Animalcare Group plc Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time via the Q&A tab situated on the right-hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Jennifer Winter, CEO. Good afternoon.
Good afternoon, and thank you very much. You're very welcome to our Interim Results 2025 Presentation. You have myself and Chris Brewster. I know that we've met several of you previously and looking forward to taking you through the short presentation and answering any questions you may have. For those of you who haven't listened to one of our presentations before and who aren't familiar with us, we're an international veterinary pharmaceuticals company. The majority of our products are prescription products, so they're either used by the vet in the vet's surgery, so anesthesia, analgesic, anesthetics, etc. They're prescribed to a pet owner, so the vet writes a prescription. Very often, we'll sell the product based on that prescription. In some of our products, they don't need a prescription, but the vet will send the pet owner home with a product.
We operate in all three segments of the veterinary pharmaceuticals market: companion animals, so dogs and cats mainly, and that's the biggest part of our business, as you can see on the right-hand side. That's growing at about 4%. Difficult to get very accurate data, but around 4%. Equine is a strong part of our business. You can see equine and the other segment, production animals, are about equal in size now. This has been significantly strengthened in the last year by the acquisition of an Australia, New Zealand, and UAE Asia-Pac business called Randlab. We also have a very strong, large product within our existing portfolio called Danilon. We see equine growing healthily at around that 8%, and that's driven by the equine business being slightly less competitive, but also the willingness to pay is higher and the money spent on horses is more significant.
Difficult to get exact data on production animal market growth. We think this is growing, but probably at a lower rate than the other two. Our production animal business is predominantly in southern Europe, so Spain, Italy, and Portugal. That's really for some historical reasons. Our equine portfolio is predominantly in Australia, New Zealand, UAE, and Asia-Pacific, as well as quite a significant business in the U.K. Companion animals is everywhere, excluding Australia, New Zealand, UAE, Asia-Pac part. A very important part of our success is because we have very strong relationships with the vet. They're our customer, and we have good relationships. Many of our representatives have been calling on that customer for a long time. They're talking about the product. The decision for the vet is usually based on efficacy, safety, relationship with the customer, and price comes a bit further down the track.
On the right-hand side, you can see the multi-stranded growth strategy. Those of you who have met us before know that we've always focused on these three strands. Firstly, making sure our organic business is growing and healthy. Secondly, that we are looking at acquisitions, licensing, development to build that footprint, to build scale. Thirdly, looking for new product development. We'll talk about all of those three strands as we move forward. Looking at our portfolio, this is the top. On the right-hand side, you've got the top 10 products in our existing portfolio. We, over the years, have been making that a stronger and stronger portfolio predominantly in two ways. One of which is we used to have products that we distributed for somebody else. They were always inherently a little bit more risky because the owner of them could take them back. They manufactured them.
We had less control over the supply chain. We're moving that to more products that we either have a license or we own the intellectual property. Moving in that direction is really a very positive step forward. It gives us more sustainability and more certainty. We're also moving from what was historically, five years ago, a more generic portfolio. That's something that hasn't got intellectual property or a significant differentiator. We're moving into more novel products that have something about them that means that nobody else has the same thing. On the right-hand side, you can see that our portfolio in the top 10, we've got some really important products that are still growing very healthily. This is a mix of some older products and some newer products. You can see at number five, for example, that's the leading product from Randlab coming in now to our top 10.
It's why we haven't got comparative data for the first half because we've only owned it since January. This is an important move forward. You can see the two really critical products for us: Daxocox at number six and Plaqtiv at number nine. Those are important for us because they're relatively new launches. They're on a significant growth trajectory. They're high margin and they're ours. Those are two of our important products. We would expect those to continue to move up through the top 10 towards the top. Also important when we look at the top 10 is that we recognize that Orozyme, Danilon, Aqupharm, and Dinalgen are at the top. Those products are mature products, but they're really super strong brands. They don't really have a great deal of competition for Orozyme and Danilon. For Aqupharm, this is the water and the fluid that they use for injection.
There's a relatively large amount of competition around there. Globally, there's been some supply channel challenges and people going out of stock, coming back in, which is why you just see a small decline there, which we are addressing through a new supply arrangement, etc. Moving down, the only other products I'll just mention because you can see the decline is Saponver, Saponver Plus. This is a product that's nominally seasonal. Unfortunately, due to a bit of a supply quality issue, we were late in delivery. You miss that a bit of that seasonal piece. We're pretty confident that that will come back. For us, having that really strong top 10 where we focus and we're driving growth is super important. It accounts for about 40% of the sales. The top 20 accounts for 60%. The top 40 accounts for 80%.
You can see that this 40% of business is really important for us. What we're really pleased about in the half year was that whilst we were focused on the strategic execution, bringing Randlab into the group, making sure that we drove the existing product portfolio, looking at some more opportunities. You may have seen that we bought a stake in an Australian companion animal business called InVetro. We've also done some licensing deals and we bought the rights to our own antibody. We've had quite significant strategic progress. Importantly, the financial performance has continued to be strong with revenue up 18.3%. That for us is really important to get the balance between those two areas. Chris is going to talk a little bit more about the financial performance, so I won't dwell on that.
I'm surprised to say that we're pleased that we had the right balance between those two areas. A few comments about Randlab. We completed this deal on January 3rd. Our expectation was that we'd be sitting here talking about progressive integration, what we'd learned, maybe things that we'd had to address. Actually, what we're sitting here doing is looking at a growth of 14%, which is excellent. We're really pleased with that. Also, a business that was able to pivot relatively quickly from a very strong controlling founder to being part of the Animalcare Group . We're really pleased about that. Our discussions with the team at Randlab now are much more about growth opportunities, future growth, how can we drive the business differently.
We're already looking at three main areas, one of which is we brought in an export manager who's doing a super job of professionalizing some of the export that was going on previously, but was a little bit of a second thought. She's already up and running, looking at Japan, which is a big market, and other countries around Asia-Pac. That's been really good. She's paying back already very quickly to being a positive contributor. Secondly, we're strengthening our UAE GCC function. There's been a small footprint there, but the opportunity is very significant. We've actually strengthened that with a new leader in there. The third one is just literally in Australia, we recognized that there was an opportunity by bringing one more sales team member in to really drive that growth, particularly in New South Wales, actually, the state that Sydney's in. We're delighted about that.
It's really moving forward. In terms of the future opportunities, we're still working on some of these. Most of them involve regulatory filings, so it takes a little bit longer. Looking at some products that we have in Europe that we can take into the Australia, New Zealand business for equines and some of the business that's in Australia, New Zealand, how we can bring it to Europe. We've already done one on a special license, but we're still looking at that. We're also tapping into a lot of the equine experience. When we talk about pipeline, you'll see that we've got some products that are in the equine area. There's some superb expertise, actually, in the Randlab business that we've been tapping into. That's been very helpful to get a global view and for the development.
I'm going to hand over to Chris at that point to go through the financial review.
Thanks, Jenny. Good afternoon, everyone. I'm just going to start on this slide, which is an overall summary of the financial performance. As you can see clearly on here, particularly on the P&L KPIs, the significant contribution from Randlab, I think what's pleasing for us is that the half year gives us the first opportunity to demonstrate all the value that we saw at the time of the deal when we finished that in January. I'll come on to more details on each of those. You can see our margin, so the accretion there is largely driven by Randlab. Just to give you a feel, the Randlab portfolio is at 73% gross margin. That's exactly in line with the expectations that we had at the time of the deal. A really profitable equine portfolio at gross margin level. You can see that translating into EBITDA.
The EBITDA delivery of Randlab, again, in line with expectations, was at 47%. That actually is better than we expected on the basis that we had accelerated some investment into the business. I think, as Jenny said, we quickly moved from integration into looking at opportunities for growth with the Senior Management Team over there. We've done some investment, accelerated some investment in the comparative footprint, both in Australia and from an export basis. Whilst there's a lot of, rightly, a lot of focus on Randlab, we'll come on to this, the underpinning of all of this is obviously the continuing performance of our existing operations at Animalcare . We'll see that that's continued to grow steadily from an organic perspective, notwithstanding a couple of headwinds that I'll come on to. Finally, on cash conversion, we're at 70% at the half-year stage.
We have a target of 80%, and we're really confident that we're going to hit that for the full year based on where we are at the half-year. I'm going to use this slide just to touch on a few things from an organic perspective. If we set the scene for Animalcare , we've always targeted organic growth around market, which, you know, from Jenny's slides earlier, you can see that they're around 4%- 5% market growth. We're around 1% organic growth, and there's a couple of reasons for that. You can see, firstly, about 1% has been lost on translation effects. As a reminder, around 75% of our sales are in euros, excluding Randlab, and the strong sterling's had an adverse impact on that.
You'll have seen at the trading update, but also in the finals, that we've mentioned a particular circumstance and situation around Conofite, which I'll give you the impact and then give you some background. At the half-year, Conofite's impacted sales in Spain by around EUR 1 million. That's around 3% organic growth from last year. It's quite a big product in Spain. The sales last year were quite heavily weighted to the first half, about 70/30, so the impact's more marked first half than second half. The reason why we've been impacted is that in Spain, they've had an electronic prescription system called Presvet that's been operating in production animals, and the authorities had to put that in place across companion animals by 2030. They decided to do that from January 1st` this year with very, very little notice.
Those kinds of guidelines are really targeted at standard mydriatics, and they give a classification of A to D. A's are the ones that are really hard to prescribe for obvious reasons, and D's more freely to prescribe. Conofite, that's a topical product, where we've seen similar things put in place across other countries, it's been diagnosed by determinism as a D. We've gone in at B for unknown reasons. Where we are now and where we've been since the start is that our team and lots of our other peer groups have been lobbying the two authorities, the Ministry of Agriculture and the Veterinary Association, to change that classification. Where we are today versus the half-year, I think, is we're more confident of a resolution.
We unfortunately don't have a timing of that resolution, but our best guess at the moment is that we're hoping that Conofite sales will resume at a normal level, probably from the beginning of next year. On gross margins, we talked about Randlab's very high margin portfolio. On a like-for-like basis, we're about 1% down year- on- year. That's around 50% FX, again, the GBP euro impact. There is a net cost inflation in production animals largely. Production animals have a higher percentage of products on distribution. Those products are less in our control in terms of cost of goods. We have some significant inflation there. The price increases are quite static in terms of when they're enacted. They're in Spain from the 1st of April, so hopefully we'll be catching up some of that price increase during the course of the year.
On EBITDA, we said that Animalcare is broadly in line with last year. There's a little bit of the revenue and margin mix that I've just talked about in that EBITDA, and you can see that the increase in SG&A cost is very small. It's about GBP 200,000. We've got a very well-controlled cost base, as always, and we continue to invest in that in people. On EPS, a couple of things to point out here as to the reasons why that's a much bigger increase than EBITDA. The first is on finance income, so that's unrealized foreign exchange gains on intercompanys. Again, there's a GBP euro at play here. We'll see where that gets to at the year end, so that will probably move in line with FX rates. The one that's locked in, so the benefit that's locked in, is in the tax.
Very briefly, we've been operating for years with quite significant losses in our Belgium entity that we've not been able to unlock. We've structured the Randlab deal to be able to unlock that because we've got financing for structuring and finance income into Belgium. We've been able to unlock those losses, which is great news. My summary for the full year is that I think EPS will be higher than EBITDA growth, but probably a little bit less because of that effect. Coming on to an overview of the product categories. Jenny's touched on a few of these brands. I'll give a counter to her on here. On companion animals, revenue is up about 2%. We mentioned on here Daxocox and the dental range. Jenny's going to come on to a bit more detail about what the future looks like for those because we're really pleased with the historical growth.
Can everyone see slide 10? Yes, we'll come on. Really pleased with Daxocox and dental. I think there's a long runway for them going forward. We talked about Conofite. Production animals, this part of the business was up around 14% at the half year last year. The two reasons for that were in our export business. It's very led by big one-off orders. There was a positive phasing of orders in the first half of last year. For those that followed the results last year, we also had a competitor out of stock, and that was about GBP 500,000. Production animals has normalized to the kind of low single-digit growth that we've talked about. Just on production animals, because we sometimes get asked questions about whether this is going to be a continuing part of the business. The answer is yes, for a few reasons, really.
The gross margin profile for a production animal portfolio is strong. Typically, compared to companion animals, the cost to serve is less. It has good EBITDA delivery, good cash generation, and obviously the cash generation is underpinning. We'll come on to it, the capital allocation, particularly around the R&D investment. On equine, you can see the big increase in sales there from Randlab. Equine is now about 23% of sales, by far our most profitable portfolio, which we expect to grow. That's both across Randlab and also on the Animalcare side, particularly with our keeper on Danilon. From a margin profile here, the organic margins actually increase, and that's centered around Danilon. Really pleased with that overall portfolio. On this generation, at the right-hand table, we can see the cash conversion calculation, which gets us to that 71%.
The balance of that between Animalcare and Randlab is broadly the same, so both are around that mark. From an Animalcare perspective, we tend to have a lower first half cash conversion than second half, so that's in line with expectations. From a Randlab perspective, at the time of the deal, we were targeting around 70%-75%, so that's in line with expectations as well. Not only has Randlab had a really good, big contribution, stiff contribution from a P&L perspective, it's scaled the operating cash flows significantly. What that's led to is an adjusted free cash flow of GBP 4.3 million. The reason I've called it adjusted is that there's a million of acquisition expenses that I've taken out of here. All the acquisition costs for Randlab, from a cash perspective, were paid in the first half, and therefore, that's why we've got those coming through this year.
That adjusted cash flow is around a million higher than last year. Really pleased with the free cash generation. On that free cash flow, you can see in the orange box, there's CapEx, capital expenditure. We'll come on a lot more to what the future is going to look like from a pipeline perspective. Just to say there that capital expenditure was lower than we expected at the half year. The Swedish deal and acquisition of the NGF antibodies program from author was delayed than expected. We're expecting that to get up to somewhere towards the run rate of 5% of revenues, probably about GBP 3.5 million at the full year. Finally, on the balance sheet, for those that followed the Randlab acquisition, you'll have seen that we raised equity, GBP 20 million of equity at the time.
That was purposeful to leave this balance sheet really strong in terms of giving us headroom and more firepower for M&A. We'll come on to that. We're 0.7 leaving now. We generally kind of look at a 2x leverage cap at the top of that. Therefore, when we come on to the next slide, we can see at the bottom that we think we've got around GBP 20 million-GBP 25 million of firepower for M&A. We'll come on to further details later on. On capital allocation, this slide's not changed. I think the key message hasn't changed, but to reiterate, we are very fortunate. You can see from the right-hand side that our existing business was very cash generative. I've said with Randlab that scaled.
We're really confident about the history of both businesses and the future of both businesses, which means we can both continue our M&A journey, which is debt funded largely, with some equity if we need, and then increase significantly the R&D allocation. As a reminder, in the past, we've probably been around the 2%- 3% mark. We're saying around the 5% + mark. The benchmark in animal health is probably about 8%- 12%. We've got some room to grow the investment there. Just to touch on the dividend, the dividend's up 10%. You can see the EPS growth was far higher. I think really the key message here is that we are prioritizing investment, both from an organic and organic as well as product development. We will still be paying a dividend, but obviously, that is going to be, it's not a progressive dividend.
Therefore, it will move in line with investment profiles rather than earnings. Just a final point, which is an accounting point. I'll try not to boil for too long. Our capital allocation in terms of R&D has in the past been largely treated as development, so that's going on to the balance sheet and being amortized. Going forward, particularly for the NGF antibodies program on Swedish, a certain amount of that will be going through the P&L because it's research, because they're early stage. I think there's a question later on about EPS growth, and it's looking a little sluggish. Let me just pick that up now. The forecast before we signed up the two deals was showing EPS growth in double digits. With the investment in R&D, I think they're roughly averaging about GBP 1.5 million a year.
Yes, that's come down next year and the year after to more single digits, but it's really the investment in R&D that's moved those EPS figures. It's not the underlying scope of the business, and we haven't adjusted any forecast growth rate. Okay, I'll hand back to Jenny.
Thanks very much, Chris. Just a reminder that these are the three pillars of our strategy. What I'm going to do now is take you through each one individually. I've got an eye on the questions, and hopefully, we'll be able to pick some of these up as we go through as well, particularly around the pipeline. Chris, sorry, I've flicked through the questions, which is what moved your slides. That was me. I hold my hand up. Sorry about that. Inorganic growth means our existing portfolio, those top 10 + the others. I noticed there was a question about, you know, the growth was about 1.3%. You know, why was that given that the top 10 are growing? Clearly, at the lower end of that, there are products that come out, and Chris has talked about one product in particular, Conofite, which was driving that.
Moving forward, we see there's some really good opportunities for organic growth. In terms of inorganic growth, I'm going to talk a little bit about the plan. We won't give you any detail on individual acquisitions. You'll get the detail as soon as we actually have anything that's real and signed. I'll talk to you a little bit about how we intend to spend that GBP 20 million-GBP 25 million firepower that Chris talked about. Thirdly, we'll come on to the new product development piece. I'm going to take each of those in turn and talk a little bit about some of the drivers that we see in those areas. I talked in the top 10 about these two products, Daxocox and Plaqtiv.
We're going to continue to drive the other products in the top of our portfolio and make sure that they're properly resourced and continue to grow at those significant rates. These are two that have a lot of opportunity and a lot of runway. A few words about what we're going to do here. If you look at Daxocox, we've launched two new tablet strengths in the first half. That's really important because the whole positioning of Daxocox is about simplicity and compliance and ease of use. It's once weekly for dogs with osteoarthritis at the moment. Having larger dogs having to take multiple tablets wasn't a good plan. Now we've launched those tablets so we can continue to build the brand as the simple, convenient way of managing your dog's pain. The second thing, we have EU approval now for perioperative pain.
Really important because the vet sees a dog in pain and says the dog's in pain, so prescribe something for pain. When we only had the license for osteoarthritis, it was this one specific type of pain. Whereas now, for more types of pain, the vet can reach for Daxocox, which is why that's really important. We're excited about that. We're going through the launch process now. Thirdly, we're starting to see approvals come through as part of our partnership with Virbac, the French pharmaceutical company. We have an approval in Japan, which is a significant market. We're looking forward to Virbac commercializing Daxocox in all those other territories. Half-on revenue growth, 39%. You can see the three-year CAGR growth at 30%. We would expect it to continue at that sort of rate. Looking forward, we're also looking to see whether we can get an approval in the U.S.
for the perioperative pain indication. That could double the opportunity for Daxocox. We will continue through our Virbac alliance and partnership to expand elsewhere. On Plaqtiv, the two main drivers, one is we're also expanding the countries where we sell Plaqtiv through distribution agreements. We've got a license now in Australia to sell it, and that will be sold through our partner, InVetro. Looking ahead, the most exciting thing we're doing with Plaqtiv is that we have the rights for the retail channel as well as the vet channel. From 2026, we will start selling Plaqtiv and Orozyme, which was the number one brand, through the retail channel. Carefully monitored and measured approach, working with some experts in this field. We're looking forward to how well that dental franchise can do on a digital platform, digital veterinary platform. That's what's really important.
Those are the two big things that are driving Daxocox and Plaqtiv. The other big thing that's driving these products, and we've talked to many of you about our investment in commercial excellence over the years, which we will continue to do, we're starting to see the real impact of that. One of our countries that had the lowest growth rates on Daxocox and on Plaqtiv, we've gone from an 11% year-on-year growth rate for Daxocox to 49% last year or that last half. The same with Plaqtiv. We've seen significant uplift by the investment that we've made in commercial excellence. We will be continuing that investment in commercial excellence, which will continue to drive the uplift on these and on the other products that you saw that are important for our future growth. A few words about M&A. We're looking to spend our GBP 20 million.
You could do the math around, you know, if we bought one company, if they had about GBP 5 million revenue and about GBP 2 million of EBITDA type thing, but that's not, we don't have one that looks like that at the moment. What we'd love to have is something that expands our geography or builds scale in a country where we're subscale, somebody who's already got commercial products in market generating revenue and a healthy margin, and somebody who has got a pipeline. Those things don't particularly exist. With GBP 20 million, that's a relatively small business that you'd be looking at. We're trying to build on our existing footprint, build on the Australian acquisition, and really try and make sure that through those sort of smaller acquisitions in the next couple of years until the point, as Chris says, when we're ready to go again with a larger acquisition.
That's really how we're focused. The little table on the right changes every day because all the time we're meeting new companies, having conversations, they drop out, somebody else comes in, another conversation progresses. At any one time, we've got this sort of number of opportunities ongoing. The third pillar we talked about is building that pipeline. This is some data from Stonehaven, the consultants in this animal health space. On the left-hand side, you can see that the markets are sort of steady growth. You see the arrow on the third box on the left-hand side that is really the predictions of how the market will grow in the future. This would mirror really what happened in human health, where the generics pricing starts to have a bigger impact. The market is driven by novel products that meet an unmet need, and that really drives the uptake.
On the right-hand side, you can see that that's what's been happening in the shorter term. You can see that 71% growth in new products. This, we recognize, is a really important part of our strategy to find a way to identify some products that really could be game-changing. Recognizing that it's really important that we keep our organic growth going, our acquisitions going, in order to make sure that we're funding a pipeline, which from 2030 onwards could be absolutely transformative. We need to manage that carefully and balance it. We've got five projects ongoing, all of which would be above GBP 15 million in terms of revenue. If you think that today our biggest product is just less than GBP 5 million, we're really trying to upskill and upgrade the revenue from these projects. We've got these five.
On the next slide, there's just a little bit more detail on each of these. Chris has referred a couple of times to the equine project Swedish. This is a horrible, it's mite-driven, but it's an allergic reaction that affects their manes and tails. It's about 8% of 7.5%, 8% of the population. There isn't an existing market because it is such an unmet need that horse owners with the horse of Swedish use just anything they can, whether it's rugs or sprays or all sorts of, you know, there's always recommendations of, you know, sort of things to mix together and try. It really is a very big unmet need. We estimate the market's around GBP 100 million. If the development goes right, you'd be targeting sort of 2030 and beyond for these products. As Chris talked about, this is an in-license agreement.
The other projects are all our own intellectual property. The next two, the equine and companion animal ones, those are actually the metabolite of Daxocox. You can't give Daxocox to horses and cats, and you can't inject it. We're using the metabolite, the active metabolite of Daxocox, and building an injectable in an oral form that we can use to manage pain in horses, dogs, and cats. This program is ongoing. We own the IP. Again, it's going to take us to 2030-ish to get to market. That's because the clinical trials are relatively long. These are our own products that we can make all the decisions about. With Swedish, we have a partner, but the contract allows us to make all the decisions and have a role in the development of that product. We can get out at any time, and we can sub-license, etc.
The other orange band, the other equine product, these are the NGF antibodies that we bought in the first half of this year from Orthros, the people who originally identified them. These are really exciting. These are NGF antibodies. Now we have the rights to them. We can add things to them. We can control the development program ourselves. We're now looking firstly at equine because that's a relatively straightforward market to get into. Our product is given into the joint. Horses are regularly injected into the joint. That made sense. From there, we'll branch out into all the other indications that are possible with a product such as this, the NGF. I've noticed there was a question regarding why Orthros sold it. Orthros had wanted to be in the human space. They hadn't been successful.
We actually moved the development of these to a different development organization that had more experience of getting products to market than Orthros. Orthros decided they wanted to pursue a very different strategy. Chris did a good negotiation. We think the price was fair given the risk associated with the product at that stage. For Orthros, a lot of the financial return based on the original contract would have come by them doing the development, which we would have paid on top. Clearly, when we took that to somebody else, that took that away. Also, their reward would have come at launch and royalties. For them, the amount we paid now was better than hanging on and hanging on with the risk. It was really a risk-based sum. That's really it from the formal presentation. We can flick through the questions, and then it won't move the slides.
Really, where we see it is Animalcare today is sitting there with three areas that we're looking at. Organic growth, absolutely essential, and we'll commercial excellence, Daxocox new indications, new launches, looking at the U.S. possibility, Plaqtiv, new countries, new territories, and the potential for the retail segment. Plus, an overwhelming drive to just really focus and deliver on those top key products. Looking at inorganic, spending that GBP 20 million wisely on something that is short-term so that it's cash-generative for us. Longer-term, trying to build this pipeline of things that could be game-changing for us. If we just summarize that, we're very pleased with where we've got to. We think we're well positioned for further success. We're already with the acquisition of Randlab, double-digit revenue and profit growth. We've integrated Randlab, really comfortable that they are now on a growth trajectory. The organic growth is continuing.
They're building Daxocox and Plaqtiv and those other key brands at the top. Strengthening the R&D pipeline. I keep saying, wouldn't it be fantastic if we were sitting here having invested five years ago and launching something new and amazing? Cash generation continuing to be strong and really moving to try and meet the demand for innovative treatments. That's the end of the formal session. Happy to go over to questions now as appropriate.
Jenny, Chris, thank you very much for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by the Q&A tab situated on the right-hand corner of your screen. While the company takes a few moments to review those questions submitted today, I'd like to remind you that the recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via our investor dashboard. As you can see, we have received a number of questions throughout today's presentation. I please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end.
Okay. Shall I kick off? The first question, which was submitted in advance, could you provide detail on your development pipeline, drug description, target launch date, addressable market opportunity, and the risk percentage discount? I think in the little table I shared, we shared most of that apart from the risk percentage discount. We won't share the exact numbers we put on them. We use a fairly standard sort of algorithm about calculating risk, which is based on timing in the how much do we know about the product, how far is it in the program, what else is next, what else do we need to expect. Basically, we generally, if they're above 50%, you're in a good place. Below 50%, you're pretty early. In terms of how we calculate discounts, etc., I'm going to hand over to Chris to see if there's anything he wants to add to that.
No, I think, as you're saying, we use a standard PTRS, so a probability of technical and regulatory success. I think you can see really this is the early stage in clinical trials. Daxocox, obviously, Urosepsis . These are clinical trials and other regulatory trials. That'll have a higher chance of success than the early stage ones, being Swedish and the pain, equine pain.
Okay. Question two, could you indicate how different sized acquisitions will be financed in tabular form? Which size is most likely? Chris, you're going to ask.
Yes, yeah.
I don't think
we have already.
Most likely so.
Yes.
We've already, I think, said that up to 2x leverage, it's kind of as an AIM thing rather than a company thing. It will be debt. I think anything where it was going to touch over that, a couple of things, I think, we would, if it was very significantly cash generating, then we may go a little bit above two. Otherwise, as we've already mentioned, we wouldn't want to lose out on a deal because of effectively a debt, a kind of debt ceiling that's really more a stock market than a business. Therefore, we would look to do a mix of debt and equity as we did with Randlab. In terms of the most likely size, my answer is between a few million and low tens of millions for what we've got in the pipeline at the moment, and anywhere in between.
I think we've learned that things come across our desk sometimes unexpectedly. We might say that the GBP 20 million-GBP 25 million, when we first started the journey of a post-Randlab environment, we would do some smaller deals like InVetro. If something came across that was in the GBP 30 million mark, then we would have a look at it. There is quite a range there. We'll wait and see what comes about.
Okay. I think the main point is that it doesn't have to be just one thing. We might split it and do a number of smaller acquisitions.
Yeah.
Okay. What organic growth can we expect from Randlab?
I think we've been really clear. Jenny noted very early in the slide deck around market growth around 8%. That's global. We think Randlab's got all the opportunities to be able to deliver that rate. I don't think we've mentioned it as on presentation, and apologies because Jenny and I sometimes say we said this earlier. With Randlab, we talked about we moved towards opportunities. One of the really, really nice opportunities is the UAE. That's a very small business currently in Randlab, about AUD 1 million equivalent sales. We identified an opportunity to really scale that business, so probably something like 5x over the next kind of early three, three, four years. We just brought in a new sales manager to start delivering that. That's really an opportunity on a GCC basis, whereas today, the only area of that that we operate in is UAE.
Maybe in the environment market, maybe a little bit higher.
Okay. I think on the fourth question, you addressed it, which was the EPS.
Yes. Just as a reminder, the changes are really around investment in research, which we've not had in the past. How confident we can do better. I think with the things that we've got, Jenny's noted on the runway on Daxocox and Plaqtiv, some of the things we've talked about from a Randlab perspective, then yeah, we always try and run the slight side of caution on the broker estimates.
Okay. I think number five was the Orthros question. Chris, did you want to add any more to my explanation of why Orthros?
No, I think you're right. I've just been checking what's in the public domain, so I'm just a bit careful. I think it was really a price tag relative to risk and also what value Orthros were going to receive. As you say, a lot of that was very late, you know, post-commercial, and they needed the cash. There is a trade-off between those two.
Okay. When I moved them, I moved the slides. I didn't understand it.
That's how the equine business, we expanded to more countries organically. Is the next one, Jenny?
Yeah. We're currently doing that at the moment. We're looking at what we can bring from Randlab to Europe and what we can take from Europe to Randlab, but also what we can develop that will be useful in both countries. Yes, we're looking at that at the moment. It's going to take us a couple of years because of the prescription and the need for a regulatory file. That work is ongoing. I think most of the top 10 product grew revenues yet overall 1%- 2%. I think you've commented on that, which is the FX and the Conofite issue. Hopefully, we've covered that one.
Yeah, that's the main driver. We've talked before, so within the market growth assumption of around 4%- 5%, we assume a dropout rate of around 2%. That might be mature products with new competition. We've obviously got a certain percentage of businesses on distribution contracts, and sometimes they get renewed, sometimes they don't. There's nothing as sharp as Conofite in the remaining part of the portfolio.
Okay.
Capital allocation, how are we balancing R&D, M&A, and dividend growth? Hopefully, I sent the messages that the real focus, and therefore, the balance is around investment. As I said, the increase in the dividend was far less than the EPS growth. Trying to make sure that we send a really clear message on that.
Jenny, Chris, thank you for answering all those questions you can from investors. The company can review all questions submitted today, and we'll publish those responses on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Jenny, could I please just ask you for a few closing comments?
Thank you very much. I hope people found that useful and hope we met your needs in terms of areas of particular interest. I think we sit here very pleased with where we've got to, frustrated, of course, about the issues around the one product in Spain, but recognizing that's a function of the business that we are in. We're really looking forward to the future. I think the balance between organic growth, inorganic growth, and then helping to deliver that longer-term pipeline is really exciting. We're not getting carried away with the pipeline because we recognize those first two pillars are absolutely critical for everybody to fund it. I think it's a really nice place to be. Thank you very much for your attention, and please be open and honest in your feedback. It helps us to learn and develop.
Jenny, Chris, thank you for updating investors today. Can I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, and I'm sure it will be greatly valued by the company. On behalf of the management team of Animalcare Group plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.
Thank you.
Thank you.