ECO Animal Health Group plc (LON:EAH) Chief Executive Officer David Hallas caught up with DirectorsTalk for an exclusive interview to discuss a strong set of results, growth drivers, product markets and optimism for the year ahead.
Q1: David, you’ve announced results for the year ended 31st March 2023, first off congratulations, they appear to be a strong set of results. Could you talk us through the highlights please?
A1: Yes, they are a strong set of results, I think, what we did was we actually beat the market expectations at revenue and EBITDA.
So, revenue increased around about 4% to £85.3 million, the sales growth dropped down to the bottom line so we were able to report an adjusted EBITDA a growth of £7.2 million and gross margin of 45%, 2% ahead of last year. This was helped by some decrease costs in our active ingredients so the source material and we were able to continue to drive on our new product development and the portfolio is robust and full.
ECO Animal Health is in fact, you might say, pregnant with innovation and we expect that innovation to come to the markets by the end of next year.
Q2:Just looking at it in more detail, could you just run us through what’s behind the growth in revenues, the profitability, and the improved cash position?
A2: Taking the revenue growth, that was supported mainly by two key geographies.
Latin America grew about 15% versus the prior year, that was helped by a great performance in the two largest geographies in Latin America, Brazil, and Mexico. The other very robust growth even well above 15% came from South and South-east Asia, and that was driven by success in the poultry sector in India and great growth in Thailand and some neighbouring markets to Thailand in the swine sector. So, that was the revenue growth.
The business model means that more revenue pulls through to leverage at the bottom line so if you put more revenue through our structure, our structure is a fixed cost so more revenue allows that leverage at the bottom line so that’s why the profitability has been every higher growth. Also supported by favourable gross margins for the reasons I mentioned, mainly that costs were well under contract and we had a decrease in cost of our source ingredient in our blockbuster product, Aivlosin.
The cash position, that was helped by deliberately running down our inventory from deliberating high levels in the last year which were run up because we were producing and building a new production plant, a fill and finish part to produce the end product. In order to produce that factory and that manufacturing plant, we had to build up the inventory beforehand, that came on stream in November 2022, on budget and on time. So, subsequently to November, we were able to run down the inventories and that helped our cash position by a little over £7/£7.5 million. That gave us a better balance sheet position as we brought those inventories down to a more normalised level.
Q3: How would you describe the market for your products and in what way does that impact on ECO Animal Health?
A3: We’re operating mainly in the swine and poultry sector, the market long-term has got some very decent robust intact growth drivers, and those are, simply put, they’re more people in the world wanting to eat higher quality protein. That means it’s mainly chicken and a bit of other white meat, pork, that is in increasing consumption so overall, that’s positive.
Slightly less positive is the gyrations of commodity price, they go up and down and we’ve seen increased costs to our end users in terms of grain price bumped post-Ukraine, it’s normalised a bit now but we did see a bump as grain prices went up which are a major cost driver for our producers. So, that has been sometimes a headwind.
I think the headline of the story is that the ultimate growth drivers long-term are sustainably robust commodity prices sometimes give us headwinds, sometimes give us tailwinds.
Q4: How has the new financial year started and what gives you optimism for the year?
A4: The financial year, meaning this quarter that we just finished in June, for which we have results gives cause for confidence because the momentum we saw in the second half of the financial year ending March continued into the March-June period.
So, we saw continuing good trading in North America, continuing good trading in Latin America, South and South-east Asia but also in China so a good broad based continuation of our operational activity, so that gives me confidence for this financial year.
It’s always good to start well, our second half is always more robust than our first half for seasonality reasons and typical historical demand reasons so the fact that the first quarter of this financial year started well is almost a double benefit.
That’s for this financial year and then slightly further out, not that much further out, we see the fruits of our R&D labour coming to fruition by the end of next calendar year as we see two poultry vaccines we expect to be licenced in the US by the end of next year.
