ECO Animal Health : Half-year Report

ECO Animal Health Group plc (''ECO')

(AIM: EAH)

Results for the six months ended 30 September 2019

ECO REPORTS A CHALLENGING FIRST HALF BUT INDICATIONS FOR H2 ARE POSITIVE

HIGHLIGHTS

Financials

· Sales at £28.7m (2018 restated*: £30.0m)

· EBITDA at £2.7m (2018 restated*: £6.4m)

· Profit before taxation of £1.0m (2018 restated profit*: £5.3m)

· Profit after taxation of £1.1m (2018 restated profit*: £4.6m)

· Earnings per share of 1.51p (2018: restated Earnings per share*: 5.61p)

· Cash generated by operations of £0.7m (2018 restated cash generated*: £5.8m)

· Net cash at 30 September 2019 of £13.4m (2018 restated*: £23.8m)

* Prior periods have been restated to correct errors

Operations

· African Swine Fever has materially impacted the volume of business in China

· Geopolitical trade relations between China and the USA has impacted the gross margins in the USA

· Strong revenue growth of 45% to £19.4m (2018 restated: £13.4m) outside of China and North America, notably coming from Brazil and Mexico with continued expansion in South Asia and South-East Asia

· New marketing authorisation from the European Medicines Agency for the use of Aivlosin® 625 mg/g Water Soluble Granules in breeding chickens

· Two worldwide exclusive novel poultry vaccine licensing deals with The Pirbright Institute in the UK

· Improving market conditions at the beginning of the second half of the year

Andrew Jones, Non-executive Chairman of ECO Animal Health Group plc, commented:

'We have had a challenging start to the first half of the year, but we now see signs that point to improved performance in the second half due to encouraging signs of early recovery in China as key producers build sow numbers and pork export and prices in North America improve. Our investments in R&D to generate future products and growth continue to progress as planned. The Board has made significant progress in reviewing its accounting policies; we believe that we have identified all material prior period errors and we have corrected them in this Interim Report. This review and the audit thereof, will conclude with the publication of the March 2020 Annual Report. The Directors remain confident and excited about the improving market conditions and future prospects for the business.'

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.

Contacts:

ECO Animal Health Group plc Marc Loomes (CEO) Christopher Wilks (CFO) Andrew Jones (Chairman)	020 8447 6906
IFC Advisory Graham Herring Zach Cohen	020 3934 6630
N+1 Singer (Nominated Adviser & Joint Broker) Mark Taylor Peter Steel Alex Bond	020 7496 3000
Peel Hunt LLP (Joint Broker) James Steel Dr Christopher Golden	020 7418 8900

ECO Animal Health Group plc ('ECO' or 'the Group') researches, develops and commercialises products for livestock. Our business strategy is to generate shareholder value by achieving the maximum sales potential from the existing product portfolio whilst investing in Research and Development ('R&D') for new products, particularly vaccines, and seeking to in-license new products.

Chairman's statement

I am pleased to report that despite the considerable challenges in its two largest markets, China and the USA, ECO has demonstrated considerable resilience on several fronts during the past six months. The market reversals in China, triggered by the African Swine Fever ('ASF') pandemic, and the ongoing trade war between the USA and China have had a significant impact on our results in these two markets. However, the rest of the business outside of China and North America has performed well and in line with expectations the revenue grew by 45%. Our investments in R&D are progressing according to plan. The Board has made significant progress in reviewing its accounting policies and, as a result, has identified and quantified certain errors in prior periods which have been restated in this Interim Report. This review and the audit thereof, will conclude with the publication of the March 2020 Annual Report. The Board considers that it has identified all material prior period errors.

Restatement of prior periods

The Group released a trading update on 11 November 2019 in which the Board signalled the intention to restate certain aspects of our prior financial reports to correct errors. These related to Revenue accounting, R&D cost capitalisation and accounting for the Group's interest in its joint ventures in the USA and Canada. The financial report included in this Interim Statement reflects these and other prior period restatements, identified and quantified to date, together with notes 3 and 4 to explain the impact of the adjustments. The audit of the restatements including any impact that the adjustments might have on distributable reserves will conclude with the publication of the March 2020 Annual Report. The Board considers that all material prior period errors have been identified and corrected in this Interim Statement.

Financial Performance

Revenue for the six months ended 30 September 2019 was 4% lower than in the equivalent prior period at £28.7 million (2018 restated: £30.0 million). The Group has historically reported a second half weighting to its revenue, representing between 55% and 60% of the full year revenue. The gross margin has declined from 49% (restated) in the equivalent period last year to 43% this year. This decline was largely due to a reduction in average gross margin in the USA where discounted pricing was required in the face of low pork prices.

Administrative expenses of £7.2 million (2018 restated: £6.1 million) were 17% greater than the prior period reflecting further investments in sales and marketing expertise, operations and governance infrastructure. Research and development expenditure is now explicitly shown on the income statement and together with the amount capitalised represented a cash investment of 17% of revenue in the six months ended 30 September 2019 (13% in the six month period ended 30 September 2018 restated).

Earnings before interest, tax, depreciation, amortisation and share based payments ('EBITDA') were £2.7 million (2018 restated: £6.4 million). This reduction in profitability was a result of the effects of ASF in China, decreased USA gross margins, increased administrative costs and research and development expenditure.

Cash generated from operations was £0.7 million (2018 restated: £5.8 million). This reduction was due, in the main, to lower trading profits in the period. Additionally, whilst receivables at 30 September 2019 were £3.5 million less than the (restated) position at 31 March 2019 (as a result of the recovery of year end debtors) the debtor position was £4.9m greater than that at 30 September 2018 (restated); this reflects the continuing need to support customers by providing extended credit in China in the face of ASF. Net cash at 30 September 2019 was £13.4 million (31 March 2019 restated: £16.9 million).

Business Performance

The geographical analysis of the Group's revenue in the six months ended 30 September 2019 compared to the prior period in 2018 and the full year ended 31 March 2019 was as follows:

Revenue Summary			6 months ended 30 September			Year ended
			2019	2018		31-Mar-19	% change
			(£'m)	(£'m)		(£'m)	2018 to 2019
				Restated		Restated
Asia and Japan, excluding China			8.7	5.7		13.5	53%
China			5.6	11.9		24.3	(53%)
North America (USA and Canada)			3.7	4.7		10.6	(21%)
Latin America			5.2	4.6		10.8	13%
Rest of World			5.5	3.1		8.0	77%
			28.7	30.0		67.2	(4%)

Group revenue declined by 4% to £28.7 million during a period which continued to be dominated by the unprecedented impact of ASF in China, the trade war between the USA and China and the consequent disruption of the pork commodity cycle.

The ASF outbreak in China has been well publicised. First detected in August 2018, the deadly African Swine Fever (ASF) virus has spread to every province in mainland China, devastating its pig population. Rabobank estimates the disease will claim 55% of the country's pig herd in 2019. Before the outbreak of ASF, China used to account for around half of the global total number of pigs. The consequence of this decimation of the Chinese pig population is that the Group's revenue in China declined by 53% in the six months reported.

There is evidence that the Chinese national pig herd numbers are being rebuilt in response to the pork shortage and record pork prices but ASF is expected to impact on Chinese pork production and pork importation for an estimated two to three years. Our Chinese subsidiary is particularly focused on replacement breeding sows whose numbers at the major producers are now increasing rapidly. Additionally, we are looking for additional opportunities in the poultry sector in China.

North American revenue declined by 21% reflecting both a highly competitive domestic market in the face of increased pork production numbers and the loss of the Chinese export market leading to an excess of pork supply. Meaningful discounts were offered to major pork producers to retain existing business and these discounts have resulted in a significant reduction in average gross margins in 2019.

Excluding China and North America, revenue increased by a robust 45% from £13.4 million in the prior period to £19.4 million in the six months ended 30 September 2019. The main countries contributing to this strong performance were Mexico and Brazil. This increase is a continuation of the market share gains reported in the last annual report and is clear evidence of the effectiveness of key account management. India contributed well where the establishment of a subsidiary and a new distributor has opened up this important poultry market. Gains in Thailand, which is a mixed swine and poultry market, further underline the effectiveness of introducing new sales resource and also emphasises that Aivlosin® is a product which is gaining market share in two distinct commercial animal health markets.

Research and Development

In our core product area, a licence was obtained from the European Medicines Agency for the use of Aivlosin® 625 mg/g Water Soluble Granules in breeding chickens and this approval is in the process of being rolled out beyond the EU into the multi-million dollar international poultry markets. This furthers the strength and depth of our cornerstone product family.

The Group will continue to invest in building a product pipeline targeting both viral and bacterial diseases of economic importance in pigs and poultry, with the intention of developing a range of vaccines and new products to complement our existing antimicrobial business. The product pipeline contains a mix of well-established concepts as well as novel, potentially disruptive technologies and approaches. These are in various stages of development thereby ensuring that the Group has several mid and late stage projects able to deliver revenues from 2022/23.

The Group has recently announced the following collaborations:

· establishment of a joint venture, ECO-Pharm Limited, to progress the registration and commercialisation of several swine vaccine products already licensed in the USA and Canada for use in the UK, the EU, the Commonwealth of Independent States, Brazil and Japan with solid progress being made;

· four University licensing deals with worldwide exclusive rights;

· two worldwide exclusive novel poultry vaccine licensing deals with The Pirbright Institute in the UK.

Brexit

The Group has successfully transferred all EU marketing authorisations to a new European subsidiary, ECO Animal Health Europe Limited with a registered address in Dublin, Republic of Ireland. All contingency planning is in place and the financial and operational impact of Brexit is expected to be minimal, irrespective of the outcome and the timing of its implementation.

Dividend

The directors recognise the importance of the dividend to shareholders. However, having due regard to the Group's operating cash flow, the investment in the new product pipeline and the trading conditions described above, the directors consider it prudent to defer the declaration of a dividend at this time.

Outlook

The impact of ASF in China will be felt for some time to come but it is clear that the economic and social imperative to increase pork production in China is already being seen by specific actions taken by both government and the larger producers. Early indications in buying behaviour for the Group's products support a stronger second half in China.

The recent announcements regarding easing in the trade tensions between China and the USA, together with the sharply rising exports of pork from the USA suggests an improvement in pig production industry margins in the USA. We believe the improved industry margins will enable the Group to reduce discount programmes and improve margins in 2020 compared with 2019.

Notwithstanding the on-going uncertainties around the market recovery in China and margin improvements in the USA, other territories are expected to continue to perform in line with the Board's expectations.

There are expected to be some important milestones in the R&D programme in the coming months and the Board looks forward to providing updates on these in due course. The Board is committed to continuing the improvement in corporate governance and whilst this report describes some significant accounting changes, other improvements including internal audit, monitoring of risks, board composition and other internal control measures are all advancing at good pace.

The Board looks forward with confidence; it is not possible to declare that the past six months' poor trading conditions are behind us but it is correct to indicate that the rest of this financial year will be significantly stronger than the first half.

A Jones

Non-Executive Chairman

30 December 2019

CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS TO 30 SEPTEMBER 2019
		Six months	Six months	Year ended
		to 30.09.19	to 30.09.18	31.03.19
	Notes	(unaudited)	(unaudited)	(audited)
		£000's	£000's	£000's
			Restated*	Restated*
Revenue	5	28,741	29,954	67,166
Cost of sales		(16,390)	(15,313)	(35,278)
Gross Profit		12,351	14,641	31,888
Other income		8	30	35
Administrative expenses		(7,154)	(6,130)	(14,139)
R&D expense		(3,293)	(2,633)	(5,487)
Currency profits/(losses)		311	105	(138)
Amortisation of intangible assets		(1,206)	(1,008)	(2,112)
Share based payments		(208)	(375)	(631)
Profit from operating activities:		809	4,630	9,416
Net finance income		167	644	543
Share of profit of associate		42	27	14
Profit before income tax		1,018	5,301	9,973
Income tax benefit/(charge)		130	(664)	(888)
Profit for the period		1,148	4,637	9,085
Attributable to:
Owner of parent company		1,018	3,724	7,479
Non-controlling interest		130	913	1,606
		1,148	4,637	9,085
Earnings per share (pence)	7	1.51	5.61	11.20
Diluted earnings per share (pence)	7	1.50	5.50	11.04
Earnings before interest, taxation, depreciation,
amortisation and share based payments (EBITDA)		2,678	6,420	12,959
Exclude foreign exchange differences		(311)	(105)	138
Adjusted EBITDA excluding foreign exchange differences		2,367	6,315	13,097
*Details of the restatements, which are unaudited, are presented in Notes 3 and 4.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
	Six months	Six months	Year ended
	to 30.09.19	to 30.09.18	31.03.19
	(unaudited)	(unaudited)	(audited)
	£000's	£000's	£000's
		Restated*	Restated*
Profit for the period	1,148	4,637	9,085
Other Comprehensive income/(losses) (net of related tax effects):
Items that will or may be reclassified to profit/(loss) in future periods:
Foreign currency translation differences	47	(283)	(8)
Items that will not be reclassified:
Defined benefit plan - actuarial losses	-	-	(36)
Other comprehensive income/(losses) for the period	47	(283)	(44)
Total comprehensive income for the period	1,195	4,354	9,041
Attributable to:
Owners of the parent Company	1,091	3,546	7,426
Non-controlling interest	104	808	1,615
	1,195	4,354	9,041
*Details of the restatements, which are unaudited, are presented in Notes 3 and 4.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
	Share	Share	Other	Revaluation	Retained	Total	Minority	Total
	Capital	Premium	Reserves	Reserves	Earnings		Interest	Equity
	Account	Account
	£000's	£000's	£000's	£000's	£000's	£000's	£000's	£000's
FOR THE YEAR ENDED 31 MARCH 2019
Balance as at 1 April 2018 - as reported	3,291	58,847	2,823	664	34,065	99,690	5,185	104,875
Adjustment re revenue cut-off (Note 3.1)	-	-	-	-	(632)	(632)	33	(599)
Adjustment re intangible assets (Note 3.2)	-	-	-	-	(17,756)	(17,756)	-	(17,756)
Adjustment re bonuses (Note 3.4)	-	-	-	-	(954)	(954)	-	(954)
Balance as at 1 April 2018 - restated	3,291	58,847	2,823	664	14,723	80,348	5,218	85,566
Adjustment on implementation of IFRS16	-	-	-	-	(17)	(17)	1	(16)
Further IFRS16 adjustment (Note 4)	-	-	-	-	(20)	(20)	-	(20)
IFRS 16 adjusted balance as at 1 April 2018 - restated	3,291	58,847	2,823	664	14,686	80,311	5,219	85,530
Profit for the year - restated	-	-	-	-	7,479	7,479	1,606	9,085
Other comprehensive income:
Foreign currency differences	-	-	-	-	(17)	(17)	9	(8)
Actuarial (losses) on pension scheme assets	-	-	-	-	(36)	(36)	-	(36)
Total comprehensive income for the year	-	-	-	-	7,426	7,426	1,615	9,041
Transactions with owners recorded directly in equity:
Contributions by and distributions to owners
Issue of shares in the year	81	3,803	-	-	-	3,884	-	3,884
Share-based payments	-	-	631	-	-	631	-	631
Transfers on expiry of options	-	-	(112)	-	112	-	-	-
Dividends (Note 8)	-	-	-	-	(8,485)	(8,485)	(1,643)	(10,128)
Transactions with owners	81	3,803	519	-	(8,373)	(3,970)	(1,643)	(5,613)
Balance as at 31 March 2019 - restated	3,372	62,650	3,342	664	13,739	83,767	5,191	88,958
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2019
Profit for the period	-	-	-	-	1,018	1,018	130	1,148
Other comprehensive income:
Foreign currency differences	-	-	-	-	73	73	(26)	47
Total comprehensive income for the period	-	-	-	-	1,091	1,091	104	1,195
Transactions with owners recorded directly in equity:
Issue of shares in the period	5	232	-	-	-	237	-	237
Share-based payments	-	-	208	-	-	208	-	208
Transfers on expiry of options	-	-	(164)	-	164	-	-	-
Dividends (Note 8)	-	-	-	-	(7,453)	(7,453)	-	(7,453)
Total transactions with owners	5	232	44	-	(7,289)	(7,008)	-	(7,008)
Balance as at 30 September 2019	3,377	62,882	3,386	664	7,541	77,850	5,295	83,145

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
	Share	Share	Other	Revaluation	Retained	Total	Minority	Total
	Capital	Premium	Reserves	Reserves	Earnings		Interest	Equity
	Account	Account
	£000's	£000's	£000's	£000's	£000's	£000's	£000's	£000's
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018
Balance as at 1 April 2018 - as reported	3,291	58,847	2,823	664	34,065	99,690	5,185	104,875
Adjustment re revenue cut-off (Note 3.1)	-	-	-	-	(632)	(632)	33	(599)
Adjustment re intangible assets (Note 3.2)	-	-	-	-	(17,756)	(17,756)	-	(17,756)
Adjustment re bonuses (Note 3.4)	-	-	-	-	(954)	(954)	-	(954)
Balance as at 1 April 2018 - restated	3,291	58,847	2,823	664	14,723	80,348	5,218	85,566
Adjustment on implementation of IFRS16	-	-	-	-	(17)	(17)	1	(16)
Further IFRS16 adjustment (Note 4)	-	-	-	-	(20)	(20)	-	(20)
IFRS 16 adjusted balance as at 1 April 2018 - restated	3,291	58,847	2,823	664	14,686	80,311	5,219	85,530
Profit for the period - restated	-	-	-	-	3,724	3,724	913	4,637
Other comprehensive income:
Foreign currency differences	-	-	-	-	(178)	(178)	(105)	(283)
Total comprehensive income for the period	-	-	-	-	3,546	3,546	808	4,354
Transactions with owners recorded directly in equity:
Issue of shares in the period	67	3,058	-	-	-	3,125	-	3,125
Share-based payments	-	-	375	-	-	375	-	375
Dividends (Note 8)	-	-	-	-	(2,106)	(2,106)	(1,643)	(3,749)
Total transactions with owners	67	3,058	375	-	(2,106)	1,394	(1,643)	(249)
Balance as at 30 September 2018 - restated	3,358	61,905	3,198	664	16,126	85,251	4,384	89,635

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
		As at	As at	As at
		30.09.19	30.09.18	31.03.19
		(unaudited)	(unaudited)	(audited)
	Notes	£000's	£000's	£000's
			Restated*	Restated*
Non current assets
Intangible assets	9	40,351	39,029	40,005
Property, plant and equipment	10	2,044	2,127	2,144
Investment property		200	200	200
Right of use assets		2,043	2,512	2,315
Investments		166	125	116
		44,804	43,993	44,780
Current assets
Inventories		20,647	19,854	19,645
Trade and other receivables		19,896	15,023	23,358
Income tax recoverable		1,585	1,062	1,449
Other taxes and social security		420	1,004	462
Cash and cash equivalents		13,411	23,824	16,863
		55,959	60,767	61,777
Total assets		100,763	104,760	106,557
Current liabilities
Trade and other payables		(9,653)	(10,383)	(13,493)
Income tax		(55)	(371)	(795)
Other taxes and social security		(690)	(1,405)	(533)
Amounts due under leases		(431)	(587)	(555)
Dividends		(4,803)	(50)	(49)
		(15,632)	(12,796)	(15,425)
Total assets less current liabilities		85,131	91,964	91,132
Non current liabilities
Deferred tax		(309)	(327)	(333)
Amounts due under leases		(1,677)	(2,002)	(1,841)
Total assets less total liabilities		83,145	89,635	88,958
Equity
Capital and reserves
Issued share capital		3,377	3,358	3,372
Share premium account		62,882	61,905	62,650
Revaluation reserve		664	664	664
Other reserves		3,386	3,198	3,342
Retained earnings		7,541	16,126	13,739
Shareholders' funds		77,850	85,251	83,767
Non-controlling interests		5,295	4,384	5,191
Total equity		83,145	89,635	88,958
*Details of the restatements, which are unaudited, are presented in Notes 3 and 4.

CONSOLIDATED STATEMENT OF CASH FLOWS
	Six months to	Six months to	Year ended
	30.09.19	30.09.18	31.03.19
	(unaudited)	(unaudited)	(audited)
	£000's	£000's	£000's
		Restated*	Restated*
Cashflows from operating activities
Profit before income tax	1,018	5,301	9,973
Adjustment for:
Net finance (income)	(167)	(644)	(543)
Depreciation	455	407	855
Revaluation of freehold property	-	-	(55)
Amortisation of intangible assets	1,206	1,008	2,112
Pension payments	(29)	(29)	(59)
Share of associate's results	(42)	(27)	(14)
Share-based payments	208	375	631
Operating cash flow before movement in working capital	2,649	6,391	12,900
Change in inventories	(1,002)	(1,200)	(991)
Change in receivables	3,278	352	(7,441)
Change in payables	(3,428)	901	3,131
Cash generated from operations	1,497	6,444	7,599
Finance costs	-	-	(69)
Income tax	(770)	(681)	(862)
Net cash from operating activities	727	5,763	6,668
Cash flows from investing activities
Acquisition of property, plant and equipment	(85)	(431)	(566)
Disposal of property, plant and equipment	-	-	5
Purchase of intangibles	(1,552)	(1,400)	(3,480)
Finance income	51	70	127
Net cash (used in) investing activities	(1,586)	(1,761)	(3,914)
Cash flows from financing activities
Proceeds from issue of share capital	237	3,125	3,884
Finance lease borrowings	-	-	67
Finance lease repayments	(343)	(271)	(557)
Dividends paid	(2,699)	(3,741)	(10,121)
Net cash (used in) financing activities	(2,805)	(887)	(6,727)
Net (decrease)/increase in cash and cash equivalents	(3,664)	3,115	(3,973)
Foreign exchange movements	212	366	493
Balance at the beginning of the period	16,863	20,343	20,343
Balance at the end of the period	13,411	23,824	16,863
Free cash flow	(910)	3,932	2,691
*Details of the restatements, which are unaudited, are presented in Notes 3 and 4.

NOTES TO THE PRELIMINARY RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2019

1. Basis of preparation

The financial information for the period to 30 September 2019 does not constitute statutory accounts as defined by Section 435 of the Companies Act 2006. It has been prepared in accordance with the accounting policies set out in, and is consistent with, the audited financial statements for year ended 31 March 2019, except as noted in 3, below.

The Group applies revised IAS 1 'Presentation of Financial Statements (2007)'. As a result, the Group presents all non-owner changes in equity in consolidated statements of comprehensive income and all owner changes in equity in consolidated statements of changes in equity.

These Interim Statements have not been audited or reviewed by the Group's auditors.

2. Statement of compliance

This interim financial statement is prepared in accordance with IAS 34 'Interim Financial Reporting'. Accordingly, whilst the interim statements have been prepared in accordance with IFRS, and the primary statements follow the format of the annual financial statements, only selected notes are included - those that provide an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the last annual reporting date. IAS 34 states a presumption that anyone who reads the Group's interim report will also have access to its most recent annual report. Accordingly, annual disclosures are not repeated in these interim condensed reports.

3. Changes to significant accounting policies and other restatements

The principal accounting policies which are adopted by the Group in the preparation of its financial statements are set out in in the consolidated financial statements of the Group for the year ended 31 March 2019.These policies have been consistently applied in all prior years except where corrections have been described in this note 3. The corrections to the application of the Group's accounting policies to comply with International Financial Reporting Standards have been made as restatements of prior period financial statements for the correction of errors in accordance with IAS8. The correct application of the Group's accounting policies in accordance with IFRS continued into the six months ended 30 September 2019.

3.1 IFRS 15 Revenue from Contracts with Customers

The Group adopted IFRS 15 - Revenue from Contracts with Customers with effect from 1 April 2018. It was noted in the consolidated financial statements of the Group for the year ended 31 March 2019 that the effect of adoption of this standard was immaterial to the Group.

IFRS 15 provides a single, principles-based five step model to be applied to all sales contracts, based on the transfer of control of goods and services to customers. It replaced the separate guidance in IAS 11 for Construction Contracts and IAS 18 for Revenue. Under IAS 18, the guiding principle for determining when revenue should be recognized was to establish when the transfer of risk and reward of ownership in the goods had passed to customers. IFRS 15 requires a determination of when transfer of control has passed to customers in order to establish when revenue can be recognized.

IFRS 15 (and IAS 18) also requires that sales discounts, commissions, rebates and other sales incentives provided to customers are accounted for as an offset to Revenue.

3.1A Revenue recognition

Historical Treatment	Revised treatment and impact
Revenue has been recognised when goods have been despatched from the Group's warehouses and factories (third party owned facilities)	Having reference to the contractual trading terms with customers, the shipping and transportation methods, Incoterms guidance and other GAAP guidance the moment when control is judged to have passed to the customer was in most cases later than the date that the goods left the warehouse. Accordingly, some revenue previously incorrectly recorded shortly before the relevant period end was moved to the subsequent month and the subsequent accounting period.
	The associated cost of sale was similarly moved to the subsequent accounting period.
	The carrying value of Trade Debtors and Inventory at the relevant Statement of financial position date was consequently adjusted. A retained earnings adjustment reflects the cumulative value of net profit so adjusted in the financial period.

3.1B Sales Discounts

Historical Treatment	Revised treatment and impact
Sales incentives provided to customers comprising volume rebates, discounts and commissions have historically been incorrectly accounted for as a cost of sale	These allowances have been set off against revenue in the relevant period and cost of sale appropriately adjusted. There is no impact on gross profit or net profit.

3.2 IAS 38 - 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)

· 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.

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.

Initial recognition: research and development costs

· Charge all research cost to expense.

· Development costs are capitalised only after technical and commercial feasibility of the asset for sale or use have been established. This means that the entity must intend and be able to complete the intangible asset and either use it or sell it and be able to demonstrate how the asset will generate future economic benefits.

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.

If recognition criteria are not met.If an intangible item does not meet both the definition of and the criteria for recognition as an intangible asset, IAS 38 requires the expenditure on this item to be recognised as an expense when it is incurred.

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 - optimization 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) has to 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.

In practice, work that is undertaken to build towards regulatory approval for a new treatment claim using Aivlosin or an approval for marketing Aivlosin in a new geographical market can be viewed as development work and are likely to meet the capitalization criteria whereas some of the Group's more recently announced projects (for example the vaccine collaboration projects with The Pirbright Institute) would be considered to not meet the criteria for capitalisation and should therefore be expensed.

Historical Treatment	Revised treatment and impact
All costs relating to the Research and Development team including regulatory affairs were incorrectly capitalised and amortised over a period of 10 or 20 years. The capitalised costs of projects that did not proceed because of technical or other reasons were impaired. Amortisation commenced immediately from the date the costs were capitalized.	Historical costs have been considered in the light of the Eco Animal Health R&D model. IAS 38 (and IAS 36 in respect of amortization) have been applied to each year and where expenses meet the criteria for capitalization such costs have remained as capitalized intangible assets subject to annual impairment reviews and amortised over their useful economic lives starting from the year in which economic benefit flowed to the Group.
	All other expenses incurred in research, development, technical and regulatory affairs and technical support to the organization have been expensed.
	The impact has been to increase the Research and Development expense (and reduce the amortization) in the Income Statement in each year and to reduce the value of capitalised intangible assets on the Statement of financial position.

3.3 IFRS 11 - Joint Arrangements

IFRS 11 - Joint Arrangements defines an arrangement of which two or more parties have joint control. A joint arrangement has the following characteristics:

· The parties are bound by a contractual arrangement.

· The contractual arrangement gives two or more of those parties joint control of the arrangement.

A joint arrangement is either a joint operation or a joint venture. The classification of a joint arrangement as a joint operation or a joint venture depends upon the rights and obligations of the parties to the arrangement. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint ventures.

In assessing the relationship between the Group and its commercial collaborator in the USA management has considered the nature of the commercial arrangements, the legal agreement between the parties and other contractual arrangements.

Historical Treatment	Revised treatment and impact
The joint arrangements with Pharmgate in the USA and Canada have historically been correctly classified as joint operations. Accordingly, the Group has correctly consolidated into its income statement the revenue and cost of sale, together with any sales incentives provided to customers, for sales of Aivlosin in those territories. The Group has correctly brought 50% of all administrative costs into its income statement. However, the Group has incorrectly consolidated 50% of each amount held in the Statement of financial position of the joint operation's legal entities into the Group's own Statement of financial position totals, being 50% of tangible fixed assets, 50% of trade and other receivables, 50% of cash and 50% of trade and other payables	The Group has rights and obligations over the individual assets and liabilities in the Statement of financial position. Management considers that the nature of the commercial arrangements and the control that the Group has over the trade receivables and trade payables indicates that the joint arrangement should be also treated as a joint operation in the statement of financial position. The historical Income statement treatment correctly reflects that of a joint operation but on the Statement of financial position the Group should consolidate those assets and liabilities over which it has rights and obligations. Accordingly, the Group has restated past Statements of financial position to include the Group's own trade debtors (for Aivlosin sales) and intercompany payable balance, together with 50% of any assets and liabilities pertaining to shared overheads (for example prepayments and accruals of administrative expenses)
	There is no change to the net assets position of the group and the remaining balance of the specific assets and liabilities to be brought into the Group consolidation is cash. Accordingly, together with several of the ss balances, the cash balance in the Group's Consolidated Statement of Financial Position has changed.

3.4 Bonuses

An entity may have no legal obligation to pay a bonus. Nevertheless, in some cases, an entity has a practice of paying bonuses. In such cases, the entity has a constructive obligation because the entity has no realistic alternative but to pay the bonus.

Historical Treatment

Revised treatment and impact

Bonuses paid to Directors and Employees in the Group are discretionary. As a result the Historical treatment of Bonuses has been to account for them as an expense in the period in which they are paid - normally in October of each year.

Bonuses have been paid in each financial period. Notwithstanding that the bonuses are subject to management and Remuneration Committee discretion, they are customarily paid and the amount paid is considered by reference to individual performance and Group performance in the preceding financial period. Accordingly, it is considered that in accordance with IAS 19 the correct accounting treatment is to accrue for these bonuses in the corresponding year end Financial Statements.

3.5 Impact of restatements of the financial statements

The following tables summarise the impact of adopting the changes, as described above in notes 3.1, 3.2, 3.3 and 3.4 on the Group's financial statements. References to the specific changes to which those adjustments relate are presented in the table headings as required.

Impact on the Group statement of comprehensive incomefor six months to 30 September 2018

	SIX MONTHS TO 30 SEPTEMBER 2018
	As reported	Adjustment	Adjustment	Adjustment	Adjustment	Adjustment	Restated
Explanation of adjustment	(unaudited)	Note 3.1A	Note 3.1B	Note 3.2	Note 3.4	Note 4	(unaudited)
	£000's	£000's	£000's	£000's	£000's	£000's	£000's
Revenue	31,745	(1,041)	(750)				29,954
Cost of sales	(16,659)	561	750			35	(15,313)
Gross Profit	15,086	(480)	-	-	-	35	14,641
Other income	30						30
Administrative expenses	(6,801)				693	(22)	(6,130)
R&D expense	-			(2,633)		-	(2,633)
Currency profits/(losses)	105						105
Amortisation of intangible assets	(1,999)			991			(1,008)
Share based payments	(375)						(375)
Profit from operating activities:	6,046	(480)	-	(1,642)	693	13	4,630
Net finance income/(costs)	697					(53)	644
Share of profit of associate	27						27
Profit before income tax	6,770	(480)	-	(1,642)	693	(40)	5,301
Income tax charge	(765)	30		126	(55)		(664)
Profit for the period	6,005	(450)	-	(1,516)	638	(40)	4,637
Attributable to:
Owner of parent company	5,052	(427)		(1,516)	638	(23)	3,724
Non-controlling interest	953	(23)				(17)	913
	6,005	(450)	-	(1,516)	638	(40)	4,637
Earnings per share (pence)	7.62	(0.64)	-	(2.29)	0.96	(0.03)	5.61
Diluted earnings per share (pence)	7.46	(0.63)	-	(2.24)	0.94	(0.03)	5.50
Earnings before interest,
taxation, depreciation, amortisation
and share based payments (EBITDA)	8,569	(480)	-	(2,633)	693	271	6,420
Exclude foreign exchange differences	(105)	-	-	-	-	-	(105)
Adjusted EBITDA excluding foreign exchange differences	8,464	(480)	-	(2,633)	693	271	6,315

Impact on the Group statement of comprehensive incomefor the year to 31 March 2019

	YEAR TO 31 MARCH 2019
	As reported	Adjustment	Adjustment	Adjustment	Adjustment	Adjustment	Restated
Explanation of adjustment	(audited)	Note 3.1A	Note 3.1B	Note 3.2	Note 3.4	Note 4	(unaudited)
	£000's	£000's	£000's	£000's	£000's	£000's	£000's
Revenue	74,578	(4,512)	(2,900)				67,166
Cost of sales	(40,725)	2,547	2,900			-	(35,278)
Gross Profit	33,853	(1,965)	-	-	-	-	31,888
Other income	35						35
Administrative expenses	(14,466)				311	16	(14,139)
R&D expense	-			(5,487)		-	(5,487)
Currency profits/(losses)	(138)						(138)
Amortisation of intangible assets	(3,982)			1,870			(2,112)
Share based payments	(631)						(631)
Profit from operating activities:	14,671	(1,965)	-	(3,617)	311	16	9,416
Net finance income/(costs)	562					(19)	543
Share of profit of associate	14						14
Profit before income tax	15,247	(1,965)	-	(3,617)	311	(3)	9,973
Income tax charge	(1,680)	290		532	(30)		(888)
Profit for the period	13,567	(1,675)	-	(3,085)	281	(3)	9,085
Attributable to:
Owner of parent company	11,755	(1,469)		(3,085)	281	(3)	7,479
Non-controlling interest	1,812	(206)				-	1,606
	13,567	(1,675)	-	(3,085)	281	(3)	9,085
Earnings per share (pence)	17.60	(2.20)	-	(4.62)	0.42	(0.00)	11.20
Diluted earnings per share (pence)	17.35	(2.17)	-	(4.55)	0.41	(0.00)	11.04
Earnings before interest,
taxation, depreciation, amortisation
and share based payments (EBITDA)	19,949	(1,965)	-	(5,487)	311	151	12,959
Exclude foreign exchange differences	138	-	-	-	-	-	138
Adjusted EBITDA excluding foreign exchange differences	20,087	(1,965)	-	(5,487)	311	151	13,097

Impact on Group Statements of financial position

	AS AT 1 APRIL 2018
	As reported	Adjustment	Adjustment	Adjustment	Adjustment	Restated
Explanation of adjustment	(audited)	Note 3.1A	Note 3.2	Note 3.3	Note 3.4	(unaudited)
	£000's	£000's	£000's	£000's	£000's	£000's
Non current assets
Intangible assets	57,631		(19,226)		232	38,637
Property, plant and equipment	1,866					1,866
Investment property	200					200
Right of use assets	-					-
Investments	98					98
	59,795	-	(19,226)	-	232	40,801
Current assets
Inventories	17,663	991				18,654
Trade and other receivables	17,193	(1,678)		(296)		15,219
Income tax recoverable	113	64	397		121	695
Other taxes and social security	1,160					1,160
Cash and cash equivalents	21,261			(918)		20,343
	57,390	(623)	397	(1,214)	121	56,071
Total assets	117,185	(623)	(18,829)	(1,214)	353	96,872
Current liabilities
Trade and other payables	(10,715)			1,214	(1,307)	(10,808)
Income tax	(152)	24				(128)
Other taxes and social security	(108)					(108)
Amounts due under leases	-					-
Dividends	(42)					(42)
	(11,017)	24	-	1,214	(1,307)	(11,086)
Total assets less current liabilities	106,168	(599)	(18,829)	-	(954)	85,786
Non current liabilities
Deferred tax	(1,293)		1,073			(220)
Amounts due under leases	-					-
Total assets less total liabilities	104,875	(599)	(17,756)	-	(954)	85,566
Equity
Capital and reserves
Issued share capital	3,291					3,291
Share premium account	58,847					58,847
Revaluation reserve	664					664
Other reserves	2,823					2,823
Retained earnings	34,065	(632)	(17,756)		(954)	14,723
Shareholders' funds	99,690	(632)	(17,756)	-	(954)	80,348
Non-controlling interests	5,185	33				5,218
Total equity	104,875	(599)	(17,756)	-	(954)	85,566

	AS AT 30 SEPTEMBER 2018
	As reported	Adjustment	Adjustment	Adjustment	Adjustment	Adjustment	Restated
Explanation of adjustment	(unaudited)	Note 3.1A	Note 3.2	Note 3.3	Note 3.4	Note 4	(unaudited)
	£000's	£000's	£000's	£000's	£000's	£000's	£000's
Non current assets
Intangible assets	59,840		(20,868)		57		39,029
Property, plant and equipment	2,127						2,127
Investment property	200						200
Right of use assets	-					2,512	2,512
Investments	125						125
	62,292	-	(20,868)	-	57	2,512	43,993
Current assets
Inventories	18,302	1,552					19,854
Trade and other receivables	18,528	(2,719)		(786)			15,023
Income tax recoverable	362	111	523		66		1,062
Other taxes and social security	1,004						1,004
Cash and cash equivalents	24,729			(905)			23,824
	62,925	(1,056)	523	(1,691)	66	-	60,767
Total assets	125,217	(1,056)	(20,345)	(1,691)	123	2,512	104,760
Current liabilities
Trade and other payables	(11,635)			1,691	(439)		(10,383)
Income tax	(378)	7					(371)
Other taxes and social security	(1,405)						(1,405)
Amounts due under leases	-					(587)	(587)
Dividends	(50)						(50)
	(13,468)	7	-	1,691	(439)	(587)	(12,796)
Total assets less current liabilities	111,749	(1,049)	(20,345)	-	(316)	1,925	91,964
Non current liabilities
Deferred tax	(1,400)		1,073				(327)
Amounts due under leases	-					(2,002)	(2,002)
Total assets less total liabilities	110,349	(1,049)	(19,272)	-	(316)	(77)	89,635
Equity
Capital and reserves
Issued share capital	3,358						3,358
Share premium account	61,905						61,905
Revaluation reserve	664						664
Other reserves	3,198						3,198
Retained earnings	36,832	(1,059)	(19,272)		(316)	(59)	16,126
Shareholders' funds	105,957	(1,059)	(19,272)	-	(316)	(59)	85,251
Non-controlling interests	4,392	10				(18)	4,384
Total equity	110,349	(1,049)	(19,272)	-	(316)	(77)	89,635

	AS AT 31 MARCH 2019
		As reported		Adjustment	Adjustment	Adjustment	Adjustment	Adjustment	Restated
Explanation of adjustment		(audited)		Note 3.1A	Note 3.2	Note 3.3	Note 3.4	Note 4	(unaudited)
		£000's		£000's	£000's	£000's	£000's	£000's	£000's
Non current assets
Intangible assets		62,734			(22,843)		114		40,005
Property, plant and equipment		2,144							2,144
Investment property		200							200
Right of use assets		1,930						385	2,315
Investments		116							116
		67,124		-	(22,843)	-	114	385	44,780
Current assets
Inventories		16,107		3,538					19,645
Trade and other receivables		29,537		(6,190)		11			23,358
Income tax recoverable		466		173	719		91		1,449
Other taxes and social security		462							462
Cash and cash equivalents		18,068				(1,205)			16,863
		64,640		(2,479)	719	(1,194)	91	-	61,777
Total assets		131,764		(2,479)	(22,124)	(1,194)	205	385	106,557
Current liabilities
Trade and other payables		(13,809)				1,194	(878)		(13,493)
Income tax		(1,000)		205					(795)
Other taxes and social security		(533)							(533)
Amounts due under leases		(415)						(140)	(555)
Dividends		(49)							(49)
		(15,806)		205	-	1,194	(878)	(140)	(15,425)
Total assets less current liabilities		115,958		(2,274)	(22,124)	-	(673)	245	91,132
Non current liabilities
Deferred tax		(1,616)			1,283				(333)
Amounts due under leases		(1,573)						(268)	(1,841)
Total assets less total liabilities		112,769		(2,274)	(20,841)	-	(673)	(23)	88,958
Equity
Capital and reserves
Issued share capital		3,372							3,372
Share premium account		62,650							62,650
Revaluation reserve		664							664
Other reserves		3,342							3,342
Retained earnings		37,377		(2,101)	(20,841)		(673)	(23)	13,739
Shareholders' funds		107,405		(2,101)	(20,841)	-	(673)	(23)	83,767
Non-controlling interests		5,364		(173)				-	5,191
Total equity		112,769		(2,274)	(20,841)	-	(673)	(23)	88,958

Impact on the Group statement of cash flows

	SIX MONTHS TO 30 SEPTEMBER 2018
	As reported	Adjustment	Adjustment	Adjustment	Adjustment	Adjustment	Restated
Explanation of adjustment	(unaudited)	Note 3.1A	Note 3.2	Note 3.3	Note 3.4	Note 4	(unaudited)
	£000's	£000's	£000's	£000's	£000's	£000's	£000's
Cashflows from operating activities
Profit before income tax	6,770	(480)	(1,642)		693	(40)	5,301
Adjustment for:
Net finance (income)/costs	(697)					53	(644)
Depreciation	149					258	407
Revaluation of freehold property	-						-
Amortisation of intangible assets	1,999		(991)				1,008
Pension payments	(29)						(29)
Share of associate's results	(27)						(27)
Impairment of investments							-
Share based payments	375						375
Operating cash flow before movement in working capital	8,540	(480)	(2,633)	-	693	271	6,391
Change in inventories	(639)	(561)					(1,200)
Change in receivables	(1,179)	1,041		490			352
Change in payables	2,246			(477)	(868)		901
Cash generated from operations	8,968	-	(2,633)	13	(175)	271	6,444
Finance costs	-						-
Income tax	(681)						(681)
Net cash from operating activities	8,287	-	(2,633)	13	(175)	271	5,763
Cash flows from investing activities
Acquisition of property plant and equipment	(431)						(431)
Disposal of property plant and equipment	-						-
Purchase of intangibles	(4,208)		2,633		175		(1,400)
Finance income	70						70
Net cash (used in) investing activities	(4,569)	-	2,633	-	175	-	(1,761)
Cash flows from financing activities
Proceeds from issue of share capital	3,125						3,125
Finance lease borrowings	-						-
Finance lease repayments	-					(271)	(271)
Dividends paid	(3,741)						(3,741)
Net cash (used in) financing activities	(616)	-	-	-	-	(271)	(887)
Net increase in cash and cash equivalents	3,102	-	-	13	-	-	3,115
Foreign exchange movements	366						366
Balance at the beginning of the period	21,261			(918)			20,343
Cash and cash equivalents at the end of the period	24,729	-	-	(905)	-	-	23,824
Free cash flow	3,648	-	-	13	-	271	3,932

	YEAR ENDED 31 MARCH 2019
	As reported	Adjustment	Adjustment	Adjustment	Adjustment	Adjustment	Restated
Explanation of adjustment	(audited)	Note 3.1A	Note 3.2	Note 3.3	Note 3.4	Note 4	(unaudited)
	£000's	£000's	£000's	£000's	£000's	£000's	£000's
Cashflows from operating activities
Profit before income tax	15,247	(1,965)	(3,617)		311	(3)	9,973
Adjustment for:
Net finance (income)/costs	(562)					19	(543)
Depreciation	720					135	855
Revaluation of freehold property	(55)						(55)
Amortisation of intangible assets	3,982		(1,870)				2,112
Pension payments	(59)						(59)
Share of associate's results	(14)						(14)
Impairment of investments							-
Share based payments	631						631
Operating cash flow before movement in working capital	19,890	(1,965)	(5,487)	-	311	151	12,900
Change in inventories	1,556	(2,547)					(991)
Change in receivables	(11,646)	4,512		(307)			(7,441)
Change in payables	3,540			20	(429)		3,131
Cash generated from operations	13,340	-	(5,487)	(287)	(118)	151	7,599
Finance costs	(69)						(69)
Income tax	(862)						(862)
Net cash from operating activities	12,409	-	(5,487)	(287)	(118)	151	6,668
Cash flows from investing activities
Acquisition of property plant and equipment	(566)						(566)
Disposal of property plant and equipment	5						5
Purchase of intangibles	(9,085)		5,487		118		(3,480)
Finance income	127						127
Net cash (used in) investing activities	(9,519)	-	5,487	-	118	-	(3,914)
Cash flows from financing activities
Proceeds from issue of share capital	3,884						3,884
Finance lease borrowings	67						67
Finance lease repayments	(406)					(151)	(557)
Dividends paid	(10,121)						(10,121)
Net cash (used in) financing activities	(6,576)	-	-	-	-	(151)	(6,727)
Net decrease in cash and cash equivalents	(3,686)	-	-	(287)	-	-	(3,973)
Foreign exchange movements	493						493
Balance at the beginning of the period	21,261			(918)			20,343
Cash and cash equivalents at the end of the period	18,068	-	-	(1,205)	-	-	16,863
Free cash flow	2,827	-	-	(287)	-	151	2,691

Impact on Group intangible assets

	As Reported	Adjustment	Restated
	£000's	£000's	£000's
Cost
At 1 April 2018	74,819	(34,929)	39,890
Additions	4,208	(2,808)	1,400
At 30 September 2018	79,027	(37,737)	41,290
Additions	4,877	(2,797)	2,080
At 31 March 2019	83,904	(40,534)	43,370
Amortisation
At 1 April 2018	35,729	(15,935)	19,794
Charge for the period	1,960	(991)	969
At 30 September 2018	37,689	(16,926)	20,763
Charge for the period	1,950	(879)	1,071
At 31 March 2019	39,639	(17,805)	21,834
Net Book Value
At 31 March 2019	44,265	(22,729)	21,536
At 30 September 2018	41,338	(20,811)	20,527
At 1 April 2018	39,090	(18,994)	20,096

The Group is also looking into the impact that the adjustments referred to in this note might have had on the distributable reserves of Group subsidiaries and the consequential impact that could have with regard to certain historical dividends paid by them.

4. IFRS 16 - Leases

This new leasing standard removed the distinction between finance and operating leases for lessees. For lessees, all leases are recorded on the Statement of financial position as liabilities, at the present value of the future lease payments, along with an asset reflecting the right to use the asset over the lease term.

The Group applied the new standard in the year ended 31 March 2019 and presented the effects of the adoption of IFRS in the consolidated financial statements of the Group for the year ended 31 March 2019.

The Interim statement for the six months ended 30 September 2018 did not reflect the adoption of this standard and accordingly to provide comparison with the six months ended 30 September 2019, these interim statements show the six months ended 30 September 2018 restated on this basis.

As described in the impact tables in Note 3 there was an additional prior period restatement to correct an error to bring 100% of the costs of the lease of the Group's office in Southgate onto the Statement of financial position per IFRS16 rather than the previous treatment of only bringing half of the costs in.

5. Revenue is derived from the Group's animal pharmaceutical businesses.

6. Principal risks and uncertainties

These were set out on pages 24-27 of the notes to the consolidated financial statements for the year ended 31 March 2019. The key exposures are to foreign currency exchange rates, potential delays in obtaining marketing authorisations, single sources of supply for some raw materials and trade debtor recovery and have remained unchanged since the year end. In addition, the Annual Report and Accounts highlighted disease impact to growth in emerging markets as a key risk and this, in the form of ASF, is a principal uncertainty.

7. Earnings per share

	Six months	Six months	Year ended
	to 30.09.19	to 30.09.18	31.03.19
	(unaudited)	(unaudited)	(audited)
		Restated	Restated
Weighted average number of shares in issue (000's)	67,493	66,326	66,794
Fully diluted weighted average number of shares in issue (000's)	68,092	67,757	67,737
Profit attributable to equity holders of the company (£000's)	1,018	3,724	7,479
Basic earnings per share (pence)	1.51	5.61	11.20
Fully diluted earnings per share (pence)	1.50	5.50	11.04

8. Dividends

	Six months	Six months	Year ended
	to 30.09.19	to 30.09.18	31.03.19
	(unaudited)	(unaudited)	(audited)
	£000's	£000's	£000's
Dividend in respect of the year ended 31 March 2018 at 3.2p/6.0p per ordinary share	-	2,106	2,106
Further Interim Dividend in respect of the year ended 31 March 2018 at 6.0p per ordinary share	-	-	4,029
Special dividend in respect of the year ended 31 March 2019 at 3.5p per ordinary share		-	2,350
Dividend in respect of the year ended 31 March 2019 at 4.0p per ordinary share	2,698	-	-
Final dividend in respect of the year ended 31 March 2019 at 7.04p per ordinary share	4,755	-	-
	7,453	2,106	8,485

Under IAS 10, dividends are recorded in the accounts when they become a legal obligation of the payer. For final dividends, this will be when they are approved by the shareholders in general meeting. For interim dividends, this will be when they have been paid.

In summary, what this means in practice is that:

· Dividends need to be paid (if interim dividends) or approved by shareholders (if final dividends) before they are recognised in the accounts.

· In the Annual General Meeting held during September 2019 a shareholder resolution was passed to approve the final dividend paid in October 2019. Accordingly, a liability is recorded in the Statement of financial position on 30 September 2019

· No such shareholder resolution was proposed or passed in the prior period AGM's. Following the application of IAS 10 no liability was recorded at 31 March 2018, 31 March 2019 or 30 September 2018 for dividends declared but not paid before each of those reporting dates.

9. Intangible non-current assets

	Goodwill	Distribution rights	Development Costs	Total
	£000's	£000's	£000's	£000's
Cost
At 1 April 2018 - restated	17,930	1,442	39,890	59,262
Additions - restated	-	-	1,400	1,400
At 30 September 2018 - restated	17,930	1,442	41,290	60,662
Additions - restated	-	-	2,080	2,080
At 31 March 2019 - restated	17,930	1,442	43,370	62,742
Additions	-	-	1,552	1,552
At 30 September 2019	17,930	1,442	44,922	64,294
Amortisation
At 1 April 2018 - restated	-	831	19,794	20,625
Charge for the period - restated	-	39	969	1,008
At 30 September 2018 - restated	-	870	20,763	21,633
Charge for the period - restated	-	33	1,071	1,104
At 31 March 2019 - restated	-	903	20,834	22,737
Charge for the period	-	36	1,170	1,206
At 30 September 2019	-	939	23,004	23,943
Net Book Value
At 30 September 2019	17,930	503	21,918	40,351
At 31 March 2019 - restated	17,930	539	21,536	40,005
At 30 September 2018 - restated	17,930	572	20,527	39,029
At 1 April 2018 - restated	17,930	611	20,096	38,637

10. Property, plant and equipment

	Land & Buildings (freehold)	Plant and Machinery	Fixtures, fittings & equipment	Motor vehicles	Total
	£000's	£000's	£000's	£000's	£000's
Cost or valuation
At 1 April 2018	730	1,602	1,083	61	3,476
Additions	-	261	150	21	432
Disposals	-	(19)	-	-	(19)
Foreign exchange movements	-	(27)	-	(8)	(35)
At 30 September 2018	730	1,817	1,233	74	3,854
Additions	-	80	48	6	134
Revaluation in the year	30	-	-	-	30
Disposals	-	(49)	-	-	(49)
Foreign exchange movements	-	38	1	2	41
At 31 March 2019	760	1,886	1,282	82	4,010
Additions	-	40	45	-	85
Foreign exchange movements	-	(8)	-	-	(8)
At 30 September 2019	760	1,918	1,327	82	4,087
Depreciation
At 1 April 2018	26	864	706	14	1,610
Charge for the period	5	81	57	6	149
Disposals	-	(18)	-	-	(18)
Foreign exchange movements	-	(14)	-	-	(14)
At 30 September 2018	31	913	763	20	1,727
Charge for the period	(5)	90	97	9	191
Revaluation in the year	(26)	-	-	-	(26)
Disposals	-	(45)	-	-	(45)
Foreign exchange movements	-	20	-	(1)	19
At 31 March 2019	-	978	860	28	1,866
Charge for the period	6	83	84	9	182
Foreign exchange movements	-	(5)	-	-	(5)
At 30 September 2019	6	1,056	944	37	2,043
Net book value
At 30 September 2019	754	862	383	45	2,044
At 31 March 2019	760	908	422	54	2,144
At 30 September 2018	699	904	470	54	2,127
At 1 April 2018	704	738	377	47	1,866

This financial information was approved by the board on 30 December 2019.

Copies of this interim report are being sent to all the Company's shareholders. Further copies can be obtained from the Company's registered office at 78 Coombe Road, New Malden, Surrey, KT3 4QS.

DIRECTORS AND OFFICERS	Andrew Jones	(Non-Executive Chairman)
	Marc Loomes	(Chief Executive)
	Chris Wilks	(Chief Financial Officer)
	Anthony Rawlinson	(Non-Executive Director)
	Julia Trouse	(Company Secretary)
REGISTERED OFFICE	78 Coombe Road, New Malden, Surrey. KT3 4QS
	Tel: [phone]	Fax: [phone]
COMPANY NUMBER	01818170
INFORMATION AT	www.ecoanimalhealthgroupplc.com