Group’s interim Chairman and his leadership during this time confirmed his exemplary skills and commitment to ensuring ECO has an appropriate level of governance and oversight. In light of this, the Board will focus its search on appointment of a further Independent Non-Executive Director.
Marc Loomes, CEO said:
“ASF continues to have a major impact on our business in China, but I am pleased with the progress we are making in other territories which goes some way to mitigating this. Our interim results to be released in December will clearly describe any changes to our financial reporting following a significant project to ensure ECO is reporting appropriately and leading with best practice. Finally, I am delighted that Andy Jones has agreed to become permanent Chairman and we look forward to expanding the expertise management can tap into through the appointment of an additional independent NED in due course.”
ECO Animal Health Group plc
Marc Loomes (CEO)
Christopher Wilks (CFO)
020 8447 6906
020 3934 6630
N+1 Singer (Nominated Adviser & Joint Broker)
020 7496 3000
Peel Hunt LLP (Joint Broker)
Dr Christopher Golden
020 7418 8900
About ECO Animal Health Ltd
ECO Animal Health based in London U.K. is a leader in the development, registration and marketing of pharmaceutical products for global animal health markets. Its products for these growth markets promote well-being in animals and include the novel antimicrobial, Aivlosin®, as well as a range of generic therapeutic products.
The information contained within this announcement is deemed by the Group to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). Upon the publication of this announcement via a Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.