Animalcare Group plc (WQ7.SG) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Animalcare Group plc Investor Presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Jenny Winter, CEO. Good afternoon.

Good afternoon, and thank you very much, and you're very welcome to our interim results 2025 presentation. You have myself and Chris Brewster. I know that we've met several of you previously and looking forward to taking you through the short presentation and answering any questions you may have. For those of you who haven't listened to one of our presentations before and who aren't familiar with us, we're an international veterinary pharmaceutical company. The majority of our products are prescription products. So they're either used by the vet in the vet surgery, so anesthesia, analgesic, anesthetics, et cetera. They're prescribed to a pet owner. So the -- that writes a prescription. Very often, we'll sell the product based on that prescription. And some of our products, they don't need a prescription, but the vet will send a pet owner home with a product. We operate in all 3 segments of the veterinary pharmaceutical market, Companion Animals, so dogs and cats mainly. And that's the biggest part of our business, as you can see on the right-hand side. That's growing at about 4%. Difficult to get very accurate data, but around 4%. Equine is a strong part of our business. You can see Equine and the other segment Production Animals are about equal in size now. And this has been significantly strengthened in the last year by the acquisition of an Australia, New Zealand and UAE Asia Pac business called Randlab. We also have a very strong large product within our existing portfolio called Danilon. We see Equine growing healthily at around that 8%, and that's driven by the Equine business being slightly less competitive, but also the willingness to pay is higher and the money spent on horses is more significant. Difficult to get exact data [ in terms ] of Production Animal market growth. We think this is growing, but probably at a lower rate than the other 2. Our Production Animal business is predominantly in Southern Europe, so Spain, Italy and Portugal. That's really for some historical reasons. Our Equine portfolio is predominantly in Australia and New Zealand, UAE and Asia Pac as well as quite a significant business in the U.K. And Companion Animals is everywhere, excluding Australia and New Zealand, UAE, Asia Pac apart. Really important part of our success is because we have very strong relationships with the vet. So they're our customers, and we have good relationships with many of our representatives have been calling on that customer for a long time. So they're talking about the product, the decision for the vet is usually based on efficacy, safety, relationship with the customer and price comes a bit further down the track. On the right-hand side, you can see the multi-stranded growth strategy. And those of you who have met us before know that we've always focused on these 3 strands. Firstly, making sure our organic business is growing and healthy. Secondly, that we are looking at acquisitions, licensing, development to build that footprint, to build scale. And thirdly, looking for new product development, and we'll talk about all of those 3 strands as we move forward. Looking at our portfolio, this is the top -- on the right-hand side, you've got the top 10 products in our existing portfolio. And we, over the years, have been making a stronger and stronger portfolio predominantly in 2 ways, one of which is we used to have products that we distributed for somebody else. And they were always inherently a little bit more risky because the owner of them could take them back, they manufactured them. We had less control over the supply chain. And we're moving that to more products that we either have a license or we own the intellectual property. And so moving in that direction is really a very positive step forward, gives us more sustainability and more certainty. We're also moving from what was historically, 5 years ago, more generic portfolio. So that's something that hasn't got intellectual property or a significant differentiator. We're moving into more novel products that have something about them that means that nobody else has the same thing. On the right-hand side, you can see that our portfolio in the top 10, we've got some really important products that are still growing very healthily. And this is a mix of some older products and some newer products. You can see at # 5, for example, that's the leading product from Randlab coming in now to our Top 10. It's why we haven't got comparator data for the first half because we've only owned it since January. But this is -- it's an important move forward. And then you can see the 2 really critical products for us, Daxocox at #6 and Plaqtiv at #9. And those are important for us because they're relatively new launches. They're on a significant growth trajectory, they're high margin and they're ours. And so those are 2 of our important products, and we would expect those to continue to move up through the top 10 towards the top. Also important when we look at the top 10 is that we recognize that Orozyme, Danilon, Aqupharm and Dinalgen there at the top. Those products are mature products, but they're really super strong brands. And they don't really have a great deal of competition for Orozyme and Danilon. For Aqupharm, this is the water and the fluid that they use for injection. There's a relatively large amount of competition around there. There's also -- globally, there's been some supply channel challenges and people going out of stock, coming back in, which is why you just see a small decline there, which we are addressing through a new supply arrangement, et cetera. Just moving down, the only other products, I'll just mention because it's -- you can see the decline, is SEPONVER, SEPONVER PLUS. This is a product that's phenomenally seasonal. And unfortunately, due to a bit of a supply quality issue, we were late in delivery. So you missed that -- a bit of that seasonal piece, but we're pretty confident that, that will come back. So for us, having that really strong Top 10 where we focus and we're driving growth is super important. It accounts for about 40% of the sales, the top 20 accounts for 60% and the top 40 accounts for 80%. So you can see that this 40% of business is really important for us. What we're really pleased about in the half year was that whilst we were focused on the strategic execution, bringing Randlab into the group, making sure that we drove the existing product portfolio. Looking at some more opportunities, you may have seen that we bought a stake in an Australian Companion Animal business called InVetro. We've also done some licensing deals, and we bought the rights to our own antibody. So we've done some -- we had quite significant strategic progress. Importantly, the financial performance has continued to be strong with revenue up 18.3%. So that for us is really important to get the balance between those 2 areas. Chris is going to talk a little bit more about the financial performance, so I won't dwell on that. Suffice to say that we're pleased that we had the right balance between those 2 areas. Just a few comments about Randlab. We completed this deal on the 3rd of January. And our expectation was that we'd be sitting here talking about the progress of integration, what we've learned, maybe things that we've had to address. Actually, what we're sitting here doing is looking at a growth of 14%, which is excellent. We're really pleased with that, but also a business that was able to pivot relatively quickly from a very strong controlling founder to being part of the Animalcare Group. So we're really pleased about that. And our discussions with the team at Randlab now is much more about growth opportunities, future growth, how can we drive the business differently. And we're already looking at 3 main areas, one of which is we brought in an export manager, who's doing a super job of professionalizing some of the export that was going on previously that was a little bit of a second thought. She's already up and running, looking at Japan, which is a big market and other countries around Asia Pac. So that's been really good, and she's paying back already very quickly to being positive contributor. Secondly, we're strengthening our UAE, GCC function. There's been a small footprint there, but the opportunity is very significant. So we've actually strengthened that with a new leader in there. And the third one is just literally in Australia, we recognized that there was an opportunity by bringing one more sales team member in to really drive that growth, particularly in New South Wales, actually, the state that Sydney is in. So we're delighted about that. It's really moving forward. Just in terms of the future opportunities, we're still working on some of these. Most of them involve regulatory filings. So it takes a little bit longer, looking at some products that we have in Europe that we can take into the Australia and New Zealand business. for Equine and some of the business that's in Australia and New Zealand, how we can bring it to Europe. We've already done one on a special license, but we're still looking at that. We're also tapping into a lot of the Equine experience. When we talk about pipeline, you'll see that we've got some products that are in the Equine area. And there's some superb expertise actually in the Randlab business that we've been tapping into. And that's been very helpful to get a global view for the development. I'll hand over to Chris at that point to go through the financial review.

Thanks, Jenny. Good afternoon every one. I'm just going to start on this slide, which is an overall summary of the financial performance. So as you can see clearly on here, particularly on the P&L KPIs, the significant contribution from Randlab. I think what's pleasing for us is that the half year gives us the first opportunity to demonstrate all the value that we saw at the time of the deal when we finished that in January. I'll come on to more details on each of those. But you can see our margin, so the accretion there is largely driven by Randlab. And just to give you a feel, so the Randlab portfolio is at 73% gross margin. That's exactly in line with expectations that we had at the time of the deal. So a really profitable F1 portfolio at gross margin level. And you can see that translating into EBITDA. So the EBITDA delivery of Randlab, again, in line with expectations was up 47%. And that actually is better than we expected on the basis that we have accelerated some investment into the business. I think as Jenny said, we quickly moved from integration into looking at opportunities for growth with the senior management team over there. And we've done some investment, accelerated some investment in the commercial footprint, both in Australia and from an export basis. Whilst there's a lot of -- rightly a lot of focus on Randlab, we'll come on to this, but the underpin of all of this is obviously the continuing performance of our existing operations at Animalcare. And we'll see that, that's continued to grow steadily from an organic perspective, notwithstanding a couple of headwinds that I'll come on to. And then finally, on cash conversion, we're at 70% at the half year stage. We have a target of 80%, and we're really confident that we're going to hit that for the full year based on where we are at the half year. I'm going to use this slide just to touch on a few things from an organic perspective. So if we set the scene for Animalcare, we've always targeted organic growth around market, which from Jenny's slides earlier, you can see that they are around 4% to 5% market growth. We are around 1% organic growth, and there's a couple of reasons for that. So you can see, firstly, about 1% has been lost on translation effects. So as a reminder, around 75% of our sales are in euros, excluding Randlab and the strong sterling has had an adverse impact on that. And then secondly, you'll have seen at the trading update, but also in the finals that we've mentioned a particular circumstance and situation around Conofite, which I'll just -- I'll give you the impact and then give you some background. So at the half year, Conofite impacted sales in Spain by around GBP 1 million. So that's around 3% organic growth from last year. So it's quite a big product in Spain. The sales last year were quite heavily weighted to the first half, about 70-30. So the impact is more marked first half and second half. The reason why we've been impacted is that in Spain, they've had an electronic prescription system called Prescrivet that's been operating in Production Animals and the authorities had to put that in place across Companion Animals by 2030, and they decided to do that from the 1st of January this year with very, very little notice. Those kind of guidelines are really targeted at standard antibiotics and they give a classification of A to D. As are the one that is really hard to prescribe for obvious reasons and Ds more freely to prescribe. And Conofite are the topical product where we've seen similar things put in place across other countries. It's been diagnosed determined as a D and we've gone in at B for unknown reasons. So where we are now and where we since the start is that our team and lots of our other peer groups have been lobbying the 2 authorities for the Ministry of Agriculture and the Veterinary Association to change that classification. Where we are today versus the half year, I think, is we're more confident of a resolution. We unfortunately don't have a timing of that resolution, but our best guess at the moment is that it -- we're hoping that Conofite sales will resume at a normal level probably from the beginning of next year. On gross margins, we talked about Randlab's very high-margin portfolio. On a like-for-like basis, we're about 1% down year-on-year. So that's around 50% FX, again, the euro impact. And then there is then a net cost inflation in Production Animals largely. And Production Animals has a higher percentage of products on distribution. Those products are less in our control in terms of cost of goods. And so we had some significant inflation there. The price increases are quite static in terms of when they're enacted. So they're in Spain on the 1st of April. So hopefully, we'll be catching up some of that price increase during the course of the year. On EBITDA, we said that Animalcare is broadly in line with last year. There's a little bit of the revenue and margin mix that I've just talked about in that EBITDA. And you can see that the increase in SG&A cost is very small. It's about GBP 200,000. So we've got a very well-controlled cost base as always, and we continue to invest in people. On EPS, a couple of things to point out here as to the reasons why that's much bigger increase than EBITDA. The first is on finance income. So that's unrealized foreign exchange gains on -- into companies. Again, there's a GBP euro at play here. We'll see where that gets to at the year-end. So that will probably move in line with FX rates. The one that's locked in for the benefit that's locked in is in the tax. So very briefly, we've been operating for years with quite significant losses in our Belgium entity that we've not been able to unlock. And we've structured the Randlab deal to be able to unlock that because we've got financing -- structuring of finance income into Belgium. So we've been able to unlock those losses, which is great news. So my summary for the full year is that I think EPS will be higher than EBITDA growth, but probably a little bit less because of that FX movement. Coming on to an overview of the product categories. So Jenny has touched on a few of these brands. So I'll give a counter through on here. So on Companion Animals, revenue is up about 2%. We mentioned on here Daxocox and the dental range. Jenny is going to come on to a bit more detail about what the future looks like for those because we're really pleased with the historical growth. Right, can everyone see Slide 10? So yes, we'll come on. So really pleased with Daxocox and dental, and we think there's a long runway for them to grow going forward. We talked about Conofite. Production Animals, this part of the business was up around 14% at the half year last year. And the 2 reasons for that were, on our export business, it's very led by big one-off orders. So there was a positive phasing of orders in the first half of last year. And for those that followed the results last year, we also had a competitor out of stock, and that was about GBP 0.5 million. So Production Animals has normalized to the kind of low single-digit growth that we've talked about. Strategically, just on Production Animals because we get -- we sometimes get asked questions like whether this is going to be a continuing part of the business. The answer is yes for a few reasons really, the gross margin profile for Production Animal portfolio is strong. And then typically, secondly, compared to Companion Animals, the cost to serve is less. So it's got good EBITDA delivery, good cash generation. It's got good EBITDA delivery, good cash generation. And obviously, it's the cash generation that's underpinning. We'll come on to the capital allocation, particularly around the R&D investment. And then on Equine, the -- again, you've seen the big increase in sales there from Randlab. So Equine is now about 23% of sales, by far our most profitable portfolio, which we expect to grow. And that's growth across Randlab and also on the Animal Care side, particularly with our key brand Danilon. And then from a margin profile here, the organic margins actually increased, and that's centered around Danilon. So really pleased with that overall portfolio. On cash generation, so on the right-hand table, we can see the cash conversion calculation. which gets us to that 71%. The balance of that between Animal Care and Randlab is broadly the same. So both are around that mark. So from an Animal Care perspective, we tend to have a lower first half cash conversion than second half. So that's in line with expectations. And then from a Randlab perspective, at the time of the deal, we were targeting around 70%, 75%. So that's in line with expectations as well. So not only has Randlab had a really big contribution, [ significant ] contribution from a P&L perspective, it scaled the operating cash flow significantly. What that's led to is an adjusted free cash flow of GBP 4.3 million. The reason I've called it adjusted is that there's GBP 1 million of acquisition expenses that I've taken out here. So all the acquisition costs for Randlab from a cash perspective were paid in the first half. And therefore, that's why we've got those coming through this year. And that adjusted cash flow is around GBP 1 million higher than last year. So really pleased with the free cash generation. On that free cash flow, you can see in the orange box, there's CapEx, capital expenditure. I'll comment a lot more to what the future is going to look like from a pipeline perspective. Just to say there that, that capital expenditure was lower than we expected at the half year, the sweet itch deal and acquisition of the NGF program from Orthros later than expected. So we're expecting that to get up to somewhere towards the run rate of 5% of revenues, probably about GBP 3.5 million at the full year. And then finally, on the balance sheet. So for those that followed the Randlab acquisition, you'll have seen that we raised equity, GBP 20 million of equity. at the time. That was purposeful to leave this balance sheet really strong in terms of giving us headroom and more firepower for M&A, and we'll come on to that. So we're 0.7x levered now. We generally kind of look at a 2x leverage cap at the top of that. And therefore, when we come on to the next slide, we can see at the bottom that we think we've got around GBP 20 million to GBP 25 million of firepower for M&A, and we'll come on to further details later on. On capital allocation, so this slide has not changed. I think the key message hasn't changed, but to reiterate, we are very fortunate. You can see from the right-hand side that our existing business was very cash generative. I said with Randlab that's scaled, so we're really confident about the history of both businesses and the future of both businesses. It means we can both continue our M&A journey, which is debt funded largely with some equity if we need and then increase significantly the R&D allocation. And as a reminder, in the past, we've probably been around the 2% to 3% mark. We're saying around the 5% plus mark and the benchmark in animal health is probably about 8% to 12%. So we've got some room to grow the investment there. Just to touch on the dividend. So the dividend is up 10%. You can see the EPS growth was far higher. I think really, the key message here is we are prioritizing investment, both from an organic, inorganic as well as product development. So -- but we will still be paying a dividend. But obviously, that is going to be -- it's not a progressive dividend. Therefore, it will move in line with the investment profiles rather than earnings. Just a final point, which is an accounting point, obviously I'll try not to bore you for too long. The -- our capital allocation in terms of R&D has in the past been largely treated as development. So that's going on to the balance sheet and being am. Going forward, particularly for the NGF program on sweet itch, a certain amount of that will be going through the P&L because it's research, because they're early stage. I think there's a question later on about EPS growth and it looking a little sluggish. So let me just pick that up now. So forecast before we signed up the 2 deals was showing EPS growth in double digits. With the investment in R&D, so I think they're roughly averaging about GBP 1.5 million a year. Yes, that's come down next year and the year after to more single digit. But it's really the investment in R&D that's moved those EPS figures. It's not the underlying strength of the business, and we haven't adjusted any forecast growth rate. Okay. I'll hand back to Jenny.

Thanks very much, Chris. So just a reminder that these are the 3 pillars of our strategy. What I'm going to do now is take you through each one individually. And I've got an eye on the questions, and hopefully, we'll be able to pick some of these up as we go through as well, particularly around the pipeline. Chris, sorry, I flipped through the questions, which is what moved your slides. That was me. I hold my hand up, sorry about that. So inorganic growth, this means our existing portfolio, those Top 10 plus the others. And I noticed there was a question about the growth was about 1.3%. Why was that given that the top 10 are growing. Clearly, at the lower end of that, there are products that come out, and Chris has talked about one product in particular, Conofite, which was driving that. But moving forward, we see there's really good opportunities for organic growth. In terms of inorganic growth, I'm going to talk a little bit about the plan. We won't give you any detail on individual acquisitions. You'll get the detail as soon as we actually have anything that's real and signed. But I'll talk to you a little bit about how we intend to spend that GBP 20 million to GBP 25 million firepower that Chris talked about. And then thirdly, we'll come on to the new product development piece. So I'm going to take each of those in turn and talk a little bit about some of the drivers that we see in those areas. I talked in the Top 10 about these 2 products, Daxocox and Plaqtiv. We're going to continue to drive the other products in the top of our portfolio and make sure that they're properly resourced and continue to grow at those significant rates. But these are 2 that have a lot of opportunity and a lot of runway. So a little -- a few words about what we're going to do here. So if you look at Daxocox, we've launched 2 new tablet strengths in the first half. That's really important because the whole positioning of Daxocox is about simplicity and compliance and ease of use. It's once weekly for dogs with osteoarthritis at the moment. And so having larger dogs having to take multiple tablets wasn't a good plan. So now we've launched those tablets, so we can continue to build the brand as the simple convenient way of managing your dog's pain. The second thing, we have EU approval now for perioperative pain, really important because the vet sees a dog in pain and says the dogs in pain, so prescribes something for pain. When we only had the license for osteoarthritis, it was one specific type of pain, whereas now for more types of pain, the vet can reach for Daxocox, which is why that's really important. We're excited about that. We're going through the launch process now. And thirdly, we're starting to see approvals come through as part of our partnership with Virbac, the French pharmaceutical company, and we have an approval in Japan, which is a significant market. So we're looking forward to Virbac commercializing Daxocox in all those other territories. Half 1 revenue growth, 39%. You can see the 3-year CAGR growth of 30%. We would expect it to continue at that sort of rate. So looking forward, we're also looking to see whether we can get an approval in the U.S. for the perioperative pain indication that could double the opportunity for Daxocox. And we will continue through our Virbac alliance and partnership to expand elsewhere. On Plaqtiv, the 2 main drivers. One is we're also expanding to countries where we sell Plaqtiv through distribution agreements. We've got a license now in Australia to sell it, and that will be sold through our partner, InVetro. And then looking ahead, the most exciting thing we're doing with Plaqtiv is that we have the rights for the retail channel as well as the vet channel. And from 2026, we will start selling Plaqtiv and Orozyme, which was the #1 brand through the retail channel. Carefully monitored and measured approach, working with some experts in this field. And so we're looking forward to how well that dental franchise can do on a digital platform -- digital veterinary platform. So that's what's really important. And those are the 2 big things that are driving Daxocox and Plaqtiv. The other big thing that's driving these products and we've talked to many of you about our investment in commercial excellence over the years, which we will continue to do. We're starting to see the real impact of that. And one of our countries that had the lowest growth rates on Daxocox and on Plaqtiv, we've gone from an 11% year-on-year growth rate for Daxocox to 49% last year or the last half. And the same with Plaqtiv. We've seen significant uplift by the investment that we've made in commercial excellence. So we will be continuing that investment in commercial excellence, which will continue to drive the uplift on these and on the other products that you saw that are important for our future growth. Just a few words about M&A. We're looking to spend our GBP 20 million you could do the maths around if we bought one company, if they had about GBP 5 million revenue and about GBP 2 million of EBITDA type thing, but that's not -- we don't have one that looks like that at the moment. What we'd love to have is something that expands our geography or build scale in a country where we're subscale, somebody who's already got commercial products in market, generating revenue and a healthy margin and somebody who has got a pipeline. Those things don't particularly exist. And with GBP 20 million, that's a relatively small business that you'd be looking at. So what we're trying to do is to build on our existing footprint, build on the Australian acquisition and really try and make sure that through those sort of smaller acquisitions in the next couple of years until the point, as Chris says, when we're ready to go again with a larger acquisition. So that's really how we're focused. The little table on the right changes every day because all the time we're meeting new companies, having conversations, they drop out, somebody else comes in, another conversation progresses. So at any one time, we've got this sort of number of opportunities ongoing. The third pillar we talked about is building that pipeline. And this is some data from Stonehaven, the consultants in this animal health space. And on the left-hand side, you can see that the market is a sort of steady growth. And then you see the arrow on the third box on the left-hand side that is really the predictions of how the market will grow in the future. And this would mirror really what happened in human health, where the generics pricing starts to have a bigger impact and the market is driven by novel products that meet an unmet need, and that really drives the uptake. And on the right-hand side, you can see that that's what's been happening in the shorter term. You can see that 71% growth in new products. So this, we recognize is a really important part of our strategy to find a way to identify some products that really could be game changing. But recognizing that it's really important that we keep our organic growth going, our acquisitions going, in order to make sure that we're funding a pipeline, which from 2030 onwards could be absolutely transformative. So we need to manage that carefully and balance it. I'm going to -- so we've got 5 projects ongoing, all of which would be above GBP 15 million in terms of revenue. And if you think that today, our biggest product is just less than GBP 5 million. So we're really trying to upskill and upgrade the revenue from these projects. So we've got these 5. And then on the next slide, there's just a little bit more detail on each of these. So Chris has referred a couple of times to the Equine project sweet itch. This is a horrible, it's mite driven, but it's an allergic reaction that affects their manes and tails and it's about 8% -- 7.5%, 8% of the population. There isn't an existing market because it is such an unmet need that horse owners with the horse sweet itch choose just anything they can, whether it's rugs or sprays or all sorts of -- there's always recommendations of sort of things to mix together and try, but it really is a very big unmet need. So we estimate the market is around GBP 100 million. If these -- if the development goes right, you'd be targeting sort of 2030 and beyond for these products. And as Chris talked about, this is an end-license agreement. The other projects are all our own intellectual property. So the next 2, the Equine and Companion Animal ones, those are actually the metabolite of Daxocox. You can't give Daxocox to horses and cats and you can't inject it. So we're using the metabolite, the active metabolite of Daxocox and building an injectable and an oral form that we can use to manage pain in horses, dogs and cats. So this program is ongoing. We own the IP. Again, it's going to take us to 2030-ish to get to market. That's because the clinical trials are relatively long. But these are our own products, so we can make all the decisions about. With sweet itch, we have a partner, but the contract allows us to make all the decisions and have a role in the development of that product. And we can get out at any time and we can sublicense, et cetera. And then just the other orange band, the other Equine product, these are the NGF antibodies that we bought in the first half of this year from Orthros, the people who originally identified them. So these are really exciting. So these are NGF antibodies. Now we have the rights to them. We can add things to them. We can control the development program ourselves. And so we're now looking firstly at Equine because that's a relatively straightforward market to get into. Our product is given into the joint. So horses are regularly injected into the joint. So that made sense. And then from there, we'll branch out into all the other indications that are possible with a product such as this, the NGF. So I noticed there was a question regarding why Orthros sold it. Orthros had wanted to be in the human space. They hadn't been successful. We actually moved the development of these to a different development organization had more experience of getting products to market than Orthros. And Orthros decided they wanted to pursue a very different strategy. Chris did a good negotiation. And so we think the price was fair given the risk associated with the product at that stage because for Orthros, a lot of the financial return based on the original contract would have come by them doing the development, which we would have paid on top. And clearly, when we took that to somebody else, that took that away. But also their reward would have come at launch and royalties. So for them, the amount we paid now was better than hanging on and hanging on with the risk. And so it was really a risk-based sum. Okay. So that's really it from the formal presentation. We can flip through the questions and then it won't move the slides. But really, where we see it is Animal Care today is sitting there with 3 areas that we're looking at. Organic growth, absolutely essential, and we'll -- commercial excellence, Daxocox new indications and new launches, looking at the U.S. possibility. Plaqtiv, new countries, new territories and the potential for the retail segment, plus an overwhelming drive to just really focus and deliver on those top key products. Then looking at inorganic, spending that GBP 20 million wisely on something that is short term, so that it is cash generative for us. And then longer term, trying to build this pipeline of things that could be game-changing for us. So if we just summarize that, we're very pleased with where we've got to. We think we're well positioned for further success. We're already with the acquisition of Randlab, double-digit revenue and profit growth. We've integrated Randlab, really comfortable that they are now on a growth trajectory. The organic growth is continuing, and it's really building Daxocox and Plaqtiv and those other key brands at the top. Strengthening the R&D pipeline. I keep saying, wouldn't it be fantastic if we were sitting here having invested 5 years ago and launching something new and amazing. Cash generation continuing to be strong and really moving to try and meet the demand for innovative treatments. So that's the end of the formal session. And so happy to go over to questions now as appropriate.

Jenny, Chris, thank you very much for your presentation this afternoon. [Operator Instructions] I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q&A can be accessed via investor dashboard. As you can see, we have received a number of questions about today's presentation. So please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up at the end.

Okay. So shall I kick off? So the first question, which was submitted in advance, could you provide detail on your development pipeline, drug description, target launch date, addressable market opportunity and the risk percentage discount? So I think in the little table I shared, we shared most of that apart from the risk percentage discount. So we won't share the exact numbers we put on them. We use a fairly standard sort of algorithm about calculating risk, which is based on timing in the -- how much do we know about the product, how far is it in the program? What else is next? What else do we need to expect? So basically, we -- generally, if they're above 50%, you're in a good place, below 50%, you're pretty early. And then in terms of how we calculate discounts, et cetera, I'm going to hand over to Chris to see if there's anything he wants to add to that.

No, I think as you're saying, we use a standard PTRS or probability of technical and regulatory success. And I think in the -- you can see really this is the early stage in clinical trials. So Daxocox obviously, U.S. is a clinical trial and then a regulatory file. So that will have a higher chance of success than the early stage ones being sweet itch and the pain, Equine pain.

Okay. So question 2, could you indicate how different sized acquisitions will be financed in tabular form, which size is most likely? Chris, do you want to I don't know, it's most likely, so...

Yes. So we've already, I think, said that up to 2x leverage, which is a thing rather than a company thing. It will be debt. I think anything where it was going to touch over that, a couple of things. I think we would -- if it was very significantly cash generating, then we may go a little bit above 2x. But otherwise, as we've already mentioned, we wouldn't want to lose out on a deal because of effectively a kind of debt ceiling that's really more a stock market than a business. And therefore, we would look to do a mix of debt and equity as we did with Randlab. In terms of the most likely size, so my answer is between a few million and low tens of millions of what we've got in the pipeline at the moment and anywhere in between. So I think we've learned that things come across our desk sometimes unexpectedly. So we might say that the GBP 20 million to GBP 25 million when we first started the journey of a post Randlab environment, we would do some smaller deals like InVetro if something came across that was in the GBP 30 million mark, then we would have a look at it. So there is quite a range there. But yes, we'll wait and see what comes about. Okay.

I think the main point is that it doesn't have to be just one thing. We might split it and do a number of smaller acquisitions.

Yes.

Okay. What organic growth can we expect from Randlab?

So I think we've been really clear. So Jenny noted very early in the slide deck around market growth around 8%. That's global. We think Randlab has got all the opportunities to be able to deliver that rate. I don't think we've mentioned in some presentation, and apologies because Jenny and I have some time to say we said this earlier. But with Randlab, we talked about -- we move towards opportunities. One of the really nice opportunities is the UAE. So that's a very small business currently in Randlab, about AUD 1 million equivalent sales. We've identified an opportunity to really scale that business, so probably something like 5x over the next kind of really 3, 4 years. And we just brought in a new sales manager to start delivering that. And that's really an opportunity on a GCC basis, whereas today, I think the only area of that, that we operate in is UAE. So yes, so maybe in line with market, maybe a little bit higher.

Okay. And then I think on the fourth question, you addressed it, which was the EPS?

Yes. So just as a reminder, that the changes are really around investment in research, which we've not had in the past. How confident we can do better. I think with the things that we've got, Jenny's noted on the runway on Daxocox and Plaqtiv, some of the things we've talked about from a Randlab perspective, then yes, we always try on the [ site ] side of caution on the broker estimates.

Okay. I think Number five was the Orthros question. Chris, did you want to add any more to my explanation of why Orthros.

No, I think you're right. I've just been checking what's in the public domain a bit carefully. But I think it was really a price tag relative to risk and also what value Orthros were going to receive. And as you say, a lot of that was very late post commercial and they needed the cash. So there is a trade-off between those 2.

Okay. When I move them, I move the slide, I didn't understand...

Can the Equine business be expanded to more countries organically is the next one, Jenny.

Yes. So we're currently doing that at the moment. So we're looking at what we can bring from Randlab to Europe and what we can take from Europe to Randlab, but also what we can develop that will be useful in both countries. So yes, we're looking at that at the moment. It's going to take us a couple of years because of the prescription and the need for a regulatory file, but that work is ongoing. I think most of the Top 10 product grew revenues yet overall 1% to 2%. And I think you've commented on that, which is the FX and the Conofite issue. Hopefully, we've covered that one.

Yes, that's the main driver. And then we -- I think we've talked before. So within the market growth assumption of around 4% to 5%, we assume a dropout rate of around 2%. So that might be mature products with new competition. We've obviously got a certain percentage of business on distribution contracts, sometimes they get renewed, sometimes they don't. So there's nothing kind of the sharpest kind of fees in the remaining part of the portfolio.

Okay.

And then, yes, capital allocation, how are we balancing R&D, M&A and dividend growth? Hopefully, I said in the message is that the real focus and therefore, the balance is around investment. As I said, the increase in the dividend was far less than the EPS growth. So trying -- making sure that we send a really clear message on that.

Jenny, Chris, thank you for answering all those questions you have from investors. And of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Jenny, could I please just ask you for a few closing comments?

Yes. Thank you very much. So I hope you found that useful, and I hope we met your needs in terms of areas of particular interest. I think we sit here very pleased with where we've got to. frustrated, of course, about the issues around the 1 product in Spain, but recognizing that's a function of the business that we are in. We're really looking forward to the future. I think the balance between organic growth, inorganic growth and then helping to deliver that longer-term pipeline is really exciting. We're not getting carried away with the pipeline because we recognize those first 2 pillars are absolutely critical for everybody to fund it. But I think it's a really nice place to be. So thank you very much for your attention. And please be open and honest in your feedback. It helps us to learn and develop.

Jenny, Chris, thank you for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of Animalcare Group plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.

Thank you.

Thank you.