We just found a question. Bear with me. I'm just trying to find the Q&A. I had it a second ago.
Is it Lily?
Lily.
If you just press escape there, Marc. If you've got a blue little bubble on the bottom right-hand corner, perhaps, if you click on that for me, that will expand.
Okay. Yeah. Thank you.
Pleasure.
Yes. I'll do that. Yeah. In terms of, will the threat of increased trade tariffs between major EU, U.S., U.K., and Chinese markets for the likes of pork or beef pose threats to livestock rearing and as an extension to feed production? Yeah, look, there will be an effect. There always is, but it's very difficult to sort of predict precisely how it will play out. You know, I think I mentioned about, you know, our pig business, pork business, suffering in the U.S. because of the 25% tariff on U.S. pork imports into China.
It is what tends to happen in certain countries or regions where they will struggle because of a trade tariff, but then there's a beneficial effect somewhere else, and that's what we saw in Brazil. I think you know there will be pluses and minuses, but I don't think it will affect Anpario because of that geographic spread, and that's why we try to mitigate against it with that geographical diversification. You know in the knowledge that the trend for meat protein consumption is steady growth. If people are eating meat protein, then these animals have got to be fed. It'll just be where are they gonna be reared the most and which country is gonna get impacted.
We are cognizant that generally the pork, poultry and beef sector is the one that gets impacted more by geographical disputes. Why? Because it's easier to transport those. You can't transport milk so easily. To powder you can. It's not as easy to transport the aquaculture side or like shrimp, you can a bit, but and then layers and eggs, you can't really transport layers and eggs. The ones where they're more regionally, locally based, and they tend not to suffer from geopolitical sort of disputes. But this is why we also want to broaden out into other sectors. Hopefully that's answered your question. We go on to Marc. Do you wanna do the next one?
Yeah. The next question is, what are the key raw materials for the business, and how do you safeguard your supply chain? I mean, key materials can include essential oils such as oregano oil, for the phytogenic range of products. There's organic acids such as formic and propionic acid, and a range of natural gums and various minerals. We have strong relationships with particularly important suppliers. They're all important obviously, but some slightly more important than others. And where they are particularly important, then we'll have long-term supply relationships and agreements, and that would include exclusivity periods as well. Try and protect it that way. Most of the materials are available in a global commodity market. We focus on choosing long-term partners that can deliver quality materials.
It's not about getting the cheapest, it's about who can deliver the quality of product that we need to give that consistency and performance of our products. But also have good availability and logistics, and a reasonable sustainable price, for both us and the supplier. Richard, if you wanna answer the next.
No, legal and professional.
Oh, sorry. That was me. Yeah. Sorry. Yeah. The next question being: Your recent results update referred to increased spend on legal and professional. Can you please elaborate? In terms of the increase in legal and professional costs, and I said before that there's been a high level of service inflation, for services such as legal and professional.
Alongside that, there's been an increase in utilization on these services, and that includes ongoing work that for me and Richard on identifying and analyzing potential M&A targets. That as well as high inflation, there's an increased utilization including looking at M&A targets.
Yeah. Next question is: How do you think about the potential size of the opportunity with Mastercube around the pet food market? I mean, yeah, we think it's significant. It does take a long time, though, to get into a pet food company. They do extensive trials, and I think, as I said, the one we had in Europe in dog food was nearly or over two years. It does take that.
We are working with someone about, in terms of equine trialing for equine in the U.S. It's also, you know, used in the aquaculture market, so in particular, shrimp pelleted feeds that they need to have longer stability because those pellets are at the bottom of the pond waiting for the shrimp to come along and eat that. They have to stay in the water and have that integrity for longer. If you want to ship, you know, traditionally, shrimp feed producers would have been using what's called urea formaldehyde, which is basically wood glue. If you want to send shrimp into the European market or into the U.S. market, you can't really use urea formaldehyde.
A natural pellet binder is one to use, and Mastercube is up there as one of the leading ones. We do think that there is a quite significant potential opportunity for Mastercube. It's a natural product of the future. But it will take some time to do the business development into these bigger companies that will do extensive testing. I think the next one is number five. When you reference the H2 as accelerator of H1 so far, what has been driving that incremental acceleration? Well, as I said, July, August have been strong. And you know, partially that is driven by this COVID recovery in Asia, which is our largest region.
That does help us drive the whole company, and that's really down to the sort of better economics we produce and the few business development initiatives that are coming through. The Middle East, we've got a new distributor on board, and he's started off with some strong volume, and we hope that will continue. What's also happening in the Middle East region is places like Saudi want to become self-sufficient on meat protein production. COVID scared them, and one of the reasons they sent home or tried to send home a lot of imported labor was because they couldn't feed them because they just didn't have the homegrown production to feed them. They got worried about that, and they're putting a lot of investment into the Middle East to have become self-sufficient.
Our Indian partnerships perform well, and there's, you know, as I say, some other sort of specific business development initiatives that are starting to bear fruit. Marc, gross margins.
Yeah. Moving on to the next question. That's number six. The gross margins have historically run in or around 50%. Is 50%+ a reasonable target for the business as we look into 2025 and 2026? I talked through a little bit of this earlier in the presentation, but the, you know, the group did produce margins of 50% and higher for several years. Since H1 2022, as I highlighted then, we saw that drop to 42.1%. We've been on the journey to recover to those previous levels. Now, during this period, it's a difficult period for the agriculture market. The focus was initially on maintaining the per-pound gross profitability, trying to balance out volume, you know, volumes and sustaining those customers through that difficult period.
Over the last 12 months, we've been able to see that improvement in gross margins return, and pound-for-pound gross profitability increasing significantly higher than where it was previously. We're very happy with the progress that we've made to achieve 47.5% margins through the first half of the year. As we look forward, as I said before, raw material prices have generally stabilized, and margin improvements here will be more driven by sales mix improvements, volume recovery and any potential selling price increases. There are potential headwinds as we talked before about the exposure to the U.S. dollar, but also, you know, any unexpected raw material price movements that we're not aware of currently.
The focus is now on driving the volumes to deliver gains in overall gross profit and to benefit from that operational gearing. In margin terms, we're looking to maintain the current margins and hopefully we can continue to improve on them, but with a bigger focus on sales growth.
Marc.
The next question. How far through the volume recovery are you as of H1 2024? I think I said this earlier in terms of tons sold, because there's a difference between the amount we produce and sell due to the stocking of the subsidiaries. In terms of tons sold, we're still around 17% below the peak levels achieved in 2021. In 2021, we required a multiple shift pattern to produce that level of volume. Due to continued efficiency measures and automation in the plant, we're now able to work on just a single plant and produce that level of volume.
Okay. Question eight. Could you give some context around the India Saife Vetmed partnership and potential ambitions you have for this? Well, we have high ambitions for a number of reasons. I mean, currently we were just working with Orego-Stim, and that we send out a concentrate, and then they dilute it down and effectively package it into smaller package sizes for their end market. We are also looking at organic acids. Potentially, we had our operations director and engineering and safety quality team out there looking at how they could do other products, and produce it for the local market there. What's interesting, I was there in August, and they've got a very ambitious poultry sector.
They really are just producing for the local market, but they have the ambitions to be the next Brazil. I think through investment and modernization, they really do wanna be a major exporter of poultry products around the world. We want to be in at the beginning of this trend, and we think we are with this guy. It's a very good partnership. They're also, you know, it's important to note the U.K. government is in, you know, discussions about trade deal with India, which would boost their shrimp industry. That offers opportunities for, you know, Anpario and Mastercube and also Orego-Stim.
We're also looking to use our other products in partnership with them, but also as whether them supplying into the East Africa region from India makes a lot of sense because there's a lot of Indian nutritionist vets, technical people who work in East Africa region, and we just feel that supplying through this partnership will be more effective at getting into that region for us. Question nine. Optomega, which trials are you running in which regions? At the moment, the big sort of trials and the big potential is in China, and that's for both on the pig and the dairy side. We are also looking to work with a partner in the U.S., but they will try and register. It needs to be registered in the U.S.
The particular algal oil that we use needs a bit of registration work, and I think we are seeing them or talking to them potentially next week about that actually. In terms of how is your M&A pipeline looking, given you have spare capacity at your factory facility to drive operating leverage, how should we think about the EPS accretion you target and these deals for the level of ROIC? We're continuously looking at M&A opportunities which do fit specific criteria to our strategy. In the past, we have, you know, we consolidated three acquisitions into one production facility, which is Manton Wood. This has delivered significant synergies. It takes time to do that because it's not just so easy to pick up where you produce a product and put it into a different production plant.
It's a little bit like baking a cake, and if you use a different oven, sometimes it can come out differently. It takes time to do those tasks. The ability to integrate production on an M&A target will sort of depend on the location, and particularly if they're outsourcing production, then it makes a lot of sense for us to take the outsourced volume and bring it into Manton Wood, and that's what we've done before. It will also, I mean, the type of products, not everything might be suitable to manufacture at Manton Wood. The more volume we put through, then you know, EPS accretion will potentially be significant because of the operational gearing. You know, the gross profit tends to drop down to the bottom line.
You know, when we look at acquisitions, we expect them to be either immediately EPS accretive or can be made accretive quite quickly. In terms of ROIC, you know, return on invested capital, yeah, we quite like this number because we think it's a good measure, and I know a lot of fund managers are starting to sort of look at this measure. We've tended to have high teens in that in the past, and we certainly would want to aim for that. We target companies with strong gross margins and relatively low requirements for capital expenditure. That's why we try and build enough added value into the product that we can sell, you know, around the world from one or two production plants. Yeah, we can sell it.
We can sell and compete in places like Brazil, which can be a competitive market, or China, by producing in the U.K. from one production plant. I don't want a production plant in every country, but there will be coming a time where we feel we might need a production facility in one of the bigger markets. How do you see the regulatory market evolving over the years ahead around antibiotics and harmful additives? E.g., the U.K. banning zinc oxide, U.S. seems to have been more lax around the antibiotics topic so far. EU further tightening. Well, we just think it's only gonna go in the one direction, and that's to tighten. It'll take time, and sometimes there's a lapse back. Generally, the antibiotic resistance issue is becoming even bigger.
The world's population, you know, some people in the world's population are becoming resistant to certain antibiotics that are used by humans such that the routine operations are becoming a high risk. I don't know if any of you saw in some newspapers a few weeks ago about the Ukrainian soldier who was given nine different antibiotics, including Colistin, which I think is the human antibiotic of last resort, for his leg that had got a lot of infection. None of these antibiotics worked because of the resistance built up. In the end, they had to amputate part of his leg. That's how serious it is. I just think this is worse than COVID.
If you look at the stats, they reckon that just under 5 million deaths per year are associated with antimicrobial resistance. If you look at how people reacted to COVID, and I think there were probably overall less deaths than that, then this is only gonna become an issue. What happened in the U.S. with the protein producer, it was basically they moved away from labeling no antibiotics ever. That doesn't happen in the EU. Some antibiotics that are still used in the EU are just classified differently. They're classified as feed ingredients, even though we would say that they are effectively an antibiotic. There is a little bit of, like all regulation, people trying to get around it and not maybe apply it in the way they should.
The U.S., it's true to say the U.S. hasn't got the regulatory authorities currently regulating against it. It is more consumer-driven. We just think with all these, it's only gonna go one way, and hopefully, we're gonna benefit from that trend. It will be a little bit bumpy along the way, and then you'll get to a person. I think a good example is when they banned antibiotic growth promoters in feed in China, of all places, where they produce the most of the antibiotics. We benefited from that because they're not allowed to use antibiotic growth promoters in the feed in China. It's coming, but it's a long journey, but it's going in the right direction, and we feel it will continue to do so.
I think. Is that?
That's all the pre-submitted questions. There's been quite a lot of questions asked, probably more than we're gonna be able to get through. Richard, if you just want to scroll through and pick some.
Yeah. Well, is the Middle East conflict affecting sales there?
No, I'm not sure whether you mean down or up. I think it's affecting some countries, you know, more so than others. Overall, the growth, you know, there is significant growth in the market, so.
I mean, we've continued to supply Israel with not a problem. You know, this situation is escalating. Places, our big areas, you know, like Egypt and Saudi, you know, we don't think there'll be much impact there. Any sign of improving sales in the U.S.A.? Marc, haven't looked at the figures recent. I think there's a little bit, but.
Yeah, I think the downturn in the U.S. started around July last year. September is a month of change in terms of the diet and a lot of producers. So far from what we can see from September then there's been a bit of a pickup. There's a lot of recovery to come but yeah, certainly the signs are starting to be a bit more encouraging for the U.S.
Can you give us a breakdown of sales of Orego-Stim? Back up, Marc. Per pork and cattle? No, Roger, it's difficult because we don't exactly know. It would take us a lot of analysis to try and work that out across 80 countries. When we go through distributors, we don't always know where they go, and we don't always know when it goes into a feed mill because the same Orego-Stim formulation can be used in pig and poultry. There are slightly different ones for dairy in terms of the type of Orego-Stim that we do put in there. We haven't measured it down to that level, or we haven't done that analysis. It's quite difficult.
Do you lose Orego-Stim sales because of pricing or are there other products in the market which produce better results? We may lose it because of pricing, because someone's giving a cheaper product, but then the benefits that the farmer will get with... Marc, can you go from there? The benefits that the farmer will get, we would say that you can maybe get a cheaper oregano product, but it won't do as well as us. We've had that where people have tried other products and then come back to us. There are other products in the market, but we don't believe they produce better results. We get feedback on that. Who are our main competitors? Generally on the whole product group, people like Kemin, Alltech, private. They're private American companies.
In Belgium, Impextraco, Dr. Eckel in Germany. Most of them are owner-managed or private companies. On the oregano side, there would be people like Delacon that is now owned by Cargill. Potentially Pancosma that's owned by ADM. There are a number of other EW Nutrition that is owned by a big German family. We do have other competitors, but Orego-Stim has got the strongest brand name, and we believe that it produces about the best results. I see sales of pHorce products in Canada where they introduced EU-type regulation. Is there any realistic chance of these regulations being introduced in the U.S.? If so, at federal or state level? Yeah. Not yet.
The U.S. still is using formaldehyde, whereas I think in Canada they're not. That's why we feel pHorce will do. We feel at some point the U.S. will start to. You know, formaldehyde is a carcinogen, and we feel at some point at federal level it may get banned, but it's not imminent. Andrew C. This is number 19. Can you talk a little bit about trends you see in meat consumption? Do you think this will increase with the things like lower interest rates? Do you expect to see this growing in some countries as they become wealthier to offset any structural decline in certain countries? Yeah. As people have more disposable income, they will spend more on meat protein.
I think you'll see probably that in potentially if there's a turnaround in places like McDonald's. We do see pork consumption across Europe probably will remain subdued for a while. We do see, you know, over the long term with more disposable income, people will spend more on meat protein and particularly, you know, products like chicken and eggs, in particular, and fish, you know, aquaculture as well, we feel some of those will. They tend to come back and we feel that will happen. I see H1 increase in 100% in the sales of Salgard. My reading is that this is acid-based eubiotic and hence a commodity type product.
If that is correct, do I assume this increase in sales is unlikely to be maintained? No. Yeah, Roger, in terms of Salgard, it's a little bit confusing in that we've mentioned acid-based eubiotics are more price sensitive. They're not what you'd term as commodity. We take liquid acids, things like propionic acid, formic acid, we blend them, buffer them, and put them onto a powdered carrier. So we make niche products out of them. Formic acid is liquid. Yes, it's a commodity, but we put some added value in. It's just that we do sometimes maybe describe it incorrectly by saying it's a bit more commodity type or more price sensitive. It is still added value. It's just not as added value as something like Orego-Stim.
But the I think the return for that was because, probably, I can't remember exactly the country that came back and the customer, but I think in Asia, you know, there had been a running down of inventory because there'd been overstock, and so some of that has come back. We do see the sales of that is likely to be or should be maintained, you know, going forward. All of our products, we would say are added value. There's just some products that are more added value than others within our portfolio. Within the industry, they would be classed as added value. Martin B. 21. Do you-
Yeah, I'll take this one.
Yeah.
Why do you adjust out interest income from adjusted EPS? I think the short answer to this is that it's an alternative performance measure and, you know, we clearly identified the calculation of it in the annual report. What we say is, how we see this is it, the interest income doesn't reflect the underlying operating performance of the business, and that is what we're trying to show through that adjusted earnings per share measure. Now, lots of people have lots of alternative performance measures and some companies have none. We're trying to really reflect the underlying operating performance of the business and how much cash we've got in the bank, particularly when we've got more cash than we need. We don't necessarily think it should be reflected in that adjusted earnings per share measure.
Take, for example, last year we did the tender offer and the movement in cash in that could affect our adjusted earnings per share. As I said, it's really focusing on as a business and how we operate, how are we performing? That's what we're trying to show with that measure there.
Question 22 from Dean B: Do you have a list of possible acquisition targets, and what are the criteria? Yes, we do. Quite a lot of them aren't really for sale, they're owned and managed. We did have a slide in another presentation that has the criteria. I mean, generally, we're looking at some smaller ones now, bolt-on ones, because there aren't the bigger ones or the ones that are either our size or even 50% of our size that are really on the market or coming on the market. But it's generally, they've got to be higher value adds, so they've got to have, you know, in, be in that specialty feed additive area.
If it can add a product group to us, as I spoke about on that broadening part about our strategy matrix, or if it's in a species and help with the species or help us to get to the smaller business then we would do that. We would tend to look in more stable jurisdictions such as Europe, the U.S. You know, we had looked at something in Brazil, but we just felt it's not easy doing acquisitions in Brazil and managing assets in Brazil, period. We're sort of happy to go infrastructure- light in Brazil, where we have an office, and we have a sales team, and we use third-party warehousing. You know, the criteria generally trying to add value to what we do, broadening out the product range.
If we can find, you know, certainly a company where we can consolidate their volume into ours then, yeah, that ticks quite a lot of boxes. There's also others where we're trying to diversify, spread it, you know, broaden the product range, as I say, broaden the species mix and maybe the geographic mix. Andrew C, 23: Do you see pressure in the market from larger companies that can benefit from their size? We don't see pressure in terms of necessarily pricing. We would see pressure in terms of they're a bigger company, they're better known, so it's likely, you know, some vets or nutritionists may say, "Well, we'd buy IBM." You know, no one ever got sacked for buying the IBM mainframe computer.
Where's that mainframe computer now if you look at Apple, Microsoft, and all those other companies? I think we have better products because we're, you know, focused, you know, like a surgeon, like a heart surgeon or an oncologist. We're not a general practitioner like some of these bigger companies. We feel we have better products we can deliver. Because we're smaller, we probably don't always have the presence that we would like and globally. We have to build that into the Anpario brand and just keep building it either through acquisition or gaining more customers. If we're a bigger company, then it would help, but that's what we're trying to aspire to. We don't get any pressure in terms of pricing.
It's more because of the, you know, just the presence of a bigger company. Hopefully that's answered your question. 24, Martin B.
Richard, I'll take this one.
Yeah.
Is the GBP 0.4 million bonus accrual expected to be sufficient for the full year in line with Shore's estimates, or will an additional bonus be needed in H2? Nothing's been paid, it's just an accrual, but it's prorated for the period, so that reflects the amount that, you know, if at the end of the six months and extrapolate that performance forward for the rest of the year, then that's how much was due. If the same performance continues for the second half, then the bonus, you know, the bonus would increase. It wouldn't necessarily double, because of the way the mechanics work, but a higher level of bonus would potentially be required. In terms of Shore's estimates, then that is for a repeat of the first half performance.
All of the bonuses are self-financing. They're all based on sales growth and profit growth, and so that, you know, should be fully covered in terms of what we're expecting for performance.
What is the market opportunity for Orego-Stim in Europe? We think it's still good, and particularly with this sort of organic registration that will give us a you know bigger opportunity. We do have competitors in Europe that are on mainland Europe, so we do have to compete with them. We you know we have some good distributors certainly down in places like Austria. We still think there's an opportunity for that. I mean, Europe, the EU have said that they want to have, I think it's 25% of production as organic. There's no way they're gonna achieve that because they just couldn't get the raw material in terms of organic. The ambition's there, and we think we can ride off the back of that.
That will help. Six countries, 27. Six countries in EMEA have taken orders in H1. Will this continue? I think
I think that's the new potential reference in new countries.
Yeah, or they haven't ordered in the last year. It depends on the country, but generally we'd hope they continue to order if the product's working for them. I don't think they just ordered for the year and that would be it. They would probably expect them to order later on in the year as a second order. But that, you know, we'd have to check the specifics on that. Dean B: Mastercube highlighted as being trialed in a number of new markets. How is that going? Well, the equine one in the U.S. and the Chinese one. No, it's not the Chinese one. That's obviously me getting wrong. The equine one in the U.S., we're still.
Yeah, it's just started.
It has been tested and trialed extensively in Ecuador by a big aquafeed producer who says out of all the natural ones they've tried, Mastercube has come out on top. We are sort of waiting to see if they start to order it. They had a few financial issues in terms of what was going on in Ecuador. They're in a bit of turmoil. We do feel that that sort of just reinforces how good Mastercube is. We think the trials that, you know, will continue to feed back that Mastercube can be used in a number of different applications. 29, Roger F: You talk about acquisitions.
Can I go on the basis that it would be impractical for you to buy a non-European company? Indeed, it would be a stretch to buy a company on continental Europe. No, not at all. It's not a stretch to buy. Does that mean that sort of leaves us just buying something in the U.K.? No. I mean, we would look at something in Europe. We'd look at something, you know, in the U.S., we'd look at places like Australia. Brazil, we wouldn't be. As I said before, we did look at something in Brazil. It's. We wouldn't be looking at probably things in China and Pakistan or places.
Now, if we do one, then don't hold me to this. Generally, we want them to be in more stable countries where we can understand the business and the way it supports the business. Actually, a lot of the specialist feed additive companies are based in Europe and some in the U.S. There are quite a lot in Europe because with Europe moving more to removing antibiotic growth promoters early on, then the specialty feed additive business sort of developed sooner rather than later that. No. We're not averse. We've actually brought our distributor out in Australia in 2017, and we're not averse to doing things like that. We are conscious of having stable sort of country where we want to go and put assets down in.
30: You are seeing acceleration of sales growth in early H2, but this does not seem to be reflected in the forecast comment. That'd be the analyst.
Yeah.
Well, you know, as I said, we don't know what happens in quarter four. We can't predict, so there's probably a little bit of prudence there.
I think, as well, just to add, you know, the next question is about, you know, what visibility to have to the year-end expectations. You know, we don't have sales contracts. You know, orders come through as they arrive. Around 50% of the sales are now through subsidiaries and, you know, at most we get a one week notice on an order. Where we sell from the U.K. around the world, then we usually have about a four to six week lead time, visibility thereof. You know, as we look in any given month, we've got an idea of how that month might be. In terms of the following months, then it's difficult to see.
I think the other thing to point out is there's been a lot of volatility through this last 24 months, where you know, we've seen you know, good months and then bad months. As Richard talked about before, in terms of sales cutoff, and that can be quite large. In some years, the sales cutoff at the end of the year has been up to GBP 1 million because of logistics disruptions. Really, until we get to the beginning of the year, the first week in January, then it's hard to be certain about where the performance of the business will end up. The main thing there is that in terms of the signs, then there have been improvements, and we expect them to continue. It's always just difficult because we have that.
In terms of forecasting, then we have a low level of visibility. There's always that year-end cutoff. Generally, sales are improving and the volumes are recovering.
A little bit on 31. Now three months till year-end, with shipping, do you have full visibility to end year-end expectations? No, probably because of what Marc says. We only have a few weeks of visibility of what orders are coming in. I think last year at the end of December, because we had about GBP 1 million worth of sales that left our production site but didn't get over the rail onto the ship. So that can't be counted as a sale under Incoterms and under IFRS or whatever. You know, that was up to GBP 1 million. So it is very difficult to know until January exactly what has gone and can be counted in the year. So it's right up to the wire.
Can you tell us more about the U.S. large veterinary group? Yeah. They're a swine veterinarian. They look after. God, I can't remember how many. Maybe 150,000-200,000 sows that they look after. They have put our pHorce product on their list. And they like it because it's not compared to formaldehyde, which other people use out there, it is not carcinogenic. We're gearing up for that, and hopefully they're gonna go around and start specifying and putting that in terms of preventing PRRS outbreaks on farms. They go and look after and manage quite a large number of pig producers out in the Midwest.
Who are your main competitors, and are they in the areas where you are, and are there any areas where you're a market leader? I mean, our main competitors are listed before Alltech, Kemin. You know, the area we'd probably say we'd be market leader in, I mean, it's quite difficult sort of specifying some of the sizes of the market. A natural oregano product, yes, we probably are. Certainly, the brand is recognized as a market leader. It's difficult to know other people's volumes. I would say Mastercube is well-recognized as well, but there's a lot more growth to come from that as people move to natural pellet binders. We really do work in niches and, you know, if you look at an organic acid, that covers a wide, a broad area of types of products.
It includes our types of products that are more added value all the way through to just liquid that they may spray on the feed to try and kill salmonella, but it won't do anything in the guts of the animals. It is sort of working more in niches. I think hopefully I've listed some of those major competitors that we deal with. We also have some local competitors in certain local types of countries. You know, if we were operating in Brazil, we would have our global competitors there, but there will be a few that are locally set up as well, and we have to try and compete with that. We compete by building strong power brands and having the best products that are most efficacious.
Let me just move on. 37, Martin C. What do you see as driving Anpario's increasing sales and profitability? Is your overall target market growing? What is driving your competitive advantage? Are these business features you can further improve going forward? Well, just in terms of, you know, getting obviously more market share, working with more customers. The overall target market, yes, they are growing in terms of phytogenics. They expect toxin binders to grow because of changing climate conditions. You're gonna get more damp, moist, wet, and if you've got more damp, moist, wet conditions, you get more fungal growth, which cause toxins in the grain or the feed, and that requires more. So toxin binders are set to grow, and I think to a certain extent, organic acids are.
The end product markets are set to grow. What's driving our competitive advantage? Well, I think a little bit like the consistency and the quality of the authentic oregano oil. The whole natural, you know, the Mastercube pellet binder, where we've put it into the dog pet food, our inclusion rate is about a quarter of what the other products that we replaced was, and I think we didn't have any palatability issues with the dogs, whereas the competitor product that was replaced did. There's a number of different, you know, competitive advantages. Generally, a lot of this is proven by the trial work that the customer will do when he wants to use the product.
Are these business features you can further improve? Yeah, I mean, look, we're always trying to improve the product to make it more effective, or look at a new application. Just number 36, Filippo. Good afternoon. Congratulations on the results. Thank you. Is it possible to have guidance on revenue margin for 2025?
Yeah, I mean, we don't, as a management team, we don't publish expectations. Obviously, there are market, you know, market numbers out there available. We'll know more about 2025 as we go through the budget process in the coming weeks and months. Generally, we'd be hopeful to see, you know, continued recovery in sales volumes. Margins as I spoke to before, if they stay where they are or slightly increase, then we'll be happy. Certainly, we're very much gonna be protecting them from where we've got them to. It's more about driving that volume growth and hope to see more positive momentum through next year. Yeah, we don't provide management expectations.
37, Bhaskar. Feels like the business is in really good shape at the moment. There is real scope to push on and move this into a much bigger business over the next few years as some of these strategic initiatives come through. Is that fair? Yeah, I mean, it is. You know, we sort of say, certainly when we see fund managers, that we expect over, you know, annual sort of, sales growth of maybe, you know, high single digits. That's what we would hope to try and do. It doesn't always happen because you get some blow-up in some other country somewhere or we've lost some business for a particular reason. We'd hope that, you know, high single digit sales growth and then that will translate with the operational gearing into a much, you know, into higher sort of profit growth.
You know, I think we'd have to sort of supplement that maybe with acquisition opportunities as well in terms of building into a bigger business. We do feel, yeah, you know, can we get to next stage GBP 50 million, GBP 60 million, GBP 70 million and beyond. And we feel with some of these initiatives we can start to do that. Yeah, we feel it needs to be supplemented with acquisitions. 38, Nicole, how much has the Red Sea shipping crisis deteriorated your bottom line in 2024?
Yeah, I'm happy to take that. I mean, around 50% of the sales, this was last year. It's probably a bit lower because of the growth through some of the distributor customers through this period. Let's say 60% of the sales go through distributors and out from the U.K., and around the world, then when we're selling on those terms, the customer is suffering the increased costs. For about 40%-45% of the business, then we're selling through the subsidiary entities, and so the increased shipping costs where it is affected by the Red Sea shipping crisis, then that's absorbed into their, you know, inventory costs and then their margins.
It has had an impact, but only about 40%-45% of the business is potentially impacted. Where it is, you know, I wouldn't say it's had a material impact on the bottom line, but it has had an impact in terms of margins. I haven't quantified it specifically.
You want to do the next one?
Sorry, Eric, in terms of utilization of factories at 35%, how much revenue capacity do you feel the facility therefore has? I mean, well, simply, you know, if we were producing the same sales mix, then we could threefold the revenue. What I would say there is it depends, you know, there's five different production lines. It's not a single product or, you know, single production line facility, and so that would depend on, you know, proportional sales growth. There is a lot more capacity in certain lines. For example, the Lysine or, you know, the bottling line, you know, that has a lot more spare capacity and it's usually quite high margin area because we're selling in smaller presentation SKUs to the end customer.
There's a lot more capacity in certain areas, but certainly we can triple the revenue from where we are today. You know, there's other opportunities. If we got to that level, there are other things we can do with the site and to increase further production capacity.
Yeah. 41, Bill. Would the animal food additives operation of Carr's Group be the sort of acquisition that would fit into your diversity? Yeah, it probably would. You know, I mean, we keep an eye on these things. It probably would. We're looking at other things as well. Can't really comment any more on that, to be honest.
Just going to number 40: What are the delivery terms to overseas customers, primarily in the DDP or similar, does it affect your revenue in December, and how do you mitigate the risk of not being able to book the sales for the year end? When we're trading from the U.K. parent entity, overseas, and it's generally on CIF and CFR terms. The crucial thing there is that it gets onto the boat. Whether it's been through Brexit or, you know, other logistics, COVID logistics issues, then we have seen high degrees of disruption. Now we're seeing things like boats being canceled, so it's sat on the dock. It is a bit of an unknown factor. Probably about 55%-60% of the business is affected potentially by that.
Where we're selling within the subsidiary, within the territory, then it was more likely to be a sort of DAP, DDP or similar type sale. Generally, it would arrive within a day. There's, you know, as you'd expect, an extensive audit process that goes through to make sure that we're recognizing revenue according to IFRS terms.
Yeah. 42. What are the competitive threats and how do you and will you address these? You know, we're competing with people all over the world, in all the various different markets. The way we address it is we build these power brands so that people. You know, a marketing guy told me years ago, "If you, if you view products as being people, you view brands as being friends." I certainly think with products like Orego-Stim, people do view it as being a friend. They can trust the product. It is all in the branding, making sure that we keep a step ahead of some of the competition by evolving our products and looking for new applications. The competitive threats, we're getting them all the time.
We have to compete with competitors of varying degrees of capability. You know, we do lose business to poor products that are lower priced, don't even work. Quite often, those customers come back and then say, "Actually, we want to use your products again." We're a product marketing company, and it's keeping ahead, making sure our products are delivering value for the customers. 43, last one: On a scale of 1 to 10, how optimistic are you about Anpario's future growth? Is that it?
I don't know what's happened there. I think we're still on, Richard.
Oh.
I think it's just your connection to the screen. Sorry, Richard.
Sorry. The plug came out of Marc's computer on the crucial question. Yeah, look, I'd be saying, you know, I'm nine. You know, I'm at that nine level. If some of the growth opportunities and the big initiatives we've got come off, but these are binary. They may happen, they may not, then I'd be at 12. We always have these and some of the we all get excited about, sometimes they don't come off. At the high end of that range of 1 to 10, and we do have some you know, potentially big opportunities that could come off. And that would take us over the 10. It's, as I say, it's binary.
We also, you know, we haven't talked about, we have this fermented technology Aquatize that we have started to trial. That's technology that's not valued, we don't think, in the share price. It could be quite significant. It was the original technology of Anpario, that is getting trialed at the moment in Brazil. I don't like to talk about that too much because it could be pie in the sky, but you never know. It's one of my, you know, one of my objectives that I haven't quite completed yet when I came into this business in 2006. But, you know, there's some novel technology that we have not exploited yet that we have in our portfolio. So I think.
I think that's all the questions. Yeah. Thank you.
Thank you.
Richard and Marc, thank you for taking the additional time to answer all those questions that came in from investors. Of course, the company can review all questions submitted today and will 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, Richard, could I please just ask you for a few closing comments?
Yeah. Just you know this has been a company that has consistently sort of delivered and performed. It's cash generative. We have strong balance sheet. We have very good and strong products. You know we're probably at the size that you know the smallest size you can be to be a global company but it gives us the options. It gives us that resilience. We're in strong markets or markets that the trend is in our direction and we you know just aim to build and we are very focused on building on delivering shareholder value creation to shareholders. We hope we can continue to do that. I think. You've seen myself and Marc and you know I'm 58 but there's a younger. Marc's not even 40 yet.
There's a younger senior management team that is well capable of in this business. We have strength and depth of management across the business and across the globe. For a small company, I think that's, you know, is a strength. We can go from strength to strength and build this business successfully. I just like to thank everyone for participating and apologize if we ran through those questions very quickly, but we had a lot to do. Marc's got a train to get.
Ri-Richard-
Is there a-?
Richard, Marc, thank you for updating investors today. Could I please ask investors not to close this 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 will be greatly valued by the company. On behalf of the management team of Anpario plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.