Tristel has now released its interim results for the year ending 2015.
Revenues increased across all sectors when compared to the first half of last year and whilst cost of sales also increased, gross profit managed a £621K growth to £5.1M. Admin expenses also increased, along with a £45K growth in share based payments that meant the operating profit grew by £299K to just over one million pounds. There were negligible finance costs/income but tax did increase by £105K to give a profit for the period some £204K higher at £773K.
When compared to the end point of last year, total assets increased by £248K driven by a £281 hike in cash levels and a £74K increase in receivables, somewhat offset by a £66K decline in inventories and a £44K decrease in intangible assets. Liabilities fell during the period, almost entirely due to a £429K decline in payables, somewhat offset by a £145K increase in tax liabilities. The end result is a £600K increase in net tangible assets to a comfortable £6.4M.
Before movements in working capital, cash profits were £306K higher at £1.5M before a large decrease in payables pushed the net cash from operations down to £1M, a decline of £600K when compared to the first half of last year. Just under half of this cash was spent on capital expenditure to give a free cash flow of £590K. This was enough to cover the dividends of £512K and after a receipt from share issues the cash flow for the half year was £291K, a decline of £675K when compared to the first half of 2014. This is a comfortable cash flow but I am left a little disappointed that the payment of those payables pushed this below that of last time.
Gross profits for the Human Health division increased by £537K to £4.5M; gross profit for the Animal Health business grew by £38K to £244K; and gross profits for the Contamination control division increased by £46K to £343K. The group is investing in a new enterprise resource planning information system which will cost about £160K and investment is also being made in the business development teams in the UK and overseas direct operations in order to establish a foundation for the next phase in the company’s growth. The growth came from both the UK and overseas with the operations in Germany, China and Australia developing particularly well. Going forward the Chairman mentions the potential for expansion into North America which is undoubtedly a huge but difficult market.
The group also mentioned that the regulatory environment within Europe’s biocides industry is going through a period of significant change with the BPR looking to harmonise the European market for biocidal active substances and products containing them. The investment required by the group over the next three to five years to meet the new regulations will be substantial. The chairman seems to think that that this is an opportunity for the group to gain market share from some of their smaller competitors but I do not share his optimism. As part of this change, the group have to decide whether continuing involvement in non-chlorine dioxide products makes economic sense and a rationalisation of their portfolio may be the result. It is expected that the BPR process will take many years to complete and the group will report further regarding this at the preliminary results stage.
After an increase of 63% in the interim dividend, the shares are yielding 2.3% at the current share price. Overall this was a good set of results, as flagged up in the last update. Profits were up, the strong balance sheet improved further and the operational cash flow covered all expenditure, although the decline on the cash from operations compared to the same period of last year due to the increased payables is a bit of a disappointment. Demand for the group’s products increased across all sectors and the international expansion is certainly quite exciting. The issue as far as I see it is the new regulatory changes happening in the EU. This will require substantial investment and is likely to drag on for many years which very well may curtail growth. I am happy to continue holding but I am not regretting my recent sale and I may well reassess my position if the share price fails to hold up.
On the 21st May the group released a trading update covering the first 10 months of the year. The group has performed ahead of budget in both sales and profit terms during the period with strong trading in the UK, Germany and Australia. Russia has been difficult over the period and the board is reviewing future prospects in that country. The pre-tax profit guidance has been increased to £2.5M, compared to £1.8M last year with the CEO commenting that the sales momentum built over the course of the past two years is being maintained and the boast base is being well controlled which will translate to a record profit being reported this year. This is a very strong update and I have re-entered here after selling post the last update – I should have just kept hold of the shares but that is easy to say with hindsight!
On the 18th June the group announced that it was to pay a special dividend of 3p. The chairman stated that returning cash to shareholders at this juncture will not be at the expense of investment in the business. They have a more exciting pipleline of new product developments than he has seen at any time in the past and they are moving forward with regulatory approvals in new, game-changing markets. Also during the past six months they have spent a lot of time assessing the challenges of the Biocidal products regulation and are now confident that the future costs associated with it will be met comfortably by ongoing cash flow. In short, the business is making excellent progress in all of its markets.
This is a very bullish sounding update. It was also stated that the final results won’t be announced until October, though which seems quite late. After the jump in the share price today, I calculate that the yield for the year will now be about 5% which is very impressive given the growth potential here. I am sorely tempted to add a few more of these.
On the 1st October the group announced the appointment of David Orr as a non-executive director. He is currently group MD of Fencor packaging group, a supplier of packaging to Tristel and he has previously serves as Chairman of Pendragon Presentation Packaging. Interesting….