Good morning. Hopefully, you can see the presentation and hear Chris and myself. Let me know if not. I've got the attendee list open, so hopefully somebody will flag if there's any challenges. Welcome to the Animalcare 2024 interim results. Looking forward to sharing with you the progress that we've made in the first half of the year, and we continue to make since the end of June. For anyone who's not very familiar with Animalcare, this is really just to articulate the strategy, the three pillars of our growth from left to right: organic growth, that is our existing brands in the portfolio. That's new and existing. We always talk about new being products launched in the last three years.
Inorganic growth, this is all the activity that we're doing to build our future and our new product development, and those three areas are really the fundamentals of our business. In terms of the underpins for our business, strategically, we absolutely have to have strong finances, and we've made a lot of progress there in the last five years. Our people, you know, we are very focused on making sure that we have a highly capable team. We haven't got a lot of people, so we need to have the best, and making sure that we continue to build capabilities and processes to exploit the opportunities that come our way.
So in terms of highlights, the highlights for the first half, commercial delivery, you'll have seen from the notes and the results that we released today, that we continue to see progress in all three areas. In terms of organic growth, we're particularly pleased to see that both Plaqtiv+ and Daxocox have been doing well. In fact, in our markets where we sell and promote Daxocox ourselves, it's up a little bit higher than that. Overall, it's 41%, Plaqtiv+. And as those of you who know us well know that those are our two leading products, we're really focused on those. We'll talk a little bit more about those in the depth of the presentation. We continue to see Danilon benefit. We brought Danilon back in-house in the U.K., in particular.
That's an equine pain product, and it's continuing to see good growth. And actually, in production animals, we've got a 14.3% increase in revenue, and this is a really important part of our business, continues to deliver, and we're looking now at opportunities to strengthen that. It's predominantly in our southern European countries. Inorganic, I guess, in terms of the first half, the main piece is the disposal of Identicare and our disposal of our minority stake in STEM, which has really increased our deal-making power. We see those as two really good examples of us, of our strategy in action. Both of those were decisions that we took that help us to focus on our core business. In new product development, we're progressing with our VHH antibodies. This is such an exciting area.
We're seeing more and more of our peer group companies get into this area, so it's a very exciting, exciting opportunity. We're still continuing to do some preclinical work. We've also been in the clinic over the summer with our VHH antibodies, so that's a really exciting area. We're also expanding indications and territories for our key products, Daxocox and Plaqtiv. We can talk a little bit more about those, and we're preparing to launch two new products, plus actually some line extensions on Daxocox and Plaqtiv+ in 2025. So pretty busy in all of those three areas. In terms of strong finances, you know, we see that balance sheet that's just been transformed by the disposals and looking at, we're now looking very actively at growth opportunities.
We've really focused our efforts on M&A, BD, and new product development, and actually, since Ed came on board in June, July, as our new non-executive chair, I have to say, from a personal perspective, that's been brilliant. It feels like we've really ramped up that M&A, BD area because of Ed's significant experiences with Dechra over many years, and really, that's been a great opportunity for us to continue to drive that agenda. Commercial excellence, we can talk a little bit more about, but really making sure that we're operationally highly effective is key to where we're going. So in terms of, those of you who follow the animal health market, know that this continues to be a really good market to be in.
It's really hard. We find it quite hard to get consensus on the actual sales growth. I think even in the last week, we've 7% growth, 9% growth, but we think it's an average of about 5% sales growth from the top 10 animal health companies in the first half, which is slightly ahead of the first half in 2023. The companion animal sector does remain a main driver of growth, but we're also seeing growth in both equine, and for us personally, we're seeing growth in the production animal sector, although the production animal sector is a little bit more bouncy. We are seeing high levels of pet ownership, despite, you know, the sort of news of pet rehoming being up, but we don't see that in our business. We see pets being presented to the vet.
The vets are really busy. We continue to see some change in customer base. This is predominantly relating to the corporates, but what we have seen in the first half of this year is because of the U.K. CMA review, we've seen the corporates changing pace a bit and really looking a little bit more inwardly about how they're managing and trying to deal with the CMA review. But we continue to see demand for our products through the corporates. If you look at the marketplace, the really big growth areas are for novel, innovative products. So those are definitely driving growth and commanding higher margins. These are products that absolutely show a differentiation from what's available out there today.
When you look at our peer group companies, the same as us, we're looking to get into those markets, rather than in the area of the market that will always be subject to either price competition or technology advances. So I think we're seeing it's really a really good place to be, attractive long term. And actually, across the board, we're seeing more appetite for M&A of all types. So it's very active M&A, been a very active M&A first six months. Not so much in actual deals done, but in terms of the number of deals that are being discussed and coming to fruition. Over to Chris to give the details on the finances.
Good morning, everyone. Just before I start going through the financial performance, I just thought I'd begin by clarifying the basis of the presentation of the financial results, because you've obviously seen that, you know, that's changed quite significantly versus how we present it normally. And this is really around the split of continuing and discontinued operations. So just to be clear, in terms of the figures on this slide, all of the profit and loss figures are from continuing pharma operations with the comparatives like for like. So we've adjusted out Identicare in both periods. What I've done that hopefully helpful is in the back of this deck, in the last slide of the appendix, is a pro forma P&L for 2023 full year.
Hopefully that helps with one, just seeing what the full year was like last year, and secondly, when we're you know, there's an anchor and a reference point to the consensus forecast that we put into the into the RNS. Just to note, STEM is not discontinued, so the income that we get from the license, which remains the same, so the equity is a non-underlying item. And then the cash conversion you can see on this slide does include Identicare, but there was only two months of trading, so the difference is immaterial, so we'll focus on that one. In terms of headlines for the first half, so Jenny, really pleased to report organic growth of 5%. That's 7% at constant currency. I'll talk a little bit more about FX in a bit.
You can see that's at least in line with the market, based on those top ten animal health company performance, which is about 75% of the market. That's why we've used that reference point. Continued positive progression on gross margins, largely through sales mix. Significant improved levels of cash conversion versus last year. So as I said, we're on track for delivering the full year target of 85%-90%. Jenny noted, you know, clearly transformational change in our balance sheet with about GBP 33 million of cash on the balance sheet, excluding leases. Linked to that funding capacity, you've seen that we've refinanced our RCF post-period end, and that we've now got those facilities out to 31st March 2029. So that all adds all to the firepower we've got for M&A and BD.
And then finally, we've noted that we've seen the continued positive performance we've seen carry on through Q3, as far as we're through that so far, and therefore expecting FY 2024 results to be in line with market expectations. As previously, I'm gonna cover areas in more detail apart from underlying EPS. So we'll just touch on that there, and I'll touch on the effective tax rate while we're here, because there's been some changes to forecast. So in terms of EPS, that's down by around 5% versus prior period, and that's all in the tax. We can see that there's an effective tax rate of 27%. It's a lot higher than last year.
The main reasons for that are the increase in the U.K. tax rate, and also we've seen lower innovation relief in the period. So where we're guiding to on a full year basis is that based on the forecast and assumption we've got around geographic mix of profits by territory, we're expecting the ETR to be broadly in line with what we can see here for the half year. Going forward, we expect that to normalize, and we think our normalized rate will probably be about 23. So that will come down from 25. So just very quickly on this slide. So revenue, again, I'll cover in more detail, but some headlines, so up 5% to GBP 37 million. FX has impacted revenues, as we can see, by around 2%.
I don't know, we expect this variance to be a feature or potentially an increasing feature for full year. GBP/euros kind of just hit the 120 mark. Just to give some guidance on FX impact, every cent movement, GBP/euros, has an impact of around a million on the top line and around point two million on EBITDA. At the half year, we had about a two cent difference on year-on-year, so that's where we're seeing that. We expect FX to be a feature of the full year. In terms of overall growth in revenues, and we go to that, I would say it's broadly 50/50 mixed between price and volume at CER. Volume growth incorporates around a million of new products or recently launched product revenue, and that's predominantly in companion animals.
On gross margins, as I said, we've had a 0.5% improvement there, predominantly driven by sales mix. Really, that's this continuing focus around the kind of larger and higher margin brands. You know, Plaqtiv+ and Daxocox are clearly contributing to that, as is Danilon. Just to touch, we continue to see COGS inflation. Certainly we've actually agreed to take to improve short supply in terms of a couple of key brands. As historically, where possible, we're mitigating this inflation through selective price increases, and we broadly covered that cost inflation in the first half. Our underlying EBITDA up and above last year at 6.6 million. Overheads are up at 8%, and principally around two areas.
So people, in there, I think we guided at the full year that there's some quite significant inflation in certain areas of our market, Spain in particular, which has been government-led. So there's broadly 50/50 in terms of the people increases or inflation, and the rest is investment in particular commercial excellence of supply and then marketing. And we can see some of the benefits of that marketing investment in some of the growth that we've seen in some of the key products like Daxocox and Plaqtiv+ again. Those investment areas continue to be our main focus for the remainder of 2024 through 2025. We're expecting inflation to ease a bit. Therefore, from a people perspective, it'll be more around investments rather than inflation.
Got three slides on revenue performance, so we'll start with companion animals. Again, just to confirm, all of these figures are, have been affected on an adjusted basis, so they're continuing only. So the three-year track record that I've got at the bottom left-hand slide, so they've all been adjusted for the keen people who look at last year. So they're all excluding Identicare. So hopefully, again, you know, this helps with the getting a feel for how this business has performed over the last three years. So we can see revenues are broadly flat. Start with the positive, positives. Jenny's noted Daxocox increase of around 40%, which spans across both our own operations and our international partners. So international partners are our export customers.
If you recall, the export part of our business actually declined last year in terms of Daxocox, so it's pleasing to see that that's come back with our partner, as well as continuing growth in our own operations. If we were to point to why on our own operations, I think the feeling is the success is down to the more internal factors than external factors. I think the market, we haven't seen change. So really, bringing together the sales and marketing operations, I think has really driven you know, sales and marketing excellence and the benefits there. Dental range, so we have Plaqtiv+, and then we have also, we talked about a really large brand of ours called Orozyme, and that's toothpaste. Both of those continue to grow strongly.
Plaqtiv+, obviously higher, as it's, it's still going through its growth curve. Combined dental sales for the period were over three million, so what really kind of, you know, getting some traction now on that dental franchise. Jenny's gonna come on to a bit more detail later about some potential areas of extra investment that we're going to make, notably in relation to the change in our license that we had with STEM on the deal with Dechra. These positive contributions to revenue growth were offset by what we're umbrella-ing as supply disruption, and that's impacted three areas. One is later than expected deliveries to our export customers. Secondly, we've had some out of stocks of certain products in our own operations, notably U.K. and Germany.
We've seen some of the impacts of those unwind during Q3, hence we've seen growth accelerating companion animals, so it is growing versus the kind of flat at the half year. We've also seen an impact from supply in terms of delaying new product launches. So some of those have been later than expected, and actually, some will be into early part of next year now. On production animals, as Jenny said, had a really good first half, so revenue's up 14%. The growth, again, is spread geographically. So as Jenny noted, our own operations are largely around the south, and then in international partners. That growth spread across a number of our larger brands. So Dinalgen is a good example there. And we've also seen some one-off competitor out of stocks benefit.
As a result of that, what we're guiding to is we expect full year growth to be, you know, in the mid-single digits, so we'll see growth softening in the second half of the year. Finally, on equine, so this I mean, for us, this is a small but growing and profitable portfolio with a leading brand, as Jen, Jenny noted, in Danilon. Danilon was, again, one of the key drivers of the growth, but we've also seen some growth across other brands within this part of the business, notably in our fluid range. We're building the Danilon brand outside of the U.K. That's about 90% of the Danilon sales.
So we've seen that we've done some territory expansion across three territories, and we'll start to see the benefit of those coming into next year.
I was just gonna cover off a little bit more about the portfolio. Before I do, I did forget to mention that if you do have any questions, we'll take them at the end. If you raise a hand, we can come to you with questions. So just a reminder on that one. So in terms of where we are with the portfolio, a lot of the work that we've done in the past, we're very comfortable with where that leaves us and where we're moving to. So we have got a mixture in the portfolio, which is, I think, a good thing, because it gives us the balance across the portfolio. So we've got some really mature products with strong brands and differentiation that continue to grow.
Chris mentioned Orozyme, Danilon, we have a product called Dinalgen, and those products continue to be really the mainstay of our existing portfolio. We also have worked very hard on making sure that we have more products in our portfolio that are what we've described as owned and long-term licenses. These are effectively either the products that we own the IP on or licenses that, that actually are evergreen, nobody can take them back. So that's now at about 65% of revenue. I think, you know, it, it's moved from around 50% a few years ago. The other big area for us, similar to our peer companies, is we're, we're moving our portfolio from generic towards novel products.
We're very conscious that we've got some great generic products in our portfolio, and we will continue to support those, but we're very keen to make sure that we're moving to novel products, such as Daxocox, Plaqtiv+, as a larger percent. And the other encouraging thing is that recent launches, so in the last three years, are now accounting for about 10% of revenue, which is an indicator of how we're trying to move forward to gradually grow this business, and compensate for where there may be price competition or technology advance. So 10% of revenue in recent launches.
Just on the right-hand side, there's a bit of a reminder that in this market, particularly in companion animals, you see that the life expectancy is increasing through a lot of the time improvements and advances in medical care for these pets. We have got an increase in pet population, so that's driving the opportunity to value over the lifetime of the pet. We are actively looking at those areas on the right-hand side, dental care, obviously, some of the things around ear infections, stomach upset. We're launching some products in that area next year. Kidney disease, heart disease, thyroid, arthritis. We're very active in those areas that are growth areas, giving us an opportunity.
We are not playing significantly in the parasitology vaccines area, so those of you who are looking at companies in that area, you can see that there, there's quite a lot of movement in that area, but we don't play there. We're not investing R&D. So really, we recognize that our volume growth is being driven by generics, so more pets being treated. The value growth is really being driven by innovative and novel medicines, and within that, things like Daxocox. Okay? Sorry. I was like, "Okay, Chris is driving the slides." Just as if you haven't heard enough about Daxocox and Plaqtiv+, but just making sure that we cover off where we've got to. Really pleased with how this has performed. Daxocox is performing. There are more and more elderly dogs with arthritis.
The prevalence of arthritis is increasing, and we know that the recognition of the opportunity to treat dogs with arthritis is gaining momentum. We have two new indications for Daxocox, on track for 2025 submission, early 2025. So they will be going through the regulatory process next year. We also are actively discussing opportunities to expand the range of indications under discussion. If you think about some of Daxocox's competitors, Daxocox has this great advantage that you give it once a week. Other competitors have a broader range of indications, so we're gradually expanding the range of indications, both in terms of species, but also types of pain that Daxocox can treat.
We got approval just after the half year for two new tablet strengths, which may seem a small addition, but actually, given that the real benefit of Daxocox is this once-weekly simplicity of dose, these two tablet strengths help to ensure that that continues to be simple, so that you can give one tablet instead of multiple tablets, particularly to larger dogs. The regulatory process is continuing into more and more countries globally. So Daxocox, as you know, we focus predominantly on Europe, and with our partner, we're now increasing that. We're getting approvals over the period of time in a lot of other countries, and that work is going on. So that will help to build that Daxocox brand globally.
On the other side, with Plaqtiv++ continuing to see great enthusiasm from our customers, as well as from our sales teams, which is kind of that magic combination. It's also a growing segment. You know, vets and pet owners are realizing that actually dental disease is an important segment. New product development is progressing so that we're working with our partners to add new indications and increase the competitiveness. We are now expanding, similar to the Daxocox piece. We're now expanding internationally with some really exciting opportunities being brought forward in some countries outside of those where we sell directly, and as Chris talked about, we now have the opportunity to maximize Plaqtiv++, the Plaqtiv++ franchise in all sales channels in Europe and the U.K. We're currently recruiting to bring people in with the expertise.
We're also working with an external consultant who's helping to make sure that we launch into new channels with the right capacity and capability, and manage this to ensure that our prime customer, which is the vet, is part of that move, and we continue to grow in the veterinary practice, as well as growing in retail. So we're just getting that balance right.
Okay, just to. I think we've covered off most of the beginning of this slide. So the headline, again, transformational change in the balance sheet. If you look at the cash flow bridge at the bottom, it's about GBP 28 million inflow from Identic are and the equity disposal in STEM. And then, about GBP 4 million of free cash flow. So they're the main drivers of that increase from the prior year. As I said, we've got a really strong increase in cash conversion. Look on the right-hand side, what we can see there is it's in the working capital movement, so just to give a bit of color on that. So firstly, in terms of inventories, we've had an increase in inventory this year.
We guided to this when we were coming into the finals, because we had a very low base to start from, coming into this year. The situation was reversed in 2023, first half, where we actually stock built up to the end of 2022. That continues into creditors. So this is where the main big movement is as well. So we had an increase in the period in creditors. That's really around phasing of purchases of inventory, so quite a lot towards the end of the first half. Again, contrary was prior, where, as I said, we built inventory in Q4 2022 and paid for that in effectively Q1 of 2023.
The other point to note was that we had a change in our IT partner that helps us with calculating and payment of retro discounts in the U.K., 'cause our customers are wholesalers, but we deal directly with the vets, so there was a delay in one month's worth of discounts there, so again, that came through as a kind of one-off in the prior year. As I've said, on target to deliver the 85%-90% cash conversion for the full year. As ever, that really will depend on trading patterns as we go into Q4, and actually, you know, we've talked about some supply disruption, any decisions we may take regarding strategic stock build to improve that surety of supply and support sales into 2025.
So, target ninety, but we'll see where we get to. I've talked about the refinancing. So where we are, is the RCF was increased by about GBP 3 million, from GBP 41 million to GBP 44 million. The acquisition line was repaid, obviously with the cash on the balance sheet. Those facilities run out to March 2029, and for those that are interested, the margin on our facilities actually we've reduced a bit from 1.5% to 1.25% above Euribor.
Okay. So how are we going to spend the money? We haven't made any significant change in the way that we're looking to build. We're active in all of these areas. We've tried to add a table to the right-hand side, constantly moving, but this is how we are looking at our M&A, BD, and NPD strategy. Geographic footprint, we're still focused on Europe, U.S., selected rest of world. Still desperately chasing France. We want a business in France. And these are really, you know, we want to drive additional revenue and EBITDA today, et cetera. Increasing the attractiveness for us to in-license products, particularly when we have a fuller European footprint, but also the value of global deals.
So just on the right-hand side, you can see that we've got one NBO in an increased geography, and we've got three early discussions going on. And those are companies who fit that bill. They have revenue and EBITDA, and they give us an opportunity to build our footprint. So those conversations are ongoing. In the acquire licensed brands or companies, we're still talking to large company tail brands, looking at. We're not talking to tail brands, but we're talking to companies about their tail brands. Slow process, to be honest, but we're also looking at brands in the U.S. or rest of the world that are not yet in Europe. Companies that build scale in existing markets. I think we've said previously, Germany and Italy, we're very active.
We've actually had some NBO and some really very active in Europe, and we'll continue to have that building scale, and also companies who have products that strengthen the existing portfolio. So in that, you know, three, sorry, six in-depth discussions in that blue box on the right-hand side, those are a mixture of companies who have a great lead brand that we'll be launching in the next sort of one to three years. And sometimes the company is for sale as well. So it really is sometimes brands, sometimes companies, sometimes, depends on the negotiation, could be both. And we've got one of those in early discussion. And then when we look at in-licensing early stage assets, as you know, we've got the VHH antibodies from that we in-licensed from a Dutch company, Orthros.
And those, we see as really, they're high risk, because they're really early, but they have a potential to create game-changing growth trajectory. And so we will continue to have a look at those, being very careful about that high risk, how much money we're spending. And so at any one time, we're always talking to people about where the market's going, what the opportunities might be, and I think we're learning a lot about that area at the moment. So we have one in-depth discussion. Actually, that's. That one isn't particularly high risk, but it is something that will need some development and pipeline support. So, and then in our new product development team, we have six products that are in launch planning for 2025.
There's a couple of new ones, there's a couple of line extensions, and there's a couple of new indications, so we are very actively focused on getting our launch planning right. Chris mentioned that some of the negatives, or the slowdown that we saw in the first half, was actually around new products not launching on time, and I think that's a bit of a mix about us needing to build the capability to do it right, versus some challenges around supply for some of these new products, so we're really focused, and it's a key area for us, is getting these, getting the launch excellence just as a repetitive, effective process.
So we've got six products that we're looking at, and we're discussing four that are a mix, two of each, of products that we could bring in that could launch in the next couple of years. But also products that we are looking at in terms of line extensions. And, you know, I mentioned on Daxocox, we're looking at some new opportunities there. So really active. These are the sort of today's snapshot of the activity that's going on here. Beyond that, there's a lot of companies that we keep in contact with, and we're very actively engaged around the world on this particular pillar of our strategy. So we're continuing to also build that balanced pipeline. I've said a bit about what we're doing there.
We're looking for new products that meet an established need with a high probability of success. We're looking at extending existing products, and we're looking at novel products. The really key point here is that we are trying to build that balance. We have some products that we can launch both with a high probability of success, but also soon, high probability of success and over the next five years. Extending existing products where the risk is low, because we know they're working, and so getting the balance of that low-risk piece, and then just getting that balance right of products that are really novel and could be fundamentally game-changing. That's the work that we're doing. In fact, this week, we're doing a portfolio prioritization session just to make sure that we have that balance of risk and opportunity.
Because now that we've got a strong base, really, this is about the thing that is going to continue to drive that ongoing, predictable growth in our portfolio, and then start to really fundamentally change the trajectory if we can develop some of the novel products. Well, there's not much to say, really, on the VHH antibody development program. It is ongoing. I mentioned that we're, we have some preclinical work that is continuing to go on. This is looking at, you know, how the product works in terms of pharmacokinetics, pharmacodynamics, how you make it, all the fundamental preclinical work that needs to go on to build the regulatory file, and that's all ongoing. We've also over the summer initiated some clinical studies, particularly in the equine indications. No news for you today.
We're looking at where we go next with that, but that really is an important step forward for us, so we've got the clinical equine studies going on, and we're looking at other indications and other species in companion animal, production animal, and in equine, so this partnership is really exciting. When you look at what our peer group companies are doing, we're doing something very similar, and this is our kind of punt for the future.
Okay, just conscious that this slide is largely a repeat of what we showed in April, so I won't go through everything on the left-hand side. I think just to pull out on organic growth, so again, the debt and then the equity capacity we have, you know, may have as reserved from RCF. This is really around focusing on accretive growth. Jenny's given you some examples there. We do maintain our target of up to two times EBITDA, so we do feel comfortable of going to that level for the right deal with the right profitability and cash generation. On new product development, again, you know, cash conversion, really important, because that's the funding for our pipeline.
We're guiding to, you know, we really want to increase the investment, and then, you know, that really, the word balance, I think as you heard Jenny talk about a few times. So again, capital allocation, if we go down into more detail, we need to work out, kind of, off that 5%, you know, maybe a bit more, how do we allocate between, you know, high risk, you know, high reward, et cetera, and low risk, low reward. And again, you know, we hope to perhaps give some more details in due course. On the dividends, you've seen, you know, we've announced or declared a 2p interim, so that's the same as the prior year, so we'll continue to pay a dividend. The policy is unchanged.
I think, you know, the right-hand side is just showing that we paid GBP 12 million out in the last five years, including the final that was paid post-year end. Again, I may have mentioned before that that's in the context of GBP20 million in reduction in debt as well, so the business is continuing to generate healthy levels of free cash. At the bottom, you know, we've got the GBP 33 million on the balance sheet. We've now got the RCF out to March 2029. So GBP 50 million is up to 2x leverage. On our base business, we can leverage obviously what we acquire, so that's a minimum level of capacity that we feel we have for organic growth, and, you know, in licensing late stage.
That was a pretty quick run through where we are. You know, we're really pleased with the first half. It's great to see production animal and equine continuing to grow, and really, that for the existing portfolio shows balance and, you know, we have an opportunity to continue that positive momentum. Daxocox has got some proactive, you know, really strong double-digit growth, and that sales marketing excellence is just really underpinning that performance, and it gives us great confidence for when we bring new products in, whether we bring in licensed products, because we're really building a team who know how to sell effectively to our veterinary customers. The increase in underlying EBITDA reflects improving gross margins, and we will continue to invest.
This is a business that we need to make sure that we've got the right skills and the right people. Identicare and STEM obviously increases our deal-making capacity, and we're making the most of that. That is really active, and with Ed's support, it has really ramped up. VHH going well. It's early stage, but we continue to be excited about what those might deliver in the long term. And, you know, that encouraging first half performance, positive start to the second half, as Chris mentioned, we've seen that momentum continue in July and August and September. So we fully anticipate our year-end results will be in line with market expectations. So, that's the sort of summary. Happy to take questions. I'm just trying to see... I think, Christian, you were very quick there. Use the control button.
Christian, do I need to do anything to let you in there?
Yeah.
Just wondering how I can unmute you. Sorry.
If I am allowed to talk, let's try this.
Yeah.
Christian?
I've gone on mute, but is it coming out? There you go.
Christian, can we, can we hear you? Oh.
Can you?
Yes, I can now.
Got it.
Yeah, brilliant.
Okay, it's actually James Oswald here from Peel Hunt.
Hi, James.
But I think Christian has also raised his hand. I'll happily fire away. I guess, well, on the first half, on the Plaqtiv+ and Daxocox line extensions, I guess, has there been a bit of vet feedback there, and what you're kind of hearing in the market, or is there a bit of a product refresh? I guess how much weight or should we be putting on those when they come through? My first question.
Yeah, in terms of how much weight, I can't give you numbers, but, what we see is that, for a vet, it's much simpler to be able to, for Plaqtiv+, for example, one of the things they love about Plaqtiv+ is that we already have, wipes, water additives, et cetera, et cetera. And they like having a range. So in terms of quantifying exactly how much uplift that will give us, it's really hard, but we know from our vet feedback that they really like having the range. One of the things that we're launching, next year will be chews, which we know are a really popular dental, a way of giving dental products. So we know that that fits.
On Daxocox, it's really interesting because what we've discovered about Daxocox is the decision to prescribe has quite a lot of inertia around it. And because vets are treating all sorts of different sorts of pain, when they see a dog present with osteoarthritis, their habit is to use a non-steroidal that they use across the board with pain. So what we know from vets is that the more, the broader the opportunity to use the product, the better. So that's why the new indications on Daxocox will really help to build the brand, because it addresses that inertia and habit in a vet.
So they don't have to think, "Oh, this is a particular type of dog, or it's osteoarthritis pain." Hopefully, in the future, they think, "Oh, this dog's in joint pain, postoperative pain, et cetera." And really having a once-weekly formulation will be the driver of that then, rather than the vet having to remember what sort of pain they're treating. So that, that's the feedback that we get. So both of them are very aligned to our customer feedback.
Okay, great. That's really helpful. And then, I guess, just on seeing a bit of a shift, I guess, towards OTC in the veterinary market, I don't know if this is a U.K. thing, based on the new prescription rules that came in, I guess, it was about a year ago now. I'd just be interested to hear what you're seeing in the market from that perspective, but also, perhaps, is there opportunity for you guys inorganically to sort of tap into that OTC growth?
Yeah, so I'll just pick up the second point first. We keep an eye out when we're doing our BD and M&A projects. We recognize that the OTC market is strong, and it's growing. It's also phenomenally competitive, and so whereas in the veterinary market, you have that benefit of really being able to show technical advance and, you know, opportunity there, in the OTC market, it's a lot of brand building, which we all know is an expensive occupation, so we're keeping an eye on it. We are talking to some OTC businesses, but what we're really looking at is the channel, and so, working with channels that are, focused and so not trying to splash into Pets at Home and everywhere as a leading brand.
We're doing it in a kind of managed way, but we, it is included in our assessments of BD and M&A opportunities. We are looking. In the U.K., you do see a lot of growth in the OTC business, but a huge amount of competition. We just need to work that one out quite carefully.
Okay, that's helpful. And then the final one, just on the equine market, obviously, Danilon seems to be improving quite nicely. You know, are we seeing more of an opportunity there for you guys now, but also within the R&D pipeline. Do you see an opportunity to accelerate there, given the equine market seems to be growing quite well?
Yes, definitely. And I think out of the table that I showed, I think there's probably two-thirds are in companion animal and a third in equine, and some of them are in both companion animal and equine. So as our understanding, capability, and our connection with the vets is improving, equine vets, and certainly thinking about the future of the VHH antibodies, equine is becoming a more important part for us, I think. Also, interestingly, when you look at some of the large pig companies, they are less interested in equine. So it's a smaller customer group, it's a more focused customer group, and also there's less people pushing in that market. So yeah, it's. I think it's a really exciting area. But I'll obviously sort of look different.
Very helpful. Thank you.
All right.
Back in the queue.
Yeah, thanks. And Seb, you're also got a hand up. Don't know how you get the magic to let Seb speak. Oh, yes. Yep, Seb?
Hi there. Can you hear me now?
Yeah. Yeah.
Yeah. Hi, Seb.
Good. Thank you, and good morning. Thank you for taking my questions. So just a couple of questions then, if I may. First of all, it's just looking at the percentage of sales from new products. I think you talked about kind of 10% of sales coming from new products. What, what do you think you can get that to, once you've kind of deployed your capital, in terms of kind of new, new acquisitions and line extensions? What should we be thinking as a longer term target for that?
All right. You know, it's a great question, because for the last few years, we've been aiming for 10%, so we've got a bit of that. Oh, we got there, now what? So, to be honest, I haven't got a number in my head. I'm going to look at Chris and see if he's got a number in his head.
Yeah. I would suggest probably something like the 20% mark.
Yeah
... something like that, because we know, particularly if you're starting to see some of these game-changing things, come through. So, yes, as Jenny said, we've reached our kind of early target, and I think we, thinking more about from there. So-
Roughly 20.
Roughly 20.
Okay. And then, another question, just so drilling into the, kind of the numbers a little bit. I was looking at Spain, and revenues in Spain are down. I just wondered if you could help me understand what, what's been driving that. Is that where you've had some of the international phasing, or is there something else at play in Spain?
No, Spain, so there's a couple of things going on in Spain. So in companion animals, there's quite a kind of mature portfolio there. One of our bigger brands has come up against novel competition. We saw this last year, so there's some decline there in terms of that product. And then in production animals, the antibiotic portfolio is about half, and this is really around in poultry. It's around the number of pathology incidents. So we've kind of seen a big change there. So there's a bit in companion and a bit in production.
Okay, and then last question for me then is just, I mean, generally, you know, production animals, that looked like a really kind of good period. You know, agricultural markets in Europe have been pretty strong over the last couple of years, and we do know, obviously, that they're cyclical, so I'm wondering if you're starting to see any signs of things changing in, in those European markets at all at this stage?
If you want to.
So I-
I'm happy to, but go.
So I think in terms of changes, I think the answer is that yes, I think it's been. It may change like antibiotic production, et cetera, but I think it starts to feel like things are changing. I think Jenny mentioned that, you know, we're having a good look at the production animal portfolio now in terms of how we build on that. That's been a cash cow for us, because the margins have, in my view, are really good for production animals.
So, I think we're trying to get ahead of the curve really, in terms of how that market evolves.
Yeah. No, I was gonna say, I was gonna say the same. I think it's, it's becoming a different market because, you know, from that sort of widespread, give every, give every production animal a vaccine, antiparasitic, et cetera, et cetera, we're starting to see people change and being a bit more personalized, you know, and treating the animals that need treating, but not the whole flocks, et cetera. It is changing, and we're trying to make the most of the opportunities that that might create. So, and we've always said with production animal, that we'd invest in something that was a bit more niche. So we're not, we're not gonna compete with the guys who have parasit- antiparasitics, that, you know, treat every, every possible cow or sheep or chicken, just because that's such a big investment in R&D.
Things like Dinalgen, which is very active in this production animal, which is about pain, things like that, we're very, very keen to continue to invest in.
Yep. Brilliant, thanks. I'll get back in the queue.
That's all right.
Thanks, Seb.
Is that Christian or James? Is that you back in the queue there? You got... Or have we just not lost your hand?
I think it's Christian with James.
Yeah.
That's James.
James.
So I think we're all done.
Are we done? Anyone else for anything else? I think you know us well enough to know how to get hold of us if you need to, but hopefully, that's been helpful, and thank you very much. Oh, we've got-
Oh, Christian.
Christian or James again.
Here we go. One minute... Christian?
Oh, hi. Hi, guys.
Hi.
Yeah. Hi. Sorry, Dennis. What's going on? We are two separate people.
It's because I'm dealing with the technology, Christian, that's what's going on. Always.
You have a helpful chart in terms of the or table in terms of the opportunities on M&A BD. I suppose the obvious question is: so how would. You know, if you went back a year ago, you know, you've kind of got 20-odd assets there, or other external assets there, to exclude your own pipeline, I guess. Yeah, how would that have looked about a year ago, just to get a sense for the maybe increasing level of progress on that front? And then, also, the usual question on prices of assets. Has anything changed there, or what's the expectation over the next twelve months?
Yeah. So in terms of that, the first question, I would say that most of them, if you drop below early discussion, so we have lots of information finding, you know, about 50% of them would've been, you know, dreams and wishes. Whereas now, actually, we've been able to create those as proper discussions. So I think you could probably reduce that, things that make it to the chart, by about 50%. So it's definitely, it feels, and it is, much more active in terms of proper discussions. You know, we might have had lots of CDAs in place, but now we're actually analyzing the opportunity, the cost, the fit in the portfolio, much... on a much broader basis. So that estimate, but I would say it's probably improved by about 50%.
Sorry, and is that, is that a reflection, or is that a reflection, maybe, of your, you know, your, your balance sheet strength, and now you've become seen as a more, you know, credible buyer here, player, partner, or, or, or anything else, particularly on that front?
Yeah, well, certainly people have noted the balance sheet and have. It probably links to your next question, which was about values. But people have noted the balance sheet and said, "Oh, yeah, you have got money to spend. You're real, and you're already in the process," if there is a process. I think it's partly that. I think it's also partly the time it takes to get close enough to companies and to understand what's out there. So we made the changes and changed our own capacity for BD and M&A, probably about fifteen months ago. And so I think, you know, last year, it was taking us time to build that database of all the opportunities to really get much better at quickly assessing and either discounting or moving into the next stage.
So we've done quite a lot of work around that to make sure that the process is in place, the finance support is in place, et cetera. So I think it's a mixture, but I think it's mostly our capacity to analyze them and get them to the next point. In terms of, of-
Yeah
... what people are wanting, frankly, it's still quite-
Yeah.
Right.
So obviously, everything that we're looking at is in the private market. I would say a couple of things. One is, I think prices have remained robust and strong. We've obviously got a mixture of, or had a mixture of things where we're in exclusive negotiations. There's some where we're in processes. I think from what we can see and understand from processes, it feels like private equity is there, and they've got capital to deploy. So I think that's really underpinning some strength of pricing in businesses where they're operating with high revenue growth, high EBITDA margins, you know, good levels-
... of free cash flow. So to kind of give you a broad range, Christian, you know, anything between 10x and 20 x
Yeah
... you know, it’s probably the ra-, and that will depend on, you know, whether it’s acquired, is it companion, is it in Europe, is it-
OTC
... outside of Europe, whether it's OTCs. Yeah, again, we know we've talked about, you know, that that seems to be a growing market and more focused, so, you know, strong. And clearly, you know, what they do versus what listed multiples do don't go hand in hand, if that makes sense. So hopefully that helps.
Yeah. I guess any crystal ball gazing in terms of whether that changes, maybe, you know, PE. Any signs that maybe PE eases back a bit or anything there?
No, I think there's inevitably a real mix of things that comes to market. There's always the easy ones to say no to, but I'd say the really good businesses are going to come out and above multiples because there's not, you know, there's not a dearth of them out there, really. So I can't see anything kind of changing the market.
No, because I think we expected them to.
You know, as the whole sort of market got a bit tighter and everything, we thought we'd see... But this, in the first half of this year, we've seen some very substantial multiples paid for things that, you know, we were looking at, and our valuation was much lower. So there's still money out there, definitely. We thought it would change.
Okay. No, thank you very much.
Perfect.
Cool. I haven't got anybody else desperate to ask questions, so if that's the case, I shall thank you all very much for your attention and, look forward to speaking to you after the finals.
Thanks, everyone.
Thanks, everyone.