Apiam Animal Health Limited (ASX:AHX) Managing Director, Dr Chris Richards talks about 1H19 results, business development initiatives and outlook for the second half.
Jessica Amir: Thanks for tuning in to the Finance News Network. Joining me today from Apiam Animal Health Limited (ASX:AHX) is Managing Director Dr Chris Richards. Dr Richards, welcome back.
Dr Chris Richards: Thanks, Jessica.
Jessica Amir: So, for those who are unfamiliar, Apiam Animal Health provides two key services, veterinary services to the animal husbandry market, and to the agricultural industry. But just give us a quick introduction.
Dr Chris Richards: Apiam Animal Health is Australia’s largest provider of veterinary services to rural and regional Australia. So, we have 42 clinics located in the production animal areas of Australia, servicing predominantly the pig, the beef, feedlot, dairy and companion animal markets. So, Apiam has a robust and diversified business model, where we’re servicing a number of species across a number of geographical areas around Australia, and providing a number of different services to those markets.
Jessica Amir: Thanks, Chris. Now to your first half 2019 results, just take us through the highlights.
Dr Chris Richards: If we look at our first half compared to the first half of FY18, we had 10.4 per cent increase in our revenue and 16.4 per cent increase in our gross profit, which was pleasing. Our increase in gross profit’s really been driven by change in our business mix, where we’re delivering more value-added higher-margin services.
The other pleasing area is that we delivered a two per cent increase in like-for-like revenue growth, when you strip out the acquisitions, but a 3.8 per cent increase in our gross profit. So, when you look at the markets and the challenges that some parts of our industries have had, we consider that a fairly strong result.
What’s also pleasing is that our like-for-like operating expenses only increased by 0.9 per cent, to drive that through 0.8 per cent increase in gross profit.
Jessica Amir: Now, Chris, if you wouldn’t mind telling us a little bit more about your operation, starting with the agricultural segment.
Dr Chris Richards: So, our business in the agricultural segment is really aimed about improving the animal health and the welfare outcomes for the clients and their animals that we service. If we look at the first half of FY19 and some of the segments that we operate in. In the feedlot industry we had a very strong first half due to the impact of the drier conditions, which has seen beef producers finish their cattle off on feed.
In the pig industry, although we did see our clients undergo some challenges with high grain prices, through changing our business mix and delivering higher-value services, we’ve been able to maintain our growth and profitability.
In the dairy industry, there have been some challenges in some regions, where they’ve had to pay higher prices for water. But in other regions where they’ve had a very good season, we’ve had some very strong growth. The other part that we’ve developed in the first half of the year is to enter into a consultancy agreement to provide consultancy advice and export genetics, sheep genetics to China, to develop a new sheep breed for the Chinese market.
Jessica Amir: And can you give us an update on your companion animal segment?
Dr Chris Richards: So, we consider that the companion animal segment in rural and regional Australia has traditionally been under-serviced. And through investing in new diagnostics and providing additional equipment for our clinics, we’ve seen a strong growth in that companion animal segment. We see it as being a part of the market that will continue to grow for us, and continue to deliver strong growth in future years.
Jessica Amir: And, Chris, what are the key drivers for strategy and for business growth?
Dr Chris Richards: So, we have three drivers that really underpin our strategic growth plan. So, the first is putting in operational processes that improve efficiencies and that enable us to drive some scalability into the future.
The second growth driver is increasing animal numbers. So we do this through acquisitions, through organic means, as well as through new greenfield sites. And we’ve also been able to increase our access to animal numbers through our US joint venture in the pig industry.
The third driver is around products and services; developing new products and services that will deliver higher value to our clients, and that we can leverage across our enlarging animal footprint.
Jessica Amir: Chris, now can you tell us about the two international initiatives or projects that are taking place?
Dr Chris Richards: The first one is that we’ve entered into a consultancy agreement and the supply of products to improve the sheep meat breeds in the Chinese industry. So, this involves providing consultancy as well as the supply of semen and embryos. The initial revenues have started to flow in, and we expect this to be a three- to five-year project.
In terms of the US, we’ve established a joint venture with a leading swine veterinary group, Swine Vet Centre, to bring some new products to the US market as alternative to antibiotics. These have commenced to generate revenue and we expect this to expand over the next six to 12 months.
Jessica Amir: So, a lot of things are taking place, but is there anything else that you wanted to add before we let you go?
Dr Chris Richards: Over the last two years, we’ve invested in building a solid foundation, as well as the development of new services and products. And we expect that the investments that we’ve made will start to deliver some meaningful results at both the EBITDA and the NPAT level over the next one to two years.
Jessica Amir: Yeah, absolutely. And we’re looking forward to seeing more success. Dr Chris Richards, thank you so much.
Dr Chris Richards: Thank you, Jessica.