Half-year Report – Replacement

Replacement announcement: This announcement replaces the Half-year Report announcement released at 7am on 15 September 2021 under RNS 7846L. The dates for the interim dividend are as follows, payable on 26 November to shareholders on the register on 12 November, not as previously stated in which the dates were incorrectly shown the opposite way around. The full amended announcement appears below.

Anpario plc

(“Anpario” or the “Group”)

Interim results

Anpario plc (AIM:ANP), the independent manufacturer of natural sustainable animal feed additives for animal health, nutrition and biosecurity is pleased to announce its interim results for the six months to 30 June 2021.

Highlights

Financial highlights

• Sales of £16.0m (2020: £16.2m), excluding currency movements increased by 3% to £16.7m
• 2% increase in adjusted EBITDA¹ to £3.5m (2020: £3.4m)
• 12% increase in profit before tax to £2.7m (2020: £2.4m)
• Diluted adjusted earnings per share down 7% to 10.88p (2020: 11.74p)
• 9% increase in interim dividend to 3.00p (2020: 2.75p) per share
• Cash balances of £14.6m at 30 June 2021 (Dec 2020: £15.8m)

Operational highlights

• Sales growth in Latin America, United States, China and Australasia, despite currency headwinds.
• Strong demand for our unique acid-based eubiotic brand pHorce® to the US swine sector as an anti-viral feed mitigant.
• 29% sales growth in Orego-Stim® benefiting from our aquaculture initiatives and the reduction in use of antibiotic growth promoters (AGP’s).
• Feed and raw material hygiene product, Salgard SW, with proven efficacy against gram negative bacteria without safety concerns associated with formaldehyde.
• New European stockholding hub supporting rapid service to European customers post Brexit.

Kate Allum, Chairman, commented:

“In my first statement as Chairman, I would like to thank my predecessor, Peter Lawrence, for his 16 years of service to Anpario and his leadership and guidance of the Board, during which time significant shareholder value has been created.

The Board is pleased to report a good sales and improved profit performance with sales at a similar level to last year and 3% ahead on a constant exchange rate basis. Our strategy of offering more sustainable and environmentally friendly products as an alternative to anti-biotic growth promoters and some of the harsher chemical treatments is gaining traction. This performance should be seen in the context of a very strong comparative period and at a time when the UK’s trading relationship changed with the European Union.

It is thanks to the efforts of our staff and other stakeholders across the globe that ensure we continue to supply and support our customers, as well as implementing our business development initiatives delivering organic growth. As with most industries, we have experienced raw material price inflation and some disruption in our supply chain and global shipping routes but our staff have been able to manage these challenges successfully.

We are excited about the changes occurring in our markets where Anpario’s environmentally friendly and sustainable solutions are gaining more interest from global producers. The industry is moving away from the use of harmful applications such as formaldehyde and zinc oxide for antimicrobial control in addition to the trend to reduce antibiotic use. Over the past few years our developments have been focused on products which comprise 100% natural and sustainable ingredients which work in synergy with the animal’s natural biological processes to boost immunity.

Kate Allum, Chairman

¹ Adjusted EBITDA represents operating profit for the year £2.651m (2020: £2.317m) adjusted for: share based payments and associated costs £0.027m (2020: £0.029m); foreign exchange losses £0.175m (2020: £0.055m gain); foreign exchange hedging gains £0.043m (2020: £0.489m loss); and depreciation, amortisation and impairment charges of £0.647m (2020: £0.613m)

Chief Executive Officer’s statement

Overview

Group sales for the six months to 30 June 2021 declined by just 1% to £16.0m (2020: £16.2m). However, on a constant exchange rate basis, sales for the period grew by 3% to £16.7m, helped by strong performances in a number of territories and 29% sales growth from our Orego-Stim® range. Latin America experienced significant growth, notably Brazil, and in Chile where commercial trials to the aquaculture market commenced. With the exception of China and Australasia, which both delivered strong growth, most other regions had similar performances to the prior period. South-East Asia continues to be significantly impacted by the COVID-19 pandemic experiencing 31% decline in sales compared to the same period last year.

Gross profit decreased by 5% to £8.1m (2020: £8.5m) for the six months to 30 June 2021 but grew by 3% to £8.8m on a constant exchange rate basis. Gross margins fell from 52.5% to 50.5%, for which there were several contributing factors including currency movements. There has been a significant increase in logistics costs and even though most of these costs are borne by our customers it does impact the gross margin calculation. There has also been some significant raw material price inflation, which we are passing on through sales price increases and from which we expect to benefit in the second half of the year.

The pandemic continues to limit the amount of international travel and marketing events taking place across the industry, although our local sales teams are visiting customers where possible. As such these cost savings and our foreign exchange hedging measures have translated into a 12% improvement in profit before tax to £2.7m (2020: £2.4m) for the period.

Overall, we are very encouraged by the growth in some of our market leading product brands such as Orego-Stim® and pHorce® which are helping producers reduce antibiotic use and mitigate the risk of virus-contaminated feed respectively. Our technical team recently developed Salgard SW, a high strength liquid acid-based eubiotic for feed and raw material hygiene decontamination which is proving to be an effective replacement to formaldehyde, which was recently banned in the European Union and certain other countries around the World.

Operational review

Americas

Overall, the region grew sales by 5% with Latin America delivering growth of 10%, sales in the US were flat, but there were mixed performances across countries within Latin America.

Latin America performance was supported with key contributions from Brazil and Chile. Chile’s strong growth was due to the commencement of commercial aquaculture trials using Orego-Stim® in the feed. Brazil’s 19% sales growth was driven by Orego-Stim® sales following successful business development with some new customers and an increase in sales of Prefect® to the aquaculture market. Argentina, Ecuador and Mexico disappointed partly due to the pandemic, however, we are expecting an improved second half from Latin America following new business wins with products such as Mastercube®, our natural pellet binder, for aquafeed purposes.

Additionally, we have set up a wholly owned subsidiary in Mexico and secured third party warehousing and logistics services to stock our products. This capability will enable us to respond more quickly to regional distributor demand and target larger end users directly.

US performance was flat at actual exchange rates but excluding currency movements sales grew by 11% and volumes by 26%. Last year our high strength acid-based eubiotic, pHorce®, showed excellent results in a trial undertaken by Pipestone Applied Research (Pipestone) to evaluate the ability of feed additives in mitigating the risk of virus-contaminated feed. Following on from this research our US swine sales team successfully launched the product, which has proved timely, as the industry has had to contend with summer outbreaks of porcine reproductive and respiratory syndrome (PPRS). Where used, pHorce® has managed to protect farms from outbreaks of the virus and is viewed as being a highly effective preventative product.

We have recently appointed a distributor for the West Coast with first orders already received following recent sales visits, and we are in discussions with a potential distributor for Canada. In addition, we have had meetings with senior executives responsible for sustainability at a leading poultry integrator to discuss how Anpario as a company and with its technology can support their sustainability requirements.

Asia

Overall, sales in the region declined by 2%, impacted by a significant decline of 31% across South-East Asia as further lockdowns and the slow rollout of the vaccine impacted economic activity and tourism in the region. South Korea and The Philippines experienced significant declines during the period. However, this period should be compared to a very strong first half in the previous year and performance has improved from the second half of 2020 which appears to have been the bottom. This weakness in trading, however, is cushioned by strong performances in both China and Australasia.

China delivered very strong sales with growth of 113% as Orego-Stim® is adopted as a replacement for antibiotic growth promoters (AGP’s) primarily in piglet feed. We also established a wholly owned subsidiary in New Zealand in addition to our existing distributor channel to enable direct sales to end markets not currently served by our distributor. The Australasia region delivered sales growth of 26% for the period helped by an increase in our mould control product, Mycostat®, in the oilseed crusher segment.

Our customers in the South-East Asian region are experiencing some significant challenges which are also reflected around the world to varying degrees. In addition, to low demand for meat protein due to the COVID-19 pandemic, animal feed costs have increased by at least one third due to raw material price inflation and shipping and logistics issues continue to challenge our export team. We expect these challenges to continue into next year but our local sales teams and stock holding in the region is ensuring we can continue to service our customers effectively.

Notwithstanding these challenges, progress continues to be made with specific initiatives including the appointment of an aquaculture specific distributor in Bangladesh and the adoption of Mastercube®, our natural pellet binder, as a replacement for polymethylolcarbamide (PMC) pellet binders which contain urea formaldehyde and are used widely in aquaculture throughout Asia. Removing PMC from the feed allows for unrestricted export of shrimp to markets where urea formaldehyde is banned. Our Vietnam subsidiary was also established during the period and we have recruited a local sales team for this important market.

The Middle East, Africa and India

Sales in the region declined by 5% compared to the same period last year, however this represents a 26% recovery in revenue from the second half of 2020 which was materially impacted by the COVID-19 pandemic. We are encouraged by this recovery and have been working on some new initiatives including the recent appointment of another distributor in India which has already taken delivery of their first order. There have been some good performances in Pakistan, Yemen and Turkey and we see further growth opportunities in Iraq but are closely managing credit terms.

Europe

Sales in Europe declined by 4% compared to the same period last year affected by some distributors increasing stock in anticipation of Brexit, although normality in order patterns is returning.

Israel showed a very strong performance delivering sales growth of over 200% as our distributor has been able to establish Orego-Stim® as the leading phytogenic brand. We are also seeing increased interest in our products for organic production as the European Union has committed to have 25% of agricultural land under organic farming by 2030. The recent appointment of a combination of two distributors in Switzerland will give us access to both larger customers and small farms through a farm van delivery service, which will give Anpario full coverage of this high value organic led market.

We have been making good progress with our raw material and feed hygiene product, Salgard SW, which is being recognised as the best environmentally friendly alternative to formaldehyde following its recent ban by the European Union and is seeing customers elsewhere look for credible alternatives. We are therefore increasing our liquid bulk storage facilities at Manton Wood to ensure rapid response to demand across Europe. We have also entered into a supply agreement with a global life science ingredients distributor to own brand our acid-based eubiotic technology for enteropathogen control applications in the rendering sector.

Innovation and development

We are excited about the changes occurring in our markets where Anpario’s environmentally friendly and sustainable solutions are gaining more interest from global producers. The industry is moving away from the use of harmful applications such as formaldehyde and zinc oxide for antimicrobial control in addition to the trend to reduce antibiotic use. Over the past few years our developments have been focused on products which comprise 100% natural and sustainable ingredients which work in synergy with the animal’s natural biological processes to boost immunity. By formulating highly concentrated products, we use less raw materials than many competitor products yet are still able to provide better efficacy and performance that producers value. Our product range is typically in its early life cycle stage and as global regulatory requirements tighten these changes should benefit our sales growth.

It is pleasing to see products like pHorce® not only perform in controlled research trials but also under tough commercial conditions where the farmer can experience the benefits, which has been the case in the US in preventing porcine reproductive and respiratory syndrome virus (PRRS) break on farm through potentially contaminated feed.

More recent trial work is underway in Chile where an aquaculture version of Orego-Stim® included in the feed is being used to control low to moderate levels of sea lice infestation in salmonids, which is proving positive.

Outlook

There has been a strong start to the second half of the year with most regions recovering from the low point in the second half of 2020. Our global sales teams are focused on specific business development initiatives and working arduously, in difficult circumstances, to deliver beneficial solutions to both existing and new customers. Our products are best in class and increasingly being recognised as such.

We are mindful that challenges remain, not least the Covid-19 pandemic which is impacting some of our geographic markets, but also raw material price inflation and global shipping issues. We have taken early action to mitigate some of the impact and backed by the quality and ability of our employees worldwide, we are confident of delivering our growth plans.

Our strong balance sheet enables the Group to invest in its growth initiatives including increasing raw material and stockholding capacity as well as continuing our research and development programmes. We continue to expand our multi-channel capabilities with local subsidiaries and sales teams who have served us exceptionally well during a period when international travel is restricted. These areas remain a priority for investment in addition to undertaking earnings enhancing and complementary acquisitions to accelerate the profitable development of the Group.

Richard Edwards

Chief Executive Officer

15 September 2021

Key performance indicators

Financial

Financial review

Revenue and gross profits

On a constant exchange rate basis, revenue for the period grew by 3% to £16.7m (2020: £16.2m), at actual exchange rates revenue was down 1% to £16.0m. The difference primarily relating to the increase in GBP/USD exchange rate to an average of 1.389 (2020: 1.254), the impact of which on overall profit before tax was reduced through foreign exchange hedging. The sales performance represented a strong recovery from the weaker, COVID impacted, result in H2 2020 with sales 11% higher than this period.

Particularly pleasing was the continued growth in sales in China, up 113%, as well as strong performances in LATAM and Australasia, though market conditions in South-East Asia continued to be difficult and sales declined 31% in the period. Detailed commentary on the performance of the operating segments is available in the Chief Executive Officer’s Statement.

On a constant exchange rate basis, gross profit for the six months to 30 June 2021 grew by 3% to £8.8m (2020: £8.5m) and margins were consistent between periods. At actual exchange rates there was a 5% decrease in gross profit to £8.0m (2020: £8.5m) and gross margins fell 210 basis points to 50.4% (2020: 52.5%), full year margins for 2020 were 51.9%.

There are several contributing factors to the decline in margins. The prior year sales benefited from realised foreign exchange gains on sales receipts (£0.2m), whereas a loss was experienced in the current period (£0.1m). As with many businesses in the current market conditions we have experienced challenges in logistics, though to date we have successfully navigated these and been able to continuously supply our customers. In terms of outbound supply, we have seen significant increases in international shipping costs, excluding sales through our subsidiary channels, these costs are largely passed on and invoiced to customers. As such the impact on gross profit is small through the period, however it does affect and reduce the gross margin calculation. In terms of raw material supply, there has disruption to availability which we have responded to through increased working capital, as well as significant price inflation which is being passed on through sales prices increases implemented at the end of the current period.

Administrative expenses

Administrative expenses were 13% lower at £5.4m (2020: £6.2m), most of the decline relating to administrative foreign exchange losses which through our hedging activities were eliminated in the current period whereas the prior period saw costs of £0.5m. Underlying administrative expenses were 4% lower with reductions across most types of expenditure.

Travel and marketing costs were lower, particularly as the first quarter of 2020 had a relatively normal level of expenditure for these types of activity. These costs remain at low levels but are expected to continue to gradually normalise as restrictions due to the pandemic are eased, the timing of which remains uncertain. In the longer-term, overall expenditure will be lower than per-COVID levels as we expect that we will continue to benefit from the speed and cost-efficiencies of new communication technologies.

Legal and professional costs were £0.1m lower as they normalised from higher rates of expenditure in the prior period to support our continued expansion to support local markets.

Foreign exchange

The Group’s primary foreign currency exchange rate risk relates to both sales and related receivables denominated in US Dollars, for which there has been significant adverse movement in the period. However, we continue to actively take steps to mitigate the impact of these risks and at the end of the period the Group has recognised a £0.9m financial asset (2020: £0.1m liability) on related hedging contracts. These protect a large portion of the currently forecasted net US Dollar cash flows over the next three years at an average rate of GBP/USD 1.312.

Profitability and earnings per share

Adjusted EBITDA for the period, which excludes the impact of foreign exchange gains and losses, increased by 2% to £3.5m (2020: £3.4m). Profit before tax increased 12% to £2.7m (2020: £2.4m).

Adjusted earnings per share decreased by 7% to 10.88p (2020: 11.74p), this was driven by a higher effective tax rate and a larger number of dilutive shares because of the increased share price.

Taxation

The effective tax rate for the period was 32.4% (2020: 20.1%). Changes to UK corporation tax rates occurred firstly in the prior period with planned reductions to 17% being scrapped, then in the current period on 3 March 2021 the UK government announced an increase to 25%, from 19%, from April 2023. Deferred taxes have been remeasured at these revised rates in both periods and resulted in a deferred tax charge of £0.4m (2020: £0.2m). Excluding these exceptional charges, the underlying effective tax rate for the period was 16.9% (2020: 13.4%).

Cash flow

Operating cash flows before changes in working capital were £3.5m (2020: £3.4m) in the period. Changes in working capital absorbed £3.6m (2020: £2.0m), the most significant factor was an increase in inventory of £1.9m. This partly relates to the continued sales growth in our Subsidiary operations which hold finished goods stock but also further increases in the overall level of product held in these locations that are closer to our customers in light of the global logistics challenges. The other factor being a reduction in Trade and other payables, largely related to the payment in the period of bonuses earned for the prior year performance.

Net cash used in investing activities decreased slightly in the period to £0.5m (2020: £0.6m). Net cash used in financing activities was £0.9m lower than the prior period which saw a £1.0m share buyback programme purchasing 297,346 ordinary shares at a volume weighted average price of 336.31p per share.

Overall, cash and cash equivalents decreased by £1.2m in the period to a balance of £14.6m (Dec 2020: £15.8m). The primary purpose of holding these resources is to fund future acquisitions and we continue to explore suitable opportunities.

Dividend

The Board has approved an interim dividend of 3.00 pence per share (2020: 2.75 pence), an increase of 9%. This dividend, payable on 26 November to shareholders on the register on 12 November, reflects the Board’s continued confidence in the Group and its ability to generate cash.

Consolidated statement of comprehensive income

for the six months ended 30 June 2021

Consolidated statement of financial position

as at 30 Jun 2021

Consolidated statement of changes in equity

for the six months ended 30 June 2021

Consolidated statement of cash flows

for the six months ended 30 June 2021

1. General information

Anpario plc (“the Company”) and its Subsidiaries (together “the Group”) produce and distribute natural feed additives for animal health, hygiene and nutrition. Anpario plc is a public company traded on the Alternative Investment Market (“AIM”) of the London Stock Exchange and is incorporated in the United Kingdom and registered in England and Wales. The address of its registered office is Unit 5 Manton Wood Enterprise Park, Worksop, Nottinghamshire, S80 2RS. The presentation currency of the Group is pounds sterling.

2. Basis of preparation

The consolidated financial statements comprise the accounts of the Company and its subsidiaries drawn up to 30 June 2021.

The Group has presented its financial statements in accordance with International Financial Reporting Standards (“IFRSs”) in conformity with the Companies Act 2006 applicable to companies reporting under IFRS.

Full details on the basis of the accounting policies used are set out in the Group’s financial statements for the year ended 31 December 2020, which are available on the Company’s website at www.anpario.com.

This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2020 were approved by the Board of Directors on 17 March 2021 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 (2) or (3) of the Companies Act 2006.

The consolidated interim financial information for the period ended 30 June 2021 is neither audited nor reviewed.

3. Operating segments

Management has determined the operating segments based on the information that is reported internally to the Chief Operating Decision Maker, the Board of Directors, to make strategic decisions. The Board considers the business from a geographic perspective and is organised into four geographical operating divisions: Americas, Asia, Europe, Middle-East and Africa (MEA) and Head Office.

All revenues from external customers are derived from the sale of goods and services in the ordinary course of business to the agricultural markets and are measured in a manner consistent with that in the income statement. Inter-segment revenue is charged at prevailing market prices or in accordance with local transfer pricing regulations.

4. Alternative performance measures

In reporting financial information, the Group presents alternative performance measures (APMs), which are not defined or specified under the requirements of IFRS. The Group believes that these APMs, which are not considered to be a subsitute for or superior to IFRS measures, provide depth and understanding to the users of the financial statements to allow for further assessment of the underlying performance of the Group.

The Board considers that adjusted EBITDA is the most appropriate profit measure by which users of the financial statements can assess the ongoing performance of the Group. EBITDA is a commonly used measure in which earnings are stated before net finance income, amortisation and depreciation. The Group makes further adjustments to remove items that are non-recurring or are not reflective of the underlying operational performance either due to their nature or the level of volatility.

5. Net finance income

6. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

The calculation of the adjusted and diluted adjusted earnings per share is based on the following data:

7. Intangible assets

8. Property, plant and equipment

9. Right-of-use assets

10. Inventories

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