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.

 

There has been a strong start to the second half of the year and we remain confident of continuing the profitable development of the Group supported by a strong balance sheet and investment in our operations, technology and global sales channels.”

 

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 4% 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