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Anpario plc  -  ANP   

Final Results

Released 07:00 07-Mar-2018

Final Results

LONDON--(BUSINESS WIRE)--

Final Results

Anpario plc (AIM: ANP)

Anpario plc, the international producer and distributor of natural animal feed additives for animal health, nutrition and biosecurity is pleased to announce its full year results for the twelve months to 31 December 2017.

Financial and operational highlights

Financial highlights

Operational highlights

Peter Lawrence, Chairman, commented:

“The Company is maintaining the progress of last year. However, as Anpario is an international business it is not immune to the effects of currency movements. The recent strengthening of sterling against some major currencies has created a headwind and we are cautiously watching the movement in raw material prices which might be mitigated by both our production automation and route to market. Our strong balance sheet and reliable cash generation provide Anpario with a platform to invest in growth for the future and to seek out selective earning enhancing acquisitions.  Overall, I remain optimistic and look forward with confidence to reporting further progress in our interim results.”

1 Adjusted EBITDA represents profit for the period before tax £3.403m (2016: £2.680m) adjusted for: share based payments £0.259m (2016: £0.210m); net finance income £0.042m (2016: £0.059m); depreciation, amortisation and impairment charges of £0.825m (2016: £0.559m) and exceptional items of £0.627m (2016: £1.221m).

Chairman’s statement

Anpario delivered a very strong performance for the twelve months to 31 December 2017 with growth in both revenue and profit. These results endorse our strategy of recruiting regional commercial teams and unifying our brands under the Anpario name. It is encouraging to see sales growth across all our regions and improved gross margin as the proportion of sales direct to the end user has increased through using our wholly owned subsidiaries. Moreover, our average sales price has risen as the proportion of sales of higher value added products has increased reflecting the success of our more targeted sales initiatives.

The integration of our Australian distributor is now complete and the business is performing well. Our subsidiary in Thailand, established during the period, has now made its first sales to end users in that country.

The board is recommending a final dividend of 4.5 pence per share making a total of 6.5 pence per share for the year, an increase of 18%. This dividend, payable on 27 July to shareholders on the register on 13 July, will be Anpario’s tenth consecutive year of increased dividend payments to shareholders and continues to reflect the Company’s confidence in the future and its ability to generate cash.

Financial Review

Revenues for the year increased by 20% to £29.2m (2016: £24.3m) with strong growth across all regions. This significant progression is justification for, and the realisation of the efforts of all staff and the investment made over the past two years to redirect the strategy and push the Group forward.

Gross profits have advanced by 25% to £14.3m (2016: £11.4m). Despite underlying raw material price inflation, we have been able to maintain our overall Group margins through increased volumes and a higher proportion of end customer sales.

To support the revenue growth and strategic initiatives, administrative expenses have risen by 36% to £10.4m (2016: £7.6m). This increase is primarily through higher employment and associated costs. Foreign exchange losses during the year totalled £0.6m. This compares with a gain of £0.2m in 2016 and represents an adverse variance of £0.8m. When the impact of foreign exchange is excluded, the comparative increase in underlying and continuing administrative expenses of 25% was lower.

Adjusted EBITDA, increased by 10% to £5.1m (2016: £4.6m), this positive advance was after taking into account currency effects.

Exceptional items in the year totalled £0.6m (2016: £1.2m), which have been incurred as part of the restructuring of the business, which we consider is substantially complete.

Profit before income tax has increased significantly by 27% to £3.4m (2016: £2.7m). Basic earnings per share increased by 15% to 14.66 pence per share (2016: 12.79 pence) and diluted earnings per share increased by 13% to 14.17 pence per share (2016: 12.58 pence).

The balance sheet is strong and debt free, with positive net cash generated from operating activities of £5.2m (2016: £3.8m). An overall net cash increase after investment and dividend payments of £2.5m (2016: £1.7m), resulting in a year-end cash balance of £13.6m (2016: £11.1m).

On 3 February 2017, the Group acquired the business and inventory of our Australian distributor, Cobbett. The initial cash outflow was £0.5m, with a further contingent consideration amount of £0.2m provided for. In the period since acquisition, the business has contributed revenues of £0.9m and profit before tax of £0.1m.

Operations

All regions delivered sales growth during the period with particularly strong performances in South East Asia, China, Middle East and the United States. Growth achieved in the United States was from a low base; however, the region now accounts for 7% of Group revenue and 10% of gross profit reflecting the high proportion of sales direct to the end user. Overall, organic sales growth totalled £4.0m. This advance reflects our strategy of transforming Anpario’s sales channels to getting closer to the end user and increasing the proportion of higher value added products.

The United States continued to be the standout performer where sales have accelerated in the dairy sector and to organic egg layers and supplying poultry integrators for both conventional and antibiotic free production. Orego-Stim and our feed safety products are being well received by customers, who are benefitting from the significant return on investment and the products help to achieve sustainable antibiotic free production. The United States presents a significant opportunity and we are actively recruiting a number of new sales people to build sales across this very large market. Inevitably, these overhead costs will be incurred before additional revenue is generated, however, we are confident on delivery over the coming year.

China benefited from the relaunch of Orego-Stim and this product accounts for around a quarter of our Chinese business. Anpario is the only supplier of Orego-Stim in China but currently sells under the Meriden-Stim brand. Litigation has continued with a former distributor over the trademark ownership, which we successfully regained in a recent court judgement. However, this has now been referred to the Court of Appeal. China’s sales were modestly affected by delays in renewing local registrations but this issue was resolved towards the end of the period.

The integration of Cobbett and its rebranding as Anpario Australia is complete. Group finance and information systems have been installed, which give our finance and operation teams in the UK head office full visibility of how the business is progressing. A new regional manager has been appointed and is developing relationships with the extensive customer base.

In South East Asia, our wholly owned subsidiary in Thailand started trading and has now achieved its first sales direct to key end users. Two additional regional account managers have also been appointed to help drive sales growth.

Latin America achieved sales growth of 8% during the period with the two key markets, Brazil and Mexico, delivering strong performances. A change of team in Brazil combined with selling direct to the end users has helped to drive a turnaround there. Sales to customers in Chile and Peru were affected by changing distributors in those countries; we expect the benefit of these changes to come through during 2018.

The Middle East returned to growth with strong performances from Israel and Turkey and the start of sales in Kuwait. Sales in Egypt were impacted towards the end of the year as avian influenza hit production. We continue to build our sales force in the region including appointing a ruminant specialist in the United Arab Emirates.

Sales to Europe increased by 9%. The United Kingdom and Ireland were particularly good markets with sales ahead by 16% compared to the previous year. The principal reason for this excellent performance was the general improvement in the dairy sector and our initiatives focused on selling our range of gut health products and mycotoxin binders.

Production

The investment in our production plant in Manton Wood in recent years has improved productivity and enabled a quicker throughput of our products. We have also recently made modifications to enable us to produce smaller pack sizes often requested by specific customers, and we intend to evaluate further opportunities where we can market smaller liquid and powder pack sizes.

We have been experiencing some raw material price increases, especially where there has been a disruption in production of specific raw materials. Anpario has strong relationships with its suppliers and although we have not been able to counter the price rises we have ensured continuity of supply. We have passed some increases on to customers but we believe our investment in automation and growth in direct business will help us to mitigate the effect of these input price rises and to maintain our margins.

Innovation and development

We have now completed the recruitment of our central technical team and its members have been designing and running trials to support the development of our product range. In addition to the zinc oxide trials mentioned at the half year; further trials include fertility improvement in dairy cows using Optomega and the use of Orego-Stim in relation to the development of coccidial immunity following vaccination. These trials have been undertaken in leading institutions around the world.

We have recently recruited a corporate development director to direct our strategic marketing plans and to help our sales teams when launching new products and to more effectively communicate the benefits to customers.

Board

I would like to welcome Richard Wood to the Board, he joined as Senior Independent Director in November 2017. We look forward to working with Richard and benefiting from his experience in the global animal health sector having built Genus plc into one of the world’s leading animal genetics companies.

People

Anpario’s growth and development is a reflection of its people across the globe. They are motivated by a desire to be leaders in their markets, delivering excellence to customers and helping build an international business that is known for its quality and success. Their commitment and dedication is greatly appreciated.

Outlook

The Company is maintaining the progress of last year. However, as Anpario is an international business it is not immune to the effects of currency movements. The recent strengthening of sterling against some major currencies has created a headwind and we are cautiously watching the movement in raw material prices which, as I mentioned above, might be mitigated by both our production automation and route to market. Our strong balance sheet and reliable cash generation provide Anpario with a platform to invest in growth for the future and to seek out selective earning enhancing acquisitions.  Overall, I remain optimistic and look forward with confidence to reporting further progress in our interim results.

Peter Lawrence
Chairman
7 March 2018

Key performance indicators

The key performance indicators (“KPIs”) for the Group are those that communicate the financial performance and strength of the Group, as a whole, to shareholders. In addition, other key non-financial performance indicators are also used by management in running and assessing the performance of the individual businesses within the Group.

A summary of the KPIs is as follows:

Financial

  2017   2016
£000 £000
Revenue 29,241 24,340
Gross profit 14,346 11,445
Adjusted EBITDA (note 3) 5,072 4,611
Adjusted earnings per share (note 8) 16.74p 16.90p
 
Net assets 30,522 28,537
Cash generated 2,500 1,652
Cash and cash equivalents 13,559

11,112

Non-financial

Health and safety – major accidents reportable to the Board in the year nil (2016: nil).

The Group also regards growth of business in key target markets and the on-going achievement of product registrations and quality assurance accreditations as other KPIs.

Principal risks and uncertainties

The Directors present below their review of the principal risks and uncertainties facing the business. If any of the following risks materialise, the Group’s business, financial condition, prospects and share price could be materially and adversely affected. The Directors consider the following risks, along with specific financial risks outlined in the notes to the financial statements, are the most significant but not necessarily the only ones associated with the Group and its businesses:

The Group operates in competitive global markets and there are no assurances that the Group’s competitiveness will improve or that it will win any additional market share from any of its competitors or maintain existing market shares. We review our pricing and take action to control our cost base to ensure that we remain as competitive as possible and protect our margins. Failure to do this may result in materially lower margins and loss of market share.

The Group is dependent on a number of customers and distributors in each of the territories it sells to. The loss of one or more of its key customers could result in lower than expected sales and potential bad debt exposure. The Group seeks to minimise reliance on key territories and individual customers and distributors by increasing geographic spread and market penetration. Where possible, risk is mitigated through settlement by letters of credit and purchase of credit insurance.

The Group’s profitability may be reduced due to increases in the price of raw materials and commodities, which can experience price volatility, caused by the price of oil, demand and specific commodity market and currency fluctuations. To mitigate this risk the Group closely monitors costs and seeks to pass on increases to its customers; a number of suppliers are used in order to secure the best raw material prices.

The UK’s referendum result on European Union (EU) membership has created uncertainty surrounding the nature of our trading relationship with EU countries. Depending on the outcome of the exit negotiations there could potentially be duties charged on goods we import from the EU and effectively increased prices to our EU customers through any duties imposed on their purchases from our operations in the UK. Anpario has been proactively engaged in understanding the potential scenarios and drawing up plans to mitigate any future risks to the business.

The Group’s competitiveness, profitability and net assets may be affected by significant currency fluctuations. The Group seeks to mitigate the impact through implementation of a Board approved hedging policy and entering into financial instrument contracts in respect of anticipated exposures.

The commercial success of the Group and its ability to compete effectively with other companies depend, amongst other things, on its ability to obtain and maintain product registrations and trademarks to provide protection for the Group’s intellectual property rights. The failure to obtain product registrations and trademark protection may have a material adverse effect on the Group’s ability to conduct and develop its business. The Group seeks to reduce this risk by ensuring registrations are in place and regularly maintained as required in each jurisdiction that it exports to; seeking trademark protection for the Group’s brands and products as considered appropriate; maintaining confidentiality agreements regarding Group know-how and technology; and monitoring the registration of patents and trademarks by other parties.

The Group’s products are subject to national regulatory requirements in every country that its products are sold. These can be subject to sudden and unpredictable changes and can therefore affect the Group’s ability to sell products in certain countries. The Group has clearly established quality systems and procedures in place to obtain required regulatory approvals and always strives to meet or exceed regulatory requirements and ensure that its employees have detailed experience and knowledge of the regulations. The compliance and legal teams remain constantly updated in respect of proposed and actual changes in order to ensure that the business is equipped to deal with and adhere to such changes. Where any changes are identified which could affect our ability to continue to market and sell any of our products, a response team is created in order to mitigate such risk and to retain effective communication with the relevant regulators.

Anpario’s strategy for growth

Anpario is an international producer and distributor of high performance natural feed additives for animal health, hygiene and nutrition. Our products work in harmony with the natural aspects of the animal’s biology; and Anpario’s expertise is focused on intestinal and animal health, and utilizing this understanding to improve animal performance and producer profitability.

Anpario supplies its customers with quality assured products manufactured in the United Kingdom and has an established global sales and distribution network in over 70 countries.

Anpario was built up through a combination of acquisitions and organic growth by establishing wholly owned subsidiaries in a number of key meat producing countries. The portfolio of products has been developed with the customer and the animal in mind, taking into account the life stages of the animal and the periods when they will be more challenged.

Anpario is well positioned to benefit from the trends in growth of the world’s population, the increasing demand for meat and fish protein in developing countries and the tightening of global regulation which favours more natural feed additive solutions.

Our platform for growth

Sales Channel Management

Differentiation

Efficiency

Our opportunity

Global population growth

Legislation and food safety

Anpario

Corporate social responsibility

Anpario seeks to ensure a sustainable business, behaving socially, ethically and environmentally responsibly in relation to all its key stakeholders, including the communities in which the Group operates, its people and the environment. This is demonstrated through its:

Anpario supplies products to over 70 countries and provides products to enhance animal health and nutrition. Internal quality control ensures: the safety of its products; the operation of its manufacturing facilities to the highest standards; and the achievement of industry recognised quality standards. Responsible procurement policies are in place to source raw materials to high specification. We have an established Group health and safety policy and we are committed to achieving a safe and secure working environment in all our own locations.

Over 100 employees work for Anpario in the UK and its global operations. It is the Group’s policy to involve colleagues in the business and to ensure that matters of concern to them, including the Group’s aims and objectives and its financial performance, are communicated in an open way. Where appropriate, employees are offered the opportunity to become shareholders in order to promote active participation in, and commitment to, the Group’s success. The provision of SAYE share schemes has resulted in 42 employees contributing to one or more of the current schemes in operation.

We encourage our employees to further develop their skills and provide appropriate training in order to support our people and grow organisational capabilities.

Anpario is an inclusive organisation where no-one receives less favourable treatment on the grounds of gender, nationality, marital status, colour, race, ethnic origin, creed, sexual orientation or disability. The promotion of equal opportunities for all employees is regarded as an important Group priority. An analysis of Directors, senior managers and other employees by gender as at 7 March 2018 is as follows:

  Male   Female
Directors 3 1
Senior Managers 8 9
Administration, Production, Sales and Technical Staff 51   40
62   50

Corporate governance

The Company’s shares are traded on the Alternative Investment Market (“AIM”) of the London Stock Exchange and the Company is therefore not required to report on compliance with the UK Corporate Governance Code. The Directors support the UK Corporate Governance Code and are implementing many of the recommendations which are relevant to a business the size of Anpario plc. The Board is committed to high standards of corporate governance. Anpario are committed to behaving professionally and responsibly to ensure the highest standards of honesty and integrity are maintained. Anpario also have a whistleblowing policy that is applicable to all our employees, other workers, our suppliers and those providing services to our organisation. A copy of our code of conduct is available on our website http://www.anpario.com/code-of-conduct/.

The Board of Directors is collectively responsible and accountable to shareholders for the long-term success of the Company. The Board provides leadership within a framework of prudent and effective controls designed to enable risk to be assessed and managed.

The Board regularly reviews the operational performance and plans of the Company and determines the Company’s strategy, ensuring that the necessary financial and human resources are in place in order to meet the Company’s objectives. The Board also sets the Company’s values and standards, mindful of its obligations to shareholders and other stakeholders.

The Board meets formally at least four times per annum. All Board members receive agendas and comprehensive papers prior to each Board meeting. The Finance Director is also the Company Secretary and is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are adhered to.

All Directors are subject to reappointment by shareholders at the first Annual General Meeting following their appointment and thereafter by rotation.

The Board delegates its authority for certain matters to its Audit, Remuneration and Nomination Committees. The Board approves and reviews the terms of reference of each of the Committees which are available on the Company’s website, http://www.anpario.com/aim-26

In addition to formal Board and Committee meetings, ad hoc decisions of the Board and Committees are taken after discussion throughout the financial year as necessary through the form of written resolutions.

All Director’s in office at the time of the various meetings were in attendance for all of the meetings convened between 9 March 2017 and 7 March 2018. A list of the meetings convened during the year is set out below.

 

Number of
meetings
convened

 

Full
attendance
of meeting

Board meetings 4 Yes
Audit committee meetings 2 Yes
Remuneration committee meetings 2 Yes
Nomination committee meetings 1 Yes

The Board of Directors is responsible for the Group’s system of internal financial control. Internal control systems are designed to meet the particular needs of the Companies concerned and the risks to which they are exposed. This provides reasonable, but not absolute, assurance against material misstatement or loss.

The Group’s control environment is the responsibility of the Company’s Directors and managers at all levels. The Board is therefore responsible for establishing and maintaining the Group’s system of internal control and for reviewing its effectiveness. No control system can provide absolute protection against material misstatement or loss, but it is designed to manage rather than eliminate the risk of failure to achieve business objectives and to provide the Directors with reasonable assurance that problems should be identified on a timely basis and dealt with appropriately.

Due to the size of the Group, the Executive Directors are able to monitor performance and evaluate and manage on a continual basis the risks faced by the Group.

The key procedures that have been established to provide effective internal control, including over the financial reporting process and the preparation of consolidated financial statements include a formalised reporting structure which includes the setting of detailed annual budgets and key performance indicators which are updated on a regular basis to form forecasts. These are reviewed at both management and Board meetings where all key aspects of the business are discussed including comparison of actual performance against budgets and forecasts;

The Audit Committee is comprised of the two Non-Executive Directors and is chaired by Peter A Lawrence. It meets at least twice each financial year with the external auditors and considers any issues that are identified during the course of their audit work. The Board is satisfied that the Committee members have recent and relevant financial experience.

The Committee met twice during the year-ended 31 December 2017 with full attendance by the Committee members. Meetings are also attended, by invitation, by the Finance Director and the external auditors and other management.

The Committee regularly reviews its terms of reference and makes recommendations to the Board for any changes as appropriate. The current terms of reference are available on the Company’s website.

The Committee reviews the independence of the external auditors, Deloitte LLP on an annual basis. It receives a detailed audit plan from Deloitte LLP, identifying their assessment of the key risks. The Committee assesses the effectiveness of the audit process in addressing these matters through the reporting it receives from Deloitte LLP at both the half-year and year-ends.

Communications with shareholders are given high priority. Following the announcement of the Company’s half-year and full-year results, the Directors, normally represented by the Chief Executive Officer and the Finance Director, make detailed business presentations to institutional shareholders and investment analysts. The Chairman meets or has contact with major shareholders as necessary. Feedback directly from shareholders and via the Company’s advisers after these regular analyst and shareholder meetings ensures that the Board understands shareholder views. The Directors between them hold a significant number of shares in the Company which also ensures that their interests are fully aligned with those of other shareholders. The Board uses the AGM to communicate with both private and institutional investors and welcomes their attendance.

Directors’ remuneration is determined by the Remuneration Committee which is comprised of the two Non-Executive Directors and is chaired by Richard K Wood. It meets at least once each financial year. The Committee met twice during the year-ended 31 December 2017 with full attendance by the Committee members. The policy for the current and future financial years for the remuneration and incentivisation of the Executive Directors is:

The key components of Executive Remuneration are:

The purpose is to provide a competitive base salary for the market in which the Company operates to attract and retain Executives of a suitable calibre. Salaries are usually reviewed annually, although interim reviews will be undertaken if considered appropriate. Salary levels are determined taking into account a range of factors, which may include:

The purpose is to provide broadly market competitive benefits as part of the total remuneration package. Executive Directors receive benefits in line with market practice, and these include principally life insurance, permanent health insurance, private medical insurance and company car.

The purpose is to provide an appropriate level of retirement benefit or cash allowance equivalent. Executive Directors are eligible to participate in an approved personal pension. In appropriate circumstances, such as where contributions exceed the annual or lifetime allowance, Executive Directors may be permitted to take a cash supplement instead of contributions to a pension plan.

The purpose is to incentivise Executive Directors to deliver annual business performance and achieve wider Group objectives. Awards are based on annual performance against key financial and strategic targets and/or the delivery of personal objectives. Pay-out levels are determined by the Remuneration Committee after the year-end based on performance against those targets.

The purpose is to directly align Directors’ interests with those of shareholders. Share options and jointly owned shares have been issued to Executives and other senior managers under management incentive schemes over a number of years. The usual vesting period is three years or on a change of control if earlier. Interests in these schemes are disclosed below.

To create alignment with the Group and promote a sense of ownership. Executive Directors are entitled to participate in a tax qualifying all employee Sharesave scheme under which they may make monthly savings contributions over a period of three years linked to the grant of an option over the Company’s shares with an option price which can be at a discount of up to 20% of the market value of shares at the date of grant.

Directors’ remuneration report

Directors’ remuneration

  Emoluments and

compensation

  Post-employment

benefits

2017   2016 2017   2016
Director £000 £000 £000 £000
R S Rose 40 60 - -
P A Lawrence 40 40 - -
R P Edwards 412 297 - -
D M A Bullen - 230 - 18
K L Prior 299 208 8 13
R K Wood 6 - - -

Emoluments and compensation includes salary, bonus, benefits and compensation for loss of office.

R S Rose resigned as Non-Executive Chairman on 1 September 2017. R K Wood was appointed as Senior Independent Director on 1 November 2017.

Remuneration of D M A Bullen as shown above is included in exceptional items note 25. Remuneration relating to Share-Based payments is disclosed in note 26.

Directors’ interests

The Directors’ interests in the shares of the Company were as stated below:

    Ordinary shares

of 23p each

  31 Dec   31 Dec
Director 2017 2016
R S Rose - 31,057
P A Lawrence 27,950 27,950
R P Edwards 206,687 202,723
K L Prior 206,800 202,836

There has been no change in the Directors’ interests between 31 December 2017 and 7 March 2018.

Management incentive schemes

Under the Company’s Enterprise Management Incentive Scheme and SAYE Scheme the following Directors have the right to acquire Ordinary shares of 23p each as follows:

      Option

Price

(pence per

  31 Dec   31 Dec
Share) 2017 2016
R P Edwards 158.50 80,000 80,000
227.04 - 3,964
290.00 42,400 42,400
224.13 4,015 4,015
334.00 2,694 -
K L Prior 158.50 80,000 80,000
227.04 - 3,964
290.00 42,400 42,400
224.13 4,015 4,015
334.00 2,694 -

Share plan limits

Anpario have applied a limit to the total number of new shares which may be issued under awards under the CSOP, SAYE, JSOP and under any other incentive plans which might involve the issue of new shares. That limit will be the total number of new shares over which future awards may be made, when added to the total number of shares issued and issuable under awards granted on 16 September 2016 and any awards which are outstanding as at that date shall not exceed 16.3% of the total of the number of shares in issue from time to time.

Joint Share Ownership Plan

Anpario also announces that, on 20 September 2017, it has allotted 125,018 new Ordinary Shares. The Ordinary Shares have been issued at a subscription price of £3.75 per Ordinary Share, being the closing price of an Ordinary Shares on 19 September 2017, pursuant to The Anpario plc Employees’ JSOP (the “Plan”).

The Ordinary Shares have been issued into the respective joint beneficial ownership of (i) the participating executive Director, Karen Prior and (ii) the trustee of the Trust upon and subject to the terms of joint ownership agreements (“JOAs”) respectively entered into between the Director, the Company and the Trustee. The subscription price has been paid by the Trust out of funds advanced to it by the Company.

£475,000 was advanced to the Trust in order that the shares were issued fully paid. To this extent the transaction was effectively cash neutral to the Company. These transactions resulted in an obligation by the Trust to settle the £475,000 advanced by the Company.

In addition, 49,982 existing Ordinary Shares, which as previously described had been acquired by the Trustee on the exercise of conversion options in respect of shares formerly held in joint ownership, have been transferred by the Trustee, for no consideration, into the respective joint beneficial ownership of (i) each of the participating executive Directors named below and (ii) the Trustee upon and subject to the terms of the JOAs respectively entered into between the Director concerned, the Company and the Trustee.

The terms of the JOAs provide, inter alia, that if jointly owned shares become vested and are sold, the proceeds of sale will be divided between the joint owners so that the participating Director receives an amount equal to any growth in the market value of the jointly owned Ordinary Shares above the initial market value (£3.75 pence per share), less a “carrying cost” (equivalent to simple interest at 4.5 per cent per annum on the initial market value) and the Trust receives the initial market value of the jointly owned shares plus the carrying cost. Jointly owned Ordinary Shares will become vested if the participant remains with the Company for a minimum period of 3 years.

The beneficiaries and their interests in the JSOP shares are as follows:

          2017   2016
R P Edwards 1,350,000 1,350,000
K L Prior 1,200,000 1,200,000

Directors’ report

The Directors present their annual report and audited consolidated financial statements for the year-ended 31 December 2017.

Results and dividends

The profit for the year after tax from continuing operations was £3.0m (2016: £2.6m). The Directors propose a final dividend of 4.50p per share (2016: 5.50p) making a total of 6.50p per share for the year (2016: 5.50p), amounting to a total dividend of £1.4m (2016: £1.2m).

Directors

The Directors during the year under review were:

Peter A Lawrence       Non-Executive Director/Non-Executive Chairman
Richard P Edwards Chief Executive Officer
Karen L Prior Group Finance Director
Richard S Rose Non-Executive Chairman (resigned 1 September 2017)
Richard K Wood Senior Independent Director (appointed 1 November 2017)

The Board regards the Non-Executive Directors as being independent. The biographies and roles of all Directors and their roles on the Audit, Remuneration and Nomination Committees are set out at the end of this report.

Details of the Directors’ interests in the shares of the Company are provided in the Directors’ remuneration report.

Substantial shareholdings

At 2 March 2018, the Company had been notified of the following holdings of 3 per cent or more of its issued share capital:

  Ordinary

Shares

(000)

  % held
Royal Trust Corp of Canada Custodians 2,650 11.5
Unicorn Asset Management Limited 2,046 8.8
Downing LLP 1,610 7.0
Livingbridge VC LLP 1,399 6.0
Investec Wealth & Investment Limited 1,110 4.8
Allianz Global Investors GmbH 1,100 4.8
Schroder Investment 804 3.5
Miton Group plc 761 3.3
Hargreaves Lansdown Asset Mgt 739 3.2

Review of the business and future developments

A full review of the year, together with an indication of future developments, is given in the Chairman’s statement.

Group research and development activities

The Group is continually researching into and developing new products. Details of expenditure incurred and impaired or written off during the year are shown in the notes to the financial statements.

Share capital

During the year 30,068 (2016: 295,734) Ordinary shares of 23p each were issued pursuant to the exercise of share options. During the year the Company issued 225,018 (2016: 718,295) ordinary shares of 23p at market price to the Trustees of The Anpario plc Employees’ Share Trust. A Special Resolution will be proposed at our AGM to renew the Directors’ limited authority last granted in 2017 to repurchase Ordinary shares in the market. The Company holds 143,042 (2016: 143,042) ordinary shares of 23p in treasury.

Independent auditors

PricewaterhouseCoopers LLP ceased to hold office as the Company’s auditors and Deloitte LLP have been appointed as the Company’s auditors following the passing of a resolution at the last AGM.

Stockbrokers

Peel Hunt LLP is the Company’s stockbroker and nominated adviser.

The closing share price on 31 December 2017 was 397.5p per share (2016: 288.5p per share).

Indemnities

By virtue of, and subject to, Article 172 of the current Articles of Association of the Company, the Company has granted an indemnity to every Director, alternate Director, Secretary or other officer of the Company. Such provisions remain in force at the date of this report. The Group has arranged appropriate insurance cover for any legal action against the Directors and officers.

Financial risk management

Details of the Company’s financial risk management policy are set out in note 2.22 of the financial statements.

Statement of Directors’ responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year.

Under that law the Directors have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to:

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Statement of disclosure to auditors

So far as the Directors are aware:

By order of the Board

Karen L Prior
Company Secretary
7 March 2018

Independent auditors’ report to the members of Anpario plc

Report on the audit of the financial statements

Opinion

In our opinion:

We have audited the financial statements of Anpario plc (the ‘parent company’) and its subsidiaries (the ‘Group’) which comprise:the consolidated income statement;

The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.

We are independent of the Group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the

FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Summary of our audit approach

Key audit matters  

The key audit matters that we identified in the current year were:

  • Existence and valuation of brands; and
  • Revenue recognition on export sales.
Materiality  

The materiality that we used for the Group financial statements was £200,000 which
was determined on the basis of 5% of normalised profit before taxation adjusted to
exclude restructuring costs and other exceptional items.

Scoping  

Our full scope procedures included the UK entity which covered 92% of the total
revenue for the Group and all of the Group’s profit. We have undertaken specific
procedures on balances in the overseas subsidiaries to address specific risks to the
Group.

Conclusions relating to going concern

We are required by ISAs (UK) to report in respect of the following matters where:

  • the directors’ use of the going concern basis of accounting in preparation
    of the financial statements is not appropriate; or
  • the directors have not disclosed in the financial statements any identified
    material uncertainties that may cast significant doubt about the Group’s or
    the parent company’s ability to continue to adopt the going concern basis
    of accounting for a period of at least twelve months from the date when
    the financial statements are authorised for issue.
 

We have nothing to
report in respect of these
matters.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Existence and valuation of brands

Key audit matter
description

 

As new products are developed and existing product evolve there is a risk that
existing brands are no longer in use and will not generate profits in the future and
therefore if this was the case this would impact the valuation of these intangible
assets. Given the level of profitability within the Group the risk of material
misstatement is that the brands no longer exist after the Group’s rebranding
exercise.

 

Brands have a net book value of £2.5m as at 31 December 2017 (2016: £2.5m) as
noted in note 11. Those charged with governance have described the judgments
and assumptions that they have applied in the accounting policies and note 11 of
the financial statements.

 

Following the Group’s successful rebranding there is risk that historic development
and brand costs are no longer intangible assets that provide a future economic
benefit to the Group. As, the carrying values of these intangible assets are
contingent on future cashflows there is a risk of material misstatement that the value
of these assets is impaired if the cash flows do not meet the expectations of the
Group. Management is required to make judgements in assessing future cashflows
that include assumptions surrounding growth rates, product sales and discount
factors. A change in these assumptions may result in an impairment to the carrying
value of intangible assets and goodwill.

How the scope of our
audit responded to the
key audit matter

 
  • We have evaluated the design and implementation of the key controls
    relating to the assessment of the carrying value of these intangible assets.
  • We have utilised specialists in assessing the appropriateness of the
    methodology applied by management in calculating the value in use for
    each intangible.
  • We challenged management's assumptions used in the impairment model
    including specifically the cash flow projections by sensitising against
    current run rates and benchmarking the discount rate that has been
    applied.
  • We tested the integrity of management's model and supporting
    calculations for the impairment review.
Key observations  

We concur with the treatment of other intangibles and the corresponding amounts
of amortisation and are satisfied that the assumptions used in the impairment
model are within a suitable range. As products associated with these brands
continue to generate positive margins we have found no issues surrounding the
existence of these intangibles.

Revenue recognition on export sales

Key audit matter
description

 

The Group makes a significant amount of export sales and is an area of continued
focus as outlined in the Director’s strategy for growth included within the strategic
report. As outlined in note 3, £22.5m (76.8%) of revenue is generated outside of
Europe. These are either conducted directly with an end user of through a
distributor network. The terms of the sales can vary from customer to customer and
as such there is a risk of material misstatement that revenue is not recognised when
the risks and rewards of items have been transferred.

How the scope of our
audit responded to the
key audit matter

 
  • We conducted a walkthrough and assessed the design and implementation of
    controls and reviews undertaken to ensure that revenue is recognised in
    the correct period.
  • Key commercial terms have been reviewed for a sample of customers
    outlining when the risks and rewards have been transferred to the client.
  • A sample of despatches made either side of the year end were traced
    through to when revenue had been recognised and to the contractual
    terms to assess whether it corresponded to when the risks and rewards had
    been transferred to the customer.
Key observations   We are satisfied that the revenue recognised in the current period is appropriate.

Our application of materiality

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

    Group financial statements   Parent company financial statements
Materiality   £200,000   £170,000

Basis for determining
materiality

  5% of normalised pre-tax profit.   5% of pre-tax profits

Rationale for the
benchmark applied

 

We have assessed the use of a headline
measure to be appropriate as this
continues to be a key driver of the
business’s value, is a critical component
of the financial statements and a key
metric that management use to monitor
the performance of the business and
communicate this to shareholders. We
have normalised this for exceptional
items as these are largely in relation to
the implementation of a new global
strategy and are non-recurring in nature.

 

We have assessed the use of a headline
measure to be appropriate as this
continues to be a key driver of the
business’s value, is a critical component
of the financial statements and a key
metric that management use to monitor
the performance of the business and
communicate this to shareholders.

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £10,000 for the Group, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

An overview of the scope of our audit

The full scope audit was in relation to the UK entity. As the overseas subsidiaries act as distribution channels for the UK entity these were not deemed to be significant. The UK entity comprises 78% of the Group’s total external revenue and generates all of the Group’s profit. Excluding intercompany balances the UK entity equates to 92% of the Group’s total assets.

There are no other areas of sub consolidation within the Group. Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team Due to the nature of the Group we have undertaken specific procedures on certain balances within the overseas subsidiaries specifically in relation to the entities in China and USA. Audit work to respond to the risks of material misstatement in these subsidiaries was performed directly by the audit engagement team The specific tests conducted on these balances were undertaken at a component materiality that was 40% of the Group’s materiality.

Other information

The directors are responsible for the other information. The other information
comprises the information included in the annual report, other than the financial
statements and our auditor’s report thereon.

 

Our opinion on the financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in our report, we do not express any
form of assurance conclusion thereon.

 

In connection with our audit of the financial statements, our responsibility is to read
the other information and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our knowledge obtained in
the audit or otherwise appears to be materially misstated.

 

If we identify such material inconsistencies or apparent material misstatements, we
are required to determine whether there is a material misstatement in the financial
statements or a material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact.

 

We have nothing to
report in respect of these
matters.

Responsibilities of directors

As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Use of our report

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Report on other legal and regulatory requirements

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

In the light of the knowledge and understanding of the Group and or the parent company and their environment obtained in the course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.

Matters on which we are required to report by exception

Adequacy of explanations received and accounting records

Under the Companies Act 2006 we are required to report to you if, in our opinion:

  • we have not received all the information and explanations we require for
    our audit; or
  • adequate accounting records have not been kept by the parent company,
    or returns adequate for our audit have not been received from branches
    not visited by us; or
  • the parent company financial statements are not in agreement with the
    accounting records and returns.
 

We have nothing to
report in respect of these
matters.

Directors’ remuneration

Under the Companies Act 2006 we are also required to report if in our opinion
certain disclosures of directors’ remuneration have not been made.

 

We have nothing to
report in respect of these
matters.

Matthew Hughes BSc (Hons) ACA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Leeds, UK
7 March 2018

Consolidated income statement      
for the year ended 31 December 2017
 
2017 2016
Notes £000 £000
 
Revenue 3 29,241 24,340
Cost of sales       (14,895)   (12,895)
Gross profit 14,346 11,445
Administrative expenses (10,358) (7,603)
Exceptional items   25   (627)   (1,221)
Operating profit 3,361 2,621
Finance income   7   42   59
Profit before income tax 3,403 2,680
Income tax expense   10   (418)   (100)
Profit for the year 2,985 2,580
 
Profit attributable to:
Owners of the parent       2,985   2,580
Profit for the year       2,985   2,580
 
 
Basic earnings per share 8 14.66p 12.79p
Diluted earnings per share 8 14.17p 12.58p
 
 
 
 
Consolidated statement of comprehensive income
for the year ended 31 December 2017
 
2017 2016
£000 £000
 
Profit for the year 2,985 2,580
Items that may be subsequently reclassified to profit or loss:
Exchange difference on translating foreign operations 109 (87)
Cashflow hedge movements (net of deferred tax)       162   37
Total comprehensive income for the year       3,256   2,530
 
Attributable to the owners of the parent:       3,256   2,530
Consolidated and parent company balance sheets    
as at 31 December 2017      
 
Group Company
2017 2016 2017 2016
Notes £000 £000 £000 £000
 
Intangible assets 11 10,820 10,132 10,249 10,123
Property, plant and equipment 12 3,347 3,539 3,300 3,474
Investment in Subsidiaries 13 - - 5,393 4,565
Deferred tax assets   18   447   286   164   50
Non–current assets       14,614   13,957   19,106   18,212
 
Inventories 14 3,088 2,246 2,028 1,658
Trade and other receivables 15 5,720 6,719 9,922 9,213
Derivative financial instruments 28 220 14 220 14
Cash and cash equivalents   16   13,559   11,112   12,142   10,392
Current assets       22,587   20,091   24,312   21,277
 
Total assets       37,201   34,048   43,418   39,489
 
Called up share capital 21 5,350 5,291 5,350 5,291
Share premium 10,330 9,515 10,330 9,515
Other reserves 23 (5,406) (5,112) (3,257) (2,854)
Retained earnings   22   20,248   18,843   20,968   18,560
Total equity       30,522   28,537   33,391   30,512
 
Deferred tax liabilities   18   1,044   1,014   1,044   1,014
Non-current liabilities       1,044   1,014   1,044   1,014
 
Trade and other payables 17 5,348 4,351 8,729 7,820
Current income tax liabilities       287   146   254   143
Current liabilities       5,635   4,497   8,983   7,963
 
Total liabilities       6,679   5,511   10,027   8,977
 
Total equity and liabilities       37,201   34,048   43,418   39,489
 
 

The Company has elected to take the exemption under Section 408 of the Companies Act 2006 to not present the Parent
Company income statement. The profit for the Parent Company for the year was £3,988,000 (2016: £3,113,000).

 
Richard P Edwards Karen L Prior
Chief Executive Officer Group Finance Director
 
Company Number: 03345857
Consolidated and parent company statements of changes in equity
for the year ended 31 December 2017          
 
Group

Called up
share capital

Share
premium

Other
reserves

Retained
earnings

Total
equity

£000 £000 £000 £000 £000
 
Balance at 1 January 2016   5,058   7,613   (3,374)   17,287   26,584  
Profit for the year - - - 2,580 2,580
Currency translation differences - - (87) - (87)
Cash flow hedge reserve   -   -   37   -   37
Total comprehensive income for the year   -   -   (50)   2,580   2,530
Issue of share capital 233 1,902 - - 2,135
Deferred tax regarding share-based payments - - (128) - (128)
Joint share ownership plan - - (1,760) - (1,760)
Share-based payment adjustments - - 200 - 200
Dividends   -   -   -   (1,024)   (1,024)
Transactions with owners   233   1,902   (1,688)   (1,024)   (577)
Balance at 31 December 2016   5,291   9,515   (5,112)   18,843   28,537
Profit for the year - - - 2,985 2,985
Currency translation differences - - 109 - 109
Cash flow hedge reserve   -   -   162   -   162
Total comprehensive income for the year   -   -   271   2,985   3,256
Issue of share capital 59 815 - - 874
Deferred tax regarding share-based payments - - 71 - 71
Joint share ownership plan - - (825) - (825)
Share-based payment adjustments - - 189 - 189
Dividends   -   -   -   (1,580)   (1,580)
Transactions with owners   59   815   (565)   (1,580)   (1,271)
Balance at 31 December 2017   5,350   10,330   (5,406)   20,248   30,522
 
 
Company

Called up
share capital

Share
premium

Other
reserves

Retained
earnings

Total
equity

£000 £000 £000 £000 £000
 
Balance at 1 January 2016   5,058   7,613   (1,203)   16,471   27,939
Profit for the year - - - 3,113 3,113
Cash flow hedge reserve   -   -   37   -   37
Total comprehensive income for the year   -   -   37   3,113   3,150
Issue of share capital 233 1,902 - - 2,135
Deferred tax regarding share-based payments - - (128) - (128)
Joint share ownership plan - - (1,760) - (1,760)
Share-based payment adjustments - - 200 - 200
Dividends   -   -   -   (1,024)   (1,024)
Transactions with owners   233   1,902   (1,688)   (1,024)   (577)
Balance at 31 December 2016   5,291   9,515   (2,854)   18,560   30,512
Profit for the year - - - 3,988 3,988
Cash flow hedge reserve   -   -   162   -   162
Total comprehensive income for the year   -   -   162   3,988   4,150
Issue of share capital 59 815 - - 874
Deferred tax regarding share-based payments - - 71 - 71
Joint share ownership plan - - (825) - (825)
Share-based payment adjustments - - 189 - 189
Dividends   -   -   -   (1,580)   (1,580)
Transactions with owners   59   815   (565)   (1,580)   (1,271)
Balance at 31 December 2017   5,350   10,330   (3,257)   20,968   33,391
Consolidated and parent company statements of cash flows
for the year ended 31 December 2017      
 
  Group   Company
2017   2016 2017   2016
£000 £000 £000 £000
 
Cash generated from operating activities 5,583 3,957 5,159 3,822
Income tax paid   (349)   (159)   (349)   (147)
Net cash generated from operating activities   5,234   3,798   4,810   3,675
Investment in Subsidiary (514) - (828) (51)
Purchases of property, plant and equipment (151) (729) (146) (667)
Proceeds from disposal of tangible and intangible assets 44 4 1 4
Payments to acquire intangible assets (624) (831) (622) (828)
Interest received   42   59   66   73
Net cash used in investing activities   (1,203)   (1,497)   (1,529)   (1,469)
Joint share ownership plan (825) (1,760) (825) (1,760)
Proceeds from issuance of shares 874 2,135 874 2,135
Dividend paid to Company's shareholders   (1,580)   (1,024)   (1,580)   (1,024)
Net cash used in financing activities   (1,531)   (649)   (1,531)   (649)
Net increase in cash and cash equivalents 2,500 1,652 1,750 1,557
Effect of exchange rate changes (53) 123 - -
Cash and cash equivalents at the beginning of the year   11,112   9,337   10,392   8,835
Cash and cash equivalents at the end of the year   13,559   11,112   12,142   10,392
 
 
 
Group Company
2017 2016 2017 2016
Cash generated from operating activities £000 £000 £000 £000
 
Profit before income tax 3,403 2,680 4,435 3,429
Net finance income (42) (59) (66) (73)
Depreciation, amortisation and impairment 825 1,130 796 1,349
Loss/(Profit) on disposal of tangible and intangible assets 19 (4) 19 (4)
Share-based payments 189 200 189 200
Fair value adjustment to derivatives (44) - (44) -
Changes in working capital:
Inventories (855) (218) (370) (327)
Trade and other receivables 965 55 (696) (1,239)
Trade and other payables   1,123   173   896   487
Cash generated from operating activities   5,583   3,957   5,159   3,822

Notes to the financial statements

for the year ended 31 December 2017

1. General information

Anpario plc (“the Company”) and its Subsidiaries (together “the Group”) produce and distribute natural feed additives for animal health, hygiene and nutrition. The Company is traded on the London Stock Exchange AIM market and is incorporated and domiciled in the UK. The address of its registered office is Manton Wood Enterprise Park, Worksop, Nottinghamshire, S80 2RS. The presentation currency of the Group is pounds sterling for details of the basis of consolidation see note 2.2.

2. Summary of significant accounting policies

2.1. Basis of preparation

The Group has presented its financial statements in accordance with International Financial Reporting Standards (“IFRSs”), as endorsed by the European Union, IFRS IC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements are prepared on a going concern basis under the historical cost convention.

The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in a period of the revision and future periods if the revision affects both current and future periods.

The principal accounting policies of the Group are set out below, and have been applied consistently in dealing with items which are considered material in relation to the Group’s financial statements.

2.2. Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its Subsidiaries drawn up to 31 December 2017.

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control.

De-facto control may arise in circumstances where the size of the Group’s voting rights relative to the size and dispersion of holdings of other shareholders give the Group the power to govern the financial and operating policies, etc. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a Subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets.

Acquisition-related costs are expensed as incurred. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 in profit or loss. Contingent consideration that is classified as equity is not re-measured and its subsequent settlement is accounted for within equity.

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the Subsidiary acquired, the difference is recognised in profit or loss.

Inter-company transactions, balances, income and expenses on transactions between Group companies are eliminated. Profits and losses resulting from intercompany transactions that are recognised in assets are also eliminated. Accounting policies of Subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

2.3. Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the Group’s activities. Revenue is shown net of value added tax, returns, rebates and discounts and after eliminating sales within the Group.

The Group recognises revenue when all the following conditions are satisfied:

2.4. Segment reporting

Operating segments are reported in a manner consistent with the internal reporting to the chief operating decision-maker. The chief operating decision-maker who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board.

2.5. Foreign currency translation

Monetary assets and liabilities denominated in foreign currencies are translated into pounds sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. All differences are included in the profit or loss for the period.

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“functional currency”). The consolidated financial statements are presented in pounds sterling, which is the Company’s functional and presentational currency.

Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.

Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised as part of the fair value gain or loss.

The results and financial position of all Group entities that have a functional currency different from the presentational currency are translated into the presentational currency as follows:

On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is partially disposed of or sold, exchange differences that were recognised in equity are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing exchange rate.

2.6. Intangible assets

Separately acquired patents, trademarks and registrations are shown at historical cost. Patents, trademarks and registrations have finite useful lives and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of patents, trademarks and registrations over their estimated useful lives of 5 to 20 years.

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable net assets acquired. Goodwill is reviewed for impairment at least annually or more frequently if events or changes in circumstances indicate a potential impairment. Goodwill is carried at cost less accumulated impairment losses and is allocated to the appropriate cash-generating unit for the purpose of impairment testing. Any impairment is recognised immediately through the income statement and is not subsequently reversed.

Development costs are stated at cost less accumulated amortisation and impairment. Development costs are recognised if it is probable that there will be future economic benefits attributable to the asset, the cost of the asset can be measured reliably, the asset is separately identifiable and there is control over the use of the asset. The assets are amortised when available for use on a straight-line basis over the period over which the Group expects to benefit from these assets. Research expenditure is written off to the income statement in the year in which it is incurred.

Where appropriate, once development work has been completed the asset/(s) generated may be reclassified to another intangible asset category and be subjected to the relevant accounting treatment as defined in this note.

Development costs that are directly attributable to the design and testing of identifiable and unique products controlled by the Group are recognised as intangible assets when the following criteria are met:

Directly attributable costs that are capitalised as part of the product include the development employee costs and an appropriate portion of relevant overheads.

Brands are stated at cost less accumulated amortisation and impairment. Brand names acquired in a business combination are recognised at fair value based on an expected royalty value at the acquisition date. Useful lives of brand names are estimated and amortised over 10-20 years, except where they are deemed to have an indefinite life and consequently are not amortised. Brands with an indefinite useful life are reviewed for impairment at least annually or more frequently if events or changes in circumstances indicate a potential impairment. However, they are allocated to appropriate cash-generating units and subject to impairment testing on an annual basis. Any impairment is recognised immediately through the income statement and is not subsequently reversed.

Customer relationships acquired in a business combination are recognised at fair value at the acquisition date. Customer relationships are deemed to have a finite useful life and are carried at original fair value less accumulated amortisation. Amortisation is calculated using the straight-line method over the expected useful life of 10 years.

2.7. Impairment of non-financial assets

The carrying amounts of the Group’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment, if so; the asset’s recoverable amount is estimated. The recoverable amount is the higher of its fair value less costs to sell and its value in use. For intangible assets that are not yet available for use, goodwill or other intangible assets with an indefinite useful life, an impairment test is performed at each balance sheet date.

In assessing value in use, the expected future cash flows from the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognised in the income statement whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.

A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a change in the estimates used to determine the recoverable amount, but not to an amount higher than the carrying amount that would have been determined (net of depreciation and or amortisation) had no impairment loss been recognised in prior years. For goodwill, a recognised impairment loss is not reversed.

2.8. Investments

Investments in Subsidiaries are stated at cost less provision for diminution in value.

2.9. Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Land is not depreciated. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows:

Buildings       50 years or period of lease if shorter
Plant and machinery 3–10 years
Fixtures, fittings and equipment 3–10 years

The carrying amounts of the Group’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment and an impairment loss is recognised in the income statement where appropriate.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within the income statement.

2.10. Inventories

Inventories are valued at the lower of cost and net realisable value. Cost is determined using the average cost method. The cost of finished goods comprises raw materials, direct labour, other direct costs and related production overheads. Net realisable value is the estimated selling price in the ordinary course of business.

2.11. Trade receivables

Trade receivables are recognised and carried at original invoice amounts less an allowance for any amount estimated to be uncollectable.

2.12. Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

2.13. Cash and cash equivalents

Cash and cash equivalents comprise cash and short-term deposits with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts.

2.14. Derivative financial instruments

The Group designates certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of foreign currency risk, as either fair value hedges, cash flow hedges, or hedges of net investments in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.

At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item.

The Group uses derivative financial instruments to manage certain exposures to fluctuations in foreign currency exchange rates, these have been designated as qualifying cash flow hedges.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss within other income or other expense. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for instance when the forecast sale that is hedged takes place).

2.15. Leasing

The Group has entered into leases on certain property, plant and equipment.

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease.

2.16. Exceptional items

Exceptional items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group. They are material items of income or expense that have been shown separately due to the significance of their nature or amount.

2.17. Taxation

The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company’s Subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in Subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

2.18. Employee benefits

The Group issues equity-settled share-based payments and shares under the Joint Share Ownership Plan (“JSOP”) and Company Share Option Plan (“CSOP”) to certain employees. These are measured at fair value and along with associated expenses are recognised as an expense in the income statement with a corresponding increase (net of expenses) in equity. The fair values of these payments are measured at the dates of grant using appropriate option pricing models, taking into account the terms and conditions upon which the awards are granted. The fair value is recognised over the period during which employees become unconditionally entitled to the awards subject to the Group’s estimate of the number of awards which will lapse, either due to employees leaving the Group prior to vesting or due to non-market based performance conditions not being met.

The Group operates a number of equity-settled, share-based compensation plans, under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted:

Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied.

In addition, in some circumstances employees may provide services in advance of the grant date and therefore the grant date fair value is estimated for the purposes of recognising the expense during the period between service commencement period and grant date.

At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.

The grant by the Company of options over its equity instruments to the employees of Subsidiary undertakings in the Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in Subsidiary undertakings, with a corresponding credit to equity in the Parent entity Financial Statements.

The social security contributions payable in connection with the grant of the share options is considered an integral part of the grant itself, and the charge will be treated as a cash-settled transaction.

The Group operates a defined contribution pension scheme and contributes a percentage of salary to individual employee schemes. Pension contributions are recognised as an expense as they fall due and the Group has no further payment obligations once the contributions have been paid.

2.19. Equity

Share capital is determined using the nominal value of Ordinary shares that have been issued. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

The share premium account includes any premiums received on the initial issuing of the share capital. Any transaction costs associated with the issue of shares are deducted from the share premium account, net of any related income tax benefits.

The premium arising on the issue of consideration shares to acquire a business is credited to the merger reserve.

Amounts arising on the restructuring of equity and reserves to protect creditor interests are credited to the special reserve.

Exchange differences arising on the consolidation of foreign operations are taken to the translation reserve.

The share-based payment reserve is credited with amounts charged to the income statement in respect of the movements in the fair value of equity-settled share-based payments and shares issued under the JSOP.

The JSOP shares reserve arises when the Company issues equity share capital under the JSOP, which is held in trust by Anpario plc Employees’ Share Trust (“the Trust”). The interests of the Trust are consolidated into the Group’s financial statements and the relevant amount treated as a reduction in equity.

2.20. Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders.

2.21. Financial risk management

The Group is exposed to a number of financial risks, including credit risk, liquidity risk, exchange rate risk and capital risk.

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and deposits with financial institutions. The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Group has an established credit policy under which each new customer is analysed for creditworthiness before the Group’s payment and delivery terms and conditions are offered. Where possible, risk is minimised through settlement via letters of credit and purchase of credit insurance. The Group’s investment policy restricts the investment of surplus cash to interest bearing deposits with banks and building societies with high credit ratings.

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or damage to the Group’s reputation.

The Group’s principal functional currency is pounds sterling. However, during the year the Group had exposure to euros, US dollars and other currencies. The Group’s policy is to maintain natural hedges, where possible, by matching revenue and receipts with expenditure and put in place hedging instruments as considered appropriate to mitigate the risk.

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends payable to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

2.22. Critical accounting estimates

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are:

The Group tests annually whether intangible assets have suffered any impairment. Impairment provisions are recorded as applicable based on Directors’ estimates of recoverable values.

2.23. Impact of accounting standards and interpretations

There are no new standards and interpretations which materially impact the current year Financial Statements.

A number of new standards and amendments to standards and interpretations are effective for annual years beginning after 1 January 2018, and have not been applied in preparing these consolidated financial statements. These have been set out below:

IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted subject to EU endorsement. The Group is yet to assess IFRS 9’s full impact.

IFRS 15, ‘Revenue from contracts with customers’ deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’ and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted subject to EU endorsement. The Group is yet to assess the impact of IFRS 15.

IFRS 16, ‘Leases’, replaces the current guidance in IAS 17. IFRS 16 defines a lease as a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. Under IFRS 16 lessees have to recognise a lease liability reflecting future lease payments and a ‘right-of-use asset’ for almost all lease contracts. In the income statement lessees will have to present interest expense on the lease liability and depreciation on the right-of-use asset. As under IAS 17, the lessor has to classify leases as either finance or operating, depending on whether substantially all of the risk and rewards incidental to ownership of the underlying asset have been transferred. For both lessees and lessors IFRS 16 adds significant new, enhanced disclosure requirements. IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted, subject to EU endorsement, but only in conjunction with IFRS 15, ‘Revenue from contracts with customers’. The Group is yet to assess the impact of IFRS 16.

3. Segment information            
 

All revenues from external customers are derived from the sale of goods in the ordinary course of business to the agricultural
markets and are measured in a manner consistent with that in the income statement.

Management has determined the operating segments based on the reports reviewed by the Board that are used to make
strategic decisions. The Board considers the business from a geographic perspective. Following recent changes, including the
appointment of regional commercial directors and the opening of additional regional offices, Anpario has made adjustments to
its segmental reporting structure. All previous values have been restated in line with the new structure.

Management considers adjusted EBITDA to assess the performance of the operating segments, which comprises profit before
interest, tax, depreciation and amortisation adjusted for share-based payments and exceptional items.

Inter-segment revenue is charged at prevailing market prices or in accordance with local transfer pricing regulations.

Americas Asia Europe MEA Head Office Total
£000 £000 £000 £000 £000 £000
Year ended 31 December 2017
Total segmental revenue 6,013 12,461 10,967 3,984 - 33,425
Inter-segment revenue   -   -   (4,184)   -   -   (4,184)
Revenue from external customers   6,013   12,461   6,783   3,984   -   29,241
 
Adjusted EBITDA   1,818   3,775   2,641   1,528   (4,690)   5,072
Depreciation and amortisation (13) (10) - - (802) (825)
Net finance income 1 1 - 2 38 42
Share-based payments - - - - (259) (259)
Exceptional items   (36)   (254)   (3)   (42)   (292)   (627)
Profit before tax   1,770   3,512   2,638   1,488   (6,005)   3,403
Income tax   17   (31)   -   (1)   (403)   (418)
Profit for the period   1,787   3,481   2,638   1,487   (6,408)   2,985
 
Total assets                   37,201   37,201
Total liabilities                   (6,679)   (6,679)
 
Americas Asia Europe MEA Head Office Total
£000 £000 £000 £000 £000 £000
Year ended 31 December 2016
Total segmental revenue 4,491 10,351 8,450 2,953 - 26,245
Inter-segment revenue   -   -   (1,905)   -   -   (1,905)
Revenue from external customers   4,491   10,351   6,545   2,953   -   24,340
 
Adjusted EBITDA   1,373   3,507   2,510   1,247   (4,026)   4,611
Depreciation and amortisation (10) (6) (3) - (540) (559)
Net finance income - 1 - - 58 59
Share-based payments - - - - (210) (210)
Exceptional items   (93)   (107)   -   (32)   (989)   (1,221)
Profit before tax   1,270   3,395   2,507   1,215   (5,707)   2,680
Income tax   156   29   -   (3)   (282)   (100)
Profit for the period   1,426   3,424   2,507   1,212   (5,989)   2,580
 
Total assets                   34,048   34,048
Total liabilities                   (5,511)   (5,511)
 
The entity is domiciled in the UK.
 

Share-based payment charges of £259,000 (2016: £210,000) includes £70,000 (2016: £10,000) of professional fees that have been expensed during 2017.

4. Profit for the year    
 
Profit for the year has been arrived at after charging/(crediting) the following items:
 
2017 2016
£000 £000
Cost of inventories recognised as an expense 11,693 9,908
Employee expenses (note 6) 6,087 4,866
Share-based payment charges 259 210
Depreciation of property, plant and equipment 327 261
Amortisation of intangible assets 498 298
Impairment of intangible assets - 571
Loss/(gain) on disposal of tangible and intangible assets 19 (4)
Net foreign exchange losses/(gains) 642 (98)
Research and development expenditure 24 16
Acquisition, closure and restructuring 627 649
Other expenses   5,704   5,042
Total cost of sales, distribution and administrative expenses   25,880   21,719
 

In addition to Research and Expenditure noted above, amounts included in Employee Expenses above totalling
£610,000 (2016: £481,000) relate to our specialist technical team remuneration costs. The team includes specialists in
poultry, swine, ruminant & aquaculture species. Out of this we have capitalised internal costs of £62,000 and
expended a further £191,000 on external trials in respect of current development projects.

5. Auditor's remuneration    
 

PricewaterhouseCoopers LLP ceased to hold office as the Company’s auditors and Deloitte LLP have been appointed as the
Company’s auditors following the passing of a resolution at the last AGM. During the year the Group obtained the following
services from the Company’s auditors:

 
2017 2016
£000 £000

Fees payable to Company’s auditors for the audit of Parent Company and consolidated
financial statements

57 56
 
 
Fees payable to Company’s auditors for other services:
The audit of Company Subsidiaries - -
Tax advisory service - 7
Other non-audit services   -   -
    57   63
6. Employees    
 
Number of employees
 
The average monthly number of employees including Directors during the year was:
 
2017 2016
Group Number Number
Production 25 24
Administration 25 21
Sales and Technical   61   56
Total average headcount   111   101
 
2017 2016
Company Number Number
Production 25 24
Administration 18 17
Sales and Technical   40   38
Total average headcount   83   79
 

In addition to employees, Anpario also engages various sales and technical specialists on a consultancy
basis in several countries.

Employment costs
 
2017 2016
Group £000 £000
Wages and salaries 5,412 4,250
Social security costs 530 472
Other pension costs 145 144
Share-based payment charges   259   210
Total employment costs   6,346   5,076
 
2017 2016
Company £000 £000
Wages and salaries 4,096 3,458
Social security costs 337 326
Other pension costs 132 134
Share-based payment charges   259   210
Total employment costs   4,824   4,128
7. Finance income    
 
2017 2016
£000 £000
Interest receivable on short-term bank deposits   42   59
Total finance income   42   59
8. Earnings per share    
 
2017 2016
 
Weighted average number of shares in Issue (000's) 20,361 20,166
Adjusted for effects of dilutive potential Ordinary shares (000's)   709   340
Weighted average number for diluted earnings per share (000's)   21,070   20,506
         
Profit attributable to owners of the Parent (£000's)   2,985   2,580
 
Basic earnings per share 14.66p 12.79p
Diluted earnings per share 14.17p 12.58p
 
2017 2016
 
Profit attributable to owners of the Parent 2,985 2,580
Exceptional items (net of tax) 544 1,113
Prior year tax adjustments   (121)   (285)
Adjusted profit attributable to owners of the Parent   3,408   3,408
 
Adjusted earnings per share 16.74p 16.90p
Diluted adjusted earnings per share 16.17p 16.62p
9. Dividend payable    
 
2017 2016
£000 £000
2015 final dividend paid: 5.0p per 23p share - 1,024
2016 final dividend paid: 5.5p per 23p share 1,152 -
2017 interim dividend paid: 2.0p per 23p share   428   -
    1,580   1,024
 

A final dividend in respect of the year ended 31 December 2017 of 4.5p per share, amounting to a total dividend
of £1.0m, is to be proposed at the Annual General Meeting on 28 June 2018. These financial statements do not
reflect this dividend payable.

10. Income tax expense    
 
Group
2017 2016
Income tax expense charged to the Income Statement £000 £000
 
Current tax
Current tax on profits for the year 633 436
Adjustment for prior years   (137)   (27)
Total current tax 496 409
 
Deferred tax
Origination and reversal of temporary differences (94) (51)
Adjustment for prior years   16   (258)
Total deferred tax (note 18) (78) (309)
         
Total income tax expense charged to the Income Statement   418   100
 
Group
2017 2016
Income tax expense credited directly to equity £000 £000
 
Continuing operations:
Current tax
Current tax on profits for the year   (4)   (53)
Total current tax (4) (53)
 
Deferred tax
Origination and reversal of temporary differences (96) 170
Adjustment for prior years - 11
Foreign exchange   -   (14)
Total deferred tax (note 18) (96) 167
         
Income tax expense (credited)/charged from continuing operations   (100)   114
         
Total income tax expense (credited)/charged directly to equity   (100)   114
 
Adjustments in respect of prior years represent the benefits from enhanced research and development tax credits.

The tax on the Company’s profit before tax differs from the theoretical amount that would arise using the standard
domestic tax rate applicable to profits of the Company as follows:

 
2017 2016
Factors affecting the charge for the year £000 £000
         
Profit before tax   3,403   2,680
 
Tax at the UK domestic rate of 19.25% (2016: 20%) 655 535
Tax effects of:
Non-deductible expenses 104 187
Losses not recognised for deferred tax 182 182
Research and development tax credits (332) (300)
Prior year tax adjustments (121) (285)
Tax credit recognised directly in equity 3 53
Other tax adjustments   (73)   (272)
Income tax expense   418   100
 

Corporation tax is calculated at 19.25% (2016: 20.00%) of the estimated assessable profit for the year.

Further reductions to the UK tax rate were announced as part of the Finance Act 2016. The tax rate reduced to 19.00%
from 1 April 2017 and will further reduce to 17.00% from 1 April 2020. These changes have been enacted by the
balance sheet date and considered when measuring the deferred tax balances.

11. Intangible assets              
 
Goodwill Brands

Customer
relationships

Patents,
trademarks and
registrations

Development
costs

Software and
Licenses

Total
Group £000 £000 £000 £000 £000 £000 £000
 
Cost
As at 1 January 2016 5,490 2,210 686 688 2,817 - 11,891
Reclassifications - 558 - - (994) 436 -
Additions - - - 368 378 85 831
Disposal - - - (8) (3) - (11)
Foreign exchange   -   -   -   2   -   -   2
As at 31 December 2016 5,490 2,768 686 1,050 2,198 521 12,713
Additions 470 43 100 307 249 68 1,237
Disposal - (43) - (10) - - (53)
Foreign exchange   -   -   -   (1)   -   -   (1)
As at 31 December 2017   5,960   2,768   786   1,346   2,447   589   13,896
 
Accumulated amortisation/impairment
As at 1 January 2016 - 134 297 138 1,154 - 1,723
Reclassifications - 38 - - (61) 23 -
Charge for the year - 55 68 102 571 73 869
Disposal   -   -   -   (8)   (3)   -   (11)
As at 31 December 2016 - 227 365 232 1,661 96 2,581
Charge for the year - 83 78 166 97 74 498
Disposal   -   -   -   (3)   -   -   (3)
As at 31 December 2017   -   310   443   395   1,758   170   3,076
 
Net book value
As at 31 December 2017   5,960   2,458   343   951   689   419   10,820
As at 31 December 2016   5,490   2,541   321   818   537   425   10,132
As at 1 January 2016   5,490   2,076   389   550   1,663   -   10,168
 
The charge above includes £nil (2016: £571,000) in respect of exceptional impairment of development expenditure.
 

The reclassification to Brands represents newly generated Product Brands from Development projects and the amount
reclassified to Software and Licenses relates to various recently completed systems improvements.

 
Goodwill Brands

Customer
relationships

Patents,
trademarks and
registrations

Development
costs

Software and
Licenses

Total
Company £000 £000 £000 £000 £000 £000 £000
 
Cost
As at 1 January 2016 5,490 2,121 559 676 2,814 - 11,660
Reclassifications - 558 - - (994) 436 -
Additions   -   -   -   365   378   85   828
As at 31 December 2016 5,490 2,679 559 1,041 2,198 521 12,488
Additions - - - 305 249 68 622
Disposal   -   -   -   (10)   -   -   (10)
As at 31 December 2017   5,490   2,679   559   1,336   2,447   589   13,100
 
Accumulated amortisation/impairment
As at 1 January 2016 - 45 170 130 1,151 - 1,496
Reclassifications - 38 - (61) 23 -
Charge for the year   -   55   68   102   571   73   869
As at 31 December 2016 - 138 238 232 1,661 96 2,365
Charge for the year - 83 69 166 97 74 489
Disposal   -   -   -   (3)   -   -   (3)
As at 31 December 2017   -   221   307   395   1,758   170   2,851
 
Net book value
As at 31 December 2017   5,490   2,458   252   941   689   419   10,249
As at 31 December 2016   5,490   2,541   321   809   537   425   10,123
As at 1 January 2016   5,490   2,076   389   546   1,663   -   10,164
 

The reclassification to Brands represents newly generated Product Brands from Development projects and the amount reclassified to Software and
Licenses relates to various recently completed systems improvements.

 

Goodwill is allocated to the Group’s cash-generating units (“CGU’s”) identified according to trading brand. The recoverable amount of a CGU is
determined based on value-in-use calculations.

These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows
beyond a five-year period are extrapolated using estimated growth rates of 2.5% per annum (2016: 1.5%).

The discount rate used of 12% (2016: 12%) is pre-tax and reflects specific risks relating to the operating segments.

Based on the calculations of the recoverable amount of each CGU, no impairment to goodwill was identified.

The Group has conducted a senstivity analysis on the impairment test of each CGU and the group of units carrying value. A cut in the annual growth
rate of 17.5 percentage points to a negative growth of minus 15 percentage points would cause the carrying value of goodwill to equal its recoverable
amount.

Goodwill is allocated as follows:

 
Goodwill
Acquisition of Kiotechagil operations 3,552
Acquisition of Optivite operations 592
Acquisition of Meriden operations                       1,346
As at 31 December 2016                           5,490
Acquisition of Cobbett business (note 27)                       470
As at 31 December 2017                           5,960
 

Brands relate to the fair value of the Optivite brands acquired in the year ended 31 December 2009 and Meriden brands acquired in the year ended
31 December 2012. These are deemed to have between 20 years and an indefinite useful life due to the inherent intellectual property contained in the
products, the longevity of the product lives and global market opportunities. Brands with indefinite useful lives are assessed for impairment with
goodwill in the annual impairment review as described above.

 

Amortisation/Impairment of intangible assets is included in administrative expenses, totalling £498,000 (2016: £298,000) for the Group and £489,000
(2016: £298,000) for the Company.

12. Property, plant and equipment        
 

Land and
buildings

Plant and
machinery

Fixtures,
fittings and
equipment

Assets in the
course of
construction

Total
Group £000 £000 £000 £000 £000
 
Cost
As at 1 January 2016 2,171 1,357 522 - 4,050
Additions 9 568 51 101 729
Disposals - (26) (30) - (56)
Foreign exchange       5   2       7
As at 31 December 2016 2,180 1,904 545 101 4,730
Transfer of assets in construction - 178 - (178) -
Additions 1 39 34 77 151
Disposals - (29) (148) - (177)
Foreign exchange   -   (4)   (1)   -   (5)
As at 31 December 2017   2,181   2,088   430   -   4,699
 
Accumulated depreciation
As at 1 January 2016 245 456 280 - 981
Charge for the year 31 149 81 - 261
Disposals - (26) (30) - (56)
Foreign exchange   -   4   1   -   5
As at 31 December 2016 276 583 332 - 1,191
Charge for the year 32 214 81 - 327
Disposals - (22) (142) - (164)
Foreign exchange   -   (2)   -   -   (2)
As at 31 December 2017   308   776   268   -   1,352
 
Net book value
As at 31 December 2017   1,873   1,312   162   -   3,347
As at 31 December 2016   1,904   1,321   213   101   3,539
As at 1 January 2016   1,926   901   242   -   3,069
 
 
 

Land and
buildings

Plant and
machinery

Fixtures,
fittings and
equipment

Assets in the
course of
construction

Total
Company £000 £000 £000 £000 £000
 
Cost
As at 1 January 2016 2,171 1,337 519 - 4,027
Additions 9 535 22 101 667
Disposals   -   (26)   (27)   -   (53)
As at 31 December 2016 2,180 1,846 514 101 4,641
Additions 1 39 29 77 146
Transfer of assets in construction - 178 - (178) -
Disposals   -   (29)   (148)   -   (177)
As at 31 December 2017   2,181   2,034   395   -   4,610
 
Accumulated depreciation/impairment
As at 1 January 2016 245 442 277 - 964
Charge for the year 31 146 79 - 256
Disposals   -   (26)   (27)   -   (53)
As at 31 December 2016 276 562 329 - 1,167
Charge for the year 32 201 74 - 307
Disposals   -   (22)   (142)   -   (164)
As at 31 December 2017   308   741   261   -   1,310
 
Net book value
As at 31 December 2017   1,873   1,293   134   -   3,300
As at 31 December 2016   1,904   1,284   185   101   3,474
As at 1 January 2016   1,926   895   242   -   3,063
 
Held within land and buildings is an amount of £700,000 (2016: £700,000) in respect of non-depreciable land.
13. Investment in subsidiaries        
 
Company

Unlisted
investments

£000
Cost
As at 1 January 2016 7,130
Investment in Subsidiaries               51
As at 31 December 2016 7,181
Investment in Subsidiaries               828
As at 31 December 2017               8,009
 
Provisions for diminution in value
As at 1 January 2016 2,392
Provisions for diminution in value               224
As at 31 December 2016 and 31 December 2017 2,616
 
Net book value                
As at 31 December 2017               5,393
As at 31 December 2016               4,565
As at 1 January 2016               4,738
 

The increase in investment in 2017 relates partly to the acquisition of the business of Cobbett Pty Ltd and the remainder in new subsidiaries PT. Anpario Biotech
Indonesia and Anpario (Thailand) Ltd. The increase in investment in 2016 is in Anpario Saúde Nutrição Animal Ltda. At the end of 2016, it was determined that a
provision for diminution of value of £224,000 was required in relation to the investment in Anpario Saúde Nutrição Animal Ltda to reflect the fair value of the
investment.

 
Full list of investments
 
The Group holds share capital in the following Companies which are accounted for as Subsidiaries.
Company Country of registration or incorporation Principal activity Percentage held Shares
held Class
 
Directly held
 
Anpario (Shanghai) Biotech Co., Ltd. China Technology Services 100 Ordinary
Room 703, No. 777 Zhao Jia Bang Road, Shanghai, China
Anpario Inc US Technology Services 100 Ordinary
104 South Main Street, Greenville, SC 29601, United States of America
Anpario Pty Ltd Australia Technology Services 100 Ordinary
Level 17, 383 Kent Street, Sydney, NSW, 2000
Anpario Saúde Nutrição Animal Ltda Brazil Technology Services 100 Ordinary
Rua Brigadeiro Henrique Fontenelle, 745 - room 4, Parque São Domingos, São Paulo, 05125-000, Brazil
Anpario (Thailand) Ltd Thailand Technology Services 100 Ordinary
65/152 Chamnan Phenhati Building Floor 18, Rama 9 Road, Huaykwang Sub-district, Huaykwang District, Bangkok 10310
PT. Anpario Biotech Indonesia Indonesia Technology Services 100 Ordinary
Gedung 18 Office Park Iantai Mezz- unit F2, Jl., TB Simatupang Kav. 18, Jakarta 12520
 

The following Companies are all directly held, with 100% holding, with Ordinary Class of shares, registered in England and Wales and Dormant. The registered
address for all of these Companies is Unit 5 Manton Wood Enterprise Park, Worksop, Nottinghamshire, S80 2RS, United Kingdom.

 
Anpario UK Limited
Meriden Animal Health Limited
Orego-Stim Limited
Optivite Limited
Optivite International Limited
Aquatice Limited
Agil Limited
Kiotechagil Limited
Kiotech Limited
 
Indirectly held
 
Meriden (Shanghai) Animal Health Co., Ltd. China Technology Services 100 Ordinary
Room 703, No. 777 Zhao Jia Bang Road, Shanghai, China
Optivite Animal Nutrition Private Limited India Dormant 100 Ordinary
1103‐04 Windsor Apartment, T‐28, Shastri Apartment, Andheri ‐ West Mumbai Mumbai City MH 400053, India
Optivite Latinoamericana SA de CV Mexico Technology Services 98 Ordinary
20 Boulevard de la Industria, Cuautitlan-Izcalli, Mexico, 54716, Mexico
Optivite SA (Proprietary) Limited South Africa Technology Services 100 Ordinary
PO Box 578, Cape Town 8000, South Africa
 
The Group has no associates or joint-ventures.
14. Inventories        
 
Group Company
2017 2016 2017 2016
£000 £000 £000 £000
Raw materials and consumables 1,689 1,382 1,689 1,382
Finished goods and goods for resale   1,399   864   339   276
    3,088   2,246   2,028   1,658
 
The cost of inventories recognised as expense and included in 'cost of sales' amounted to £11,693,000 (2016: £9,908,000) for the Group.
15. Trade and other receivables        
 
Group Company
2017 2016 2017 2016
£000 £000 £000 £000
Trade receivables 5,282 6,388 4,605 5,847
Less: provision for impairment of trade receivables   (82)   (282)   (82)   (282)
Trade receivables - net 5,200 6,106 4,523 5,565
Receivables from Subsidiary undertakings - - 5,108 3,215
Other receivables 75 120 8 64
Taxes 244 266 86 156
Prepayments and accrued income   201   227   197   213
    5,720   6,719   9,922   9,213
 
The other classes within trade and other receivables do not contain impaired assets.
 
The ageing analysis of net trade receivables is as follows:
Group Company
2017 2016 2017 2016
£000 £000 £000 £000
Up to 3 months 4,639 5,305 4,007 4,802
3 to 6 months 518 719 516 717
Over 6 months   43   82   -   46
Trade receivables - net   5,200   6,106   4,523   5,565
 

As at 31 December 2017 trade receivables of £698,000 (2016: £566,000) for the Group and £456,000 (2016: £528,000) for the
Company were past due but not impaired. These relate to longstanding customers where there is no recent history of default. The
ageing analysis of these receivables is as follows:

Group Company
2017 2016 2017 2016
£000 £000 £000 £000
Up to 3 months 655 477 456 475
3 to 6 months - 62 - 53
Over 6 months   43   27   -   -
    698   566   456   528
 

As at 31 December 2017 trade receivables of £82,000 (2016: £282,000) for the Group and £82,000 (2016: £282,000) for the Company
were impaired and fully provided for. The individually impaired receivables mainly related to historic debt for which recovery is still being
sought. The Group mitigates its exposure to credit risk by extensive use of credit insurance and letters of credit to remit
amounts due. The ageing of these trade receivables is as follows:

Group Company
2017 2016 2017 2016
£000 £000 £000 £000
3 to 6 months - 108 - 108
Over 6 months   82   174   82   174
    82   282   82   282
 
Movement on the Group provision for impairment of trade receivables as follows:
 
Group Company
2017 2016 2017 2016
£000 £000 £000 £000
As at 1 January 282 201 282 201
Provisions for receivables created 14 170 14 170
Amounts written off as unrecoverable (109) (29) (109) (29)
Amounts recovered during the year   (105)   (60)   (105)   (60)
As at 31 December   82   282   82   282
 

Included in the amounts written off as unrecoverable is debtors outstanding at the time of the original purchase of Meriden totalling
£71,000, this was witheld from the consideration payable to the vendors. This amount has now been written off and offset against the
contingent consideration payable (note 17), and as such had no impact on the Group results.

 
The carrying amounts of net trade and other receivables are denominated in the following currencies:
 
Group Company
2017 2016 2017 2016
£000 £000 £000 £000
Pounds sterling 1,679 2,020 1,679 2,018
Euros 585 626 585 626
US dollars 2,521 3,092 2,259 2,921
Other currencies   415   368   -   -
As at 31 December   5,200   6,106   4,523   5,565
16. Cash and cash equivalents
 

Cash and cash equivalents comprise cash and short-term deposits held by Group companies. The carrying amount of these assets
approximates to their fair value.

17. Trade and other payables        
 
Group Company
2017 2016 2017 2016
£000 £000 £000 £000
Trade payables 2,601 2,380 2,516 2,300
Amounts due to subsidiary undertakings - - 4,075 4,084
Taxes and social security costs 129 153 103 91
Other payables 312 169 202 93
Accruals and deferred income   2,306   1,649   1,833   1,252
Total trade and other payables   5,348   4,351   8,729   7,820
 

Included within 'Other payables' above is acquisition related contingent consideration, as outlined below. The remaining
contingent consideration arising on the acquisition of Meriden has been released as it is no longer payable, this was
offset against outstanding debtors from the time of the original purchase (note 15), per the terms of the sale agreement,
and as such had no impact on the Group results.

 
Group Company
2017 2016 2017 2016
£000 £000 £000 £000
Arising on the acquisition of Meriden Animal Health Ltd - 71 - 71
Arising on the acquisition of the business of Cobbett Pty Ltd   152   -   152   -
Total contingent consideration   152   71   152   71
18. Deferred income tax            
 
2017 2016
Group £000 £000
As at 1 January 728 870
Income statement credit (note 10) (78) (309)
Deferred tax (credited)/charged directly to equity (68) 167
Foreign exchange                   15   -
As at 31 December                   597   728
 
Deferred tax liabilities/(assets)
 

Accelerated
tax allowances

Fair value
gains

Cashflow
hedge

Losses

Other timing
difference

Total
£000 £000 £000 £000 £000 £000
As at 1 January 2016 683 493 - (23) (283) 870
Income statement credit (note 10) (70) (92) - (133) (14) (309)
Deferred tax credited directly to equity - - - - 181 181
Foreign exchange   -   -   -   (14)   -   (14)
As at 31 December 2016 613 401 - (170) (116) 728
Income statement (credited)/charged (note 10) (58) 60 - (17) (63) (78)
Deferred tax charged/(credited) directly to equity - - 28 - (96) (68)
Foreign exchange   -   -   -   15   -   15
As at 31 December 2017   555   461   28   (172)   (275)   597
 
Classified as:
Deferred income tax asset (447)
Deferred income tax liability 1,044
 
 

Further reductions to the UK tax rate were announced as part of the Finance Act 2016. The tax rate will reduce to 19% from 1 April 2017 and to 17% from
1 April 2020. These changes have been enacted by the balance sheet date and considered when measuring the deferred tax balances.

 

A deferred tax asset has been recognised for US tax losses carried forward on the grounds that sufficient future taxable profits are forecast to be realised.
A reduction to the US tax rate was enacted on 22 December 2017. This reduction in rate to 21% has been considered when measruing the deferred tax
balance. No deferred tax asset is recognised in respect of losses incurred in other overseas subsidiaries, due to the uncertainty surrounding the timing of
the utilisation of those losses.

 
2017 2016
Company £000 £000
As at 1 January 964 908
Income statement credit (16) (126)
Deferred tax (credited)/charged directly to equity                   (68)   182
As at 31 December                   880   964

 

Deferred tax liabilities/(assets)
 

Accelerated
tax allowances

Fair value
gains

Cashflow
hedge

Losses

Other timing
difference

Total
£000 £000 £000 £000 £000 £000
As at 1 January 2016 683 493 - (23) (245) 908
Income statement (credit)/charge (70) (92) - 23 13 (126)
Deferred tax credited directly to equity   -   -   -   -   182   182
As at 31 December 2016 613 401 - - (50) 964
Income statement (credit)/charge (58) 60 - - (18) (16)
Deferred tax charged/(credited) directly to equity   -   -   28   -   (96)   (68)
As at 31 December 2017   555   461   28   -   (164)   880
 
Classified as:
Deferred income tax asset (164)
Deferred income tax liability 1,044
19. Capital commitments    
 
The Group had authorised capital commitments as at 31 December 2017 as follows:
 
2017 2016
£000 £000
 
Property, plant and equipment   -   31
Total capital commitments   -   31
20. Financial commitments    
 

At 31 December 2017 the Group had future aggregate minimum lease payments under non-cancellable
operating leases as follows:

 
2017 2016
£000 £000
         
Less than one year 63 49
Between one and five years 63 44
Greater than five years   -   -
Total financial commitments   126   93
21. Called up share capital    
 
2017 2016
£000 £000
Authorised
86,956,521 Ordinary shares of 23p each 20,000 20,000
1,859,672 'A' Shares of 99p each   1,841   1,841
    21,841   21,841
 
Allotted, called up and fully paid
23,006,276 (2016: 21,992,247) Ordinary shares of 23p each 5,291 5,058
Options exercised Ordinary shares of 23p each   59   233
23,261,362 (2016: 23,006,276) Ordinary shares of 23p each   5,350   5,291
 

During the year 255,086 (2016: 1,014,029) Ordinary shares of 23 pence each were issued pursuant to employee share
plans.

22. Retained earnings    
 
Group Company
£000 £000
As at 1 January 2016 17,287 16,471
Profit for the year 2,580 3,113
Dividends   (1,024)   (1,024)
As at 31 December 2016 18,843 18,560
Profit for the year 2,985 3,988
Dividends   (1,580)   (1,580)
As at 31 December 2017   20,248   20,968
23. Other reserves        
 
Other reserves comprise:
 
Group Company
2017 2016 2017 2016
£000 £000 £000 £000
Treasury shares (185) (185) (185) (185)
Joint Share Ownership Plan (7,210) (6,385) (7,210) (6,385)
Merger reserve 228 228 228 228
Unrealised reserve - - 2,021 2,021
Share-based payment reserve 1,713 1,453 1,713 1,453
Cash flow hedge 176 14 176 14
Translation reserve   (128)   (237)   -   -
    (5,406)   (5,112)   (3,257)   (2,854)
24. Share-based payments          
 
Movements in the number of share options outstanding are as follows:
 

Weighted average
exercise price

Shares 2017

Weighted average
exercise price

Shares 2016
(p) 000 (p) 000
Outstanding at 1 January 227 793 196 979
Granted during the year 337 73 233 218
Lapsed during the year 232 (87) 234 (108)
Exercised during the year       205   (30)   127   (296)
Outstanding at 31 December 238 749 227 793
Exercisable at 31 December           323       188
 
Share options outstanding at the end of the year have the following expiry dates and weighted average exercise prices:
 

Weighted average
exercise price

Shares 2017

Weighted average
exercise price

Shares 2016
(p) 000 (p) 000
2017 - - 227 37
2020 224 78 224 78
2021 334 45 - -
2022 89 3 89 8
2023 159 160 159 180
2024 244 160 245 195
2025 285 135 284 155
2026 238 140 238 140
2028       343   28   -   -
            749       793
 

Anpario have applied a limit to the total number of new shares which may be issued under awards under the CSOP, SAYE, JSOP and under any
other incentive plans which might involve the issue of new shares. That limit will be the total number of new shares over which future awards may
be made, when added to the total number of shares issued and issuable under awards granted on 16 September 2016 and any awards which are
outstanding as at that date shall not exceed 16.3% of the total of the number of shares in issue from time to time.

 

During the year options totalling 72,754 (2016: 218,132) were awarded under a number of incentive schemes listed in the schedule below and
30,068 (2016: 295,734) options were exercised.

 

During the year, on 14 July 2017, under the joint share ownership plan the company issued 100,000 shares at 23p each to key management
personnel at a price of 342.5p per share.

 

During the year, on 20 September 2017, under the joint share ownership plan the company issued 175,000 shares at 23p each to an Executive
Director at a price of 375p per share. This included a transfer of 49,982 shares which were already held within the trust.

 

The fair value of services received in return for share options granted and the shares which have been issued into the joint beneficial ownership of
the participating Executive Directors and the Trustee of The Anpario plc Employees' Share Trust is calculated based on appropriate valuation
models.

 

The expense is apportioned over the vesting period and is based on the number of financial instruments which are expected to vest and the fair
value of those financial instruments at the date of the grant. The charge for the year in respect of share options granted and associated expenses
amounts to £259,000 (2016: £210,000) of which £70,000 (2016: £10,000) is related to professional fees that have been expensed during the year.

 

The weighted average fair value of options granted during the year was determined based on the following assumptions using the Black-Scholes
pricing model.

 
Plan CSOP JSOP Unapproved JSOP SAYE
Grant date 01-Jul 14-Jul 14-Jul 20-Sep 21-Nov
Number of options granted (000) 17 100 10 175 45
Grant price (p) 342.5 342.5 342.5 375.0 417.5
Exercise price (p) 342.5 388.7 342.5 425.6 334.0
Carrying cost (per annum) - 4.5% - 4.5% -
Vesting period (years) 3 3 3 3 3
Option expiry (years) 10.0 10.0 10.0 10.0 3.5
Expected volatility of the share price 20% 20% 20% 20% 20%
Dividends expected on the shares 2.04% 2.04% 2.04% 1.87% 1.68%
Risk-free rate 0.38% 0.38% 0.38% 0.50% 0.54%
Fair value (p) 37.7 23.6 37.6 26.9 91.2
25. Exceptional Items    
 
2017 2016
£000 £000
 
Acquisition costs 112 58
Closure and restructuring costs 515 305
Payments made to former director - 287
Development cost impairment   -   571
    627   1,221
 

The implementation of strategic growth initiatives, including putting in place a new senior management
structure and new direct investment in operations in key target markets, has resulted in non-recurring and
exceptional costs of £627,000 (2016: £650,000). In view of the nature and size of these items, they have not
been included in the adjusted profit measures and neither have legal costs incurred in successful and abortive
acquisitions.

In 2016, an impairment of £571,000 was recognised in the accounts in respect of historic capitalised expenditure
on the development of our pheromone attractants for aquaculture under the Aquatice brand. These costs were
incurred pre 2013 and whilst we still have some ongoing trials for Aquatice it represents a very small part of the
Anpario business. The pheromone technology has unrealised commercial potential; however, the outlook remains
unclear. We believe that in view of this uncertainty it is appropriate to recognise this cost as exceptional.

 
26. Related party transactions      
 
Group and Company
 
The following transactions were carried out with related parties:
 

P A Lawrence, Chairman of ECO Animal Health Group plc, is a Non-Executive Director of the Company and £48,000 (2016:
£48,000) was paid to ECO Animal Health Group plc in respect of his services and expenses. In 2017, £nil (2016: £12,338) was
received from ECO Animal Health Group plc in respect of pension commitments to a former employee.

 
There was £4,000 due to Eco Animal Health Group plc at 31 December 2017 (2016: £4,000).
 

Key management comprises the Directors of Anpario plc; excluding P A Lawrence as noted above, the remaining Directors
emoluments are as follows:

 
2017 2016
£000 £000
Short-term employment benefits 757 795
Post employment benefits 8 31
Share-based payments       178   123
Total       943   949
 
Company
 
The following transactions were carried out with related parties:
2017 2016
£000 £000
 
Sales of goods:
Subsidiaries 4,184 1,905
 
Purchase of services:
Related parties 48 48
 
Year-end balances with related parties:
2017 2016
£000 £000
 
Receivables from related parties (note 15):
Subsidiaries 5,108 3,215
 
Payables to related parties (note 17):
Subsidiaries 4,075 4,084
Related parties 4 4
27. Business Combinations    
 

On 3 February 2017, the Group acquired the business and inventory of Cobbett Pty Ltd ("Cobbett"). Cobbett
has been Anpario's distributor since 1987 and the acquisition is in line with our strategy to strengthen sales
and distribution channels and develop closer relationships with end users of our products.

On completion, the fair value of the net assets and liabilities of Cobbett equalled £228,000 and consequently
gives rise to goodwill on the transaction of £470,000. The acquired business contributed revenues of £922,000
and a net profit before tax of £113,000 to the Group for the period from 3 February 2017 to 31 December 2017.

A contingent consideration arrangement exists that requires the Group to pay in cash, to the former owners
of Cobbett, up to AUD $300,000 (£184,000) after one year, based on certain performance criteria being met.
This has been revalued at the year end based on latest estimates, resulting in a reduction of the expected
liability of AUD $37,000 (£32,000).

Details of net assets acquired and goodwill are as follows:

 
£000
 
Purchase consideration 429
Inventory 85
Contingent consideration       184
Total consideration       698
 
 
The assets and liabilities at 3 February 2017 arising from the acquisition are as follows:
 
Fair value

Acquiree's
carrying
value

£000 £000
 
Brands 43
Customer relationships 100
Inventory   85   85
Fair value of assets 228 85
Goodwill   470
Total purchase consideration   698
         
Cash outflow on acquisition       514
28. Derivative financial instruments    
 

The Group's finance function is responsible for managing financial risks, including currency risk.
The Group seeks to minimise the effects of these risks using various methods, including entering
into currency forward and option contracts. Where applicable these are designated as cash flow
hedges against highly probable forecast foreign currency sales. If cash flow hedge accounting is
not applicable then the value is taken through profit or loss.

Included within other comprehensive income is the movement in the cash flow hedge reserve as
outlined below.

 
2017 2016
Cashflow hedge movements (net of deferred tax) £000 £000
 
Change in value of cash flow hedges 190 37
Deferred tax liability   (28)   -
    162   37
 

The fair value of the cash flow hedges, along with other forward contracts held at fair value
through profit or loss, are financial assets as outlined below.

 
2017 2016
Financial assets £000 £000
 
Cash flow hedges 149 14
Financial assets at fair value through profit or loss   71   -
    220   14
 

The financial instruments in place are to mitigate the risks associated with future US Dollar sales
receipts. The details of the notional amounts, hedged rate and spot rate at 31 December 2017
are outlined below.

 
2017 2016
 
Notional amount (US Dollars 000's) 3,600 4,800
Weighted average hedged rate of financial instruments 1.2560 1.2590
Spot rate at 31 December 1.3503 1.2332

Company information

Company Number
Registered in England and Wales 03345857

Registered Office and Head Office
Manton Wood Enterprise Park
Worksop
Nottinghamshire
S80 2RS
England
Telephone: 01909 537380

Company Secretary
Karen L Prior

Stock Exchange
London
Code: ANP

Website
www.anpario.com

Registrars
Share Registrars Limited
The Courtyard
17 West Street
Farnham
Surrey
GU9 7DR
England
Telephone: 01252 821390

Statutory Auditors
Deloitte LLP
1 City Square
Leeds
LS1 2AL
England

Bankers
Barclays Bank PLC
One Snowhill
Snow Hill Queensway
Birmingham
B3 2WN
England

HSBC Bank PLC
1st Floor
The Arc
NG2 Business Park
Enterprise Way
Nottingham
NG2 1EN
England

Nominated Adviser and Broker
Peel Hunt LLP
Moor House
120 London wall
London
EC2Y 5ET
England
Telephone: 0207 418 8900

Board of Directors

Richard P Edwards, B Eng (Hons), C Eng, MBA.
Chief Executive Officer (N)

Richard Edwards joined the Board in December 2006 as Chief Executive following the acquisition of Agil. He was appointed Executive Vice-Chairman in April 2011 with specific responsibility for implementing acquisition strategy. In January 2016, Richard was appointed to the position of CEO.

Richard has extensive general management and corporate strategy experience gained in the sales and distribution sector both in the UK and internationally. Previously he was Director and General Manager of WF Electrical, a £140 million turnover division of Hagemeyer (UK) plc, a distributor of industrial products, and gained significant experience in corporate development at Saint Gobain UK building materials business.

Karen L Prior, BSc (Hons), FCA.
Group Finance Director

Karen joined the board in October 2009 as Group Finance Director. Previously, Karen has had roles as Finance Director of Town Centre Securities PLC, a listed property group and UK Finance Director of Q-Park, where she was instrumental in its establishment and growth in the UK.

Karen has also been Financial Controller of train builders Bombardier Transportation and spent 10 years of her early career with Ernst and Young specialising in providing audit and business services to entrepreneurial businesses.

Peter A Lawrence, MSc, BSc, DIC, ACGI.
Non-Executive Chairman (A, N, R)

Peter joined the Board in August 2005 as a Non-Executive Director and became Non-Executive Chairman in 2017. Peter is the founder of ECO Animal Health Group plc where he is now the Non-Executive Chairman having been an Executive Director ever since its formation in 1972. Currently, he is also the Non-Executive Chairman of Baronsmead VCT plc, the Non-Executive Chairman of Amati VCT plc and an Executive Director of Algatechnologies Ltd. Peter received the Entrepreneur of the Year Award at the 2003 AIM awards.

Richard K Wood
Senior Independent Director (A, N, R)

Richard joined the Board in November 2017 as a Senior Independent Director. Richard has considerable global animal health experience having built Genus plc from a small company privatised by the government, into a world leading animal genetics company. More recently, Richard was a senior independent non-executive director of Avon Rubber plc and was also chairman of Ocean Harvest Technology Inc., a small manufacturer of therapeutic animal feeds using seaweeds.

Richard has previously held the position of Chairman at Atlantic Pharmaceuticals plc, Innovis (a sheep genetics company) and Silent Herdsman Limited (Farming Technology).

Key A: Audit Committee N: Nomination Committee R: Remuneration Committee

The Terms of Reference of the Audit, Nomination and Remuneration Committees are available on the Company’s website: www.anpario.com/aim-26/

Anpario plc      
Richard Edwards, CEO +44(0) 777 6417 129
Karen Prior, FD +44(0) 1909 537380
 
Peel Hunt LLP +44 (0)20 7418 8900
Adrian Trimmings
George Sellar

Anpario plc

Source: Anpario plc


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Final Results - RNS