Bioquell has now released their final results for the year ended 2016.
Revenues declined when compared to last year as a £953K growth in UK revenue and a £301K increase in European revenue was more than offset by a £1.6M fall in ROW revenue. Cost of inventories declined by £2.1M, however, and despite a small increase in other cost of sales, the gross profit grew by £1.3M. Sales & marketing costs declined by £331K but R&D costs increased by £319K with a net forex loss of £310K. Other admin costs also increased by £403K and after £858K of board restructuring costs and £662K of intangible asset impairments, the operating profit was down £497K. Interest costs also rose but there was a £316K increase in tax receipts to give a profit for the year of £397K, a decline of £240K year on year.
When compared to the end point of last year, total assets declined by £40.2M due to the £38.8M fall in cash, the £774K decrease in inventories and the £659K decline in capitalised development costs, partially offset by a £1.4M growth in trade receivables. Total liabilities increased during the year as a £539K decline in trade payables and a £464K decrease in deferred tax liabilities were more than offset by a £754K growth in accruals and deferred income and a £907K increase in other payables. The end result was a net tangible asset level of £16.3M, a decline of £39.9M year on year.
Before movements in working capital, cash profits increased by £153K to £3.5M. There was a small cash inflow from working capital but this was less than last year and after a modest in increase in interest costs there was a net cash from operations of £4.1M, a decline of £1.2M year on year. The group spent £723K on property, plant and equipment and £409K on development costs to give a free cash flow of £2.9M. This covered the £1.3M of shares acquired for treasury purposes and the surplus cash was returned to shareholders in the form of cancelling shares which gave a cash outflow of £39.1M and a cash level of £8.8M at the year-end.
The underlying result from the Bio-decontamination business was £2.6M, a growth of £1.2M year on year. Over recent years a number of customers have requested fixed decontamination systems, with increasing demand linked to evolving regulatory requirements. In the second half of the year the group launched a new fixed, wall-mounted decontamination system incorporating the use of their hydrogen peroxide captive consumable cartridges. Sales of this product have been encouraging with a significant number installed at a major French life sciences company. Looking forward to 2017, the main challenge for the group is to drive revenue growth from this new suite of products as well as driving additional growth from the sale of related services and consumables.
The underlying result from the Defence business was £202K, a decline of £380K when compared to last year. Historically defence revenues have been difficult to forecast but there continues to be demand for the group’s products in chemical, biological, radiological and nuclear filtration equipment from a number of overseas defence contractors. In December the business was relaunched as MDH Defence with additional sales resource to provide better visibility and increase the order book. The board do not expect any short term growth from this initiative but longer term they hope to realise a firmer and larger order book.
The executive management team was restructured in August. Ian Johnson became executive chairman and Jay LeCoque was appointed as commercial director having both previously worked together at Celsis. Finance Director Michael Roller has agreed that he will reduce his time commitment to three days a week and he will be supported by Company Secretary Georgina Pope.
During the year 20,405,814 shares were repurchased under the tender offer to purchase own shares. The total consideration for the purchase was £41.4M.
During the year £500K of the book value of the group’s patents was impaired following the outcome of a review of their patents to establish which ones could be maintained in certain jurisdictions. In addition, £200K of intangible assets relating to two products in the defence sector were impaired following a decision not to continue to offer these products for sale.
As they enter 2017 the financial performance of the core bio-decontamination business was beginning to improve and the board remains confident in delivering further growth in revenue and profits. It is also worth noting that the group is benefiting from the recent weakness in sterling.
At the current share price the shares are trading on a PE ratio of 121.9 which falls to 21.8 on next year’s consensus forecast which seems rather steep to me. At the year-end the group had a net cash position of £8.8M compared to £47.6M at the end of last year. There was no dividend paid during the year and the board expect to return further cash to shareholders by way of share buybacks during the course of 2017 instead of dividends.
Overall then this has been a mixed year. The profit declined but this was due to impairments and board restructuring. Net assets also declined but this was due to the share buyback and whilst the operating cash flow fell, this was due to working capital movements and cash profits grew with some decent free cash being generated. The bio-decontamination business saw growth and new products should help going forward and whilst the defence business saw a drop in profits, this has subsequently been re-branded.
So, whilst all this seems like the group is definitely moving in the right direction I can help feeling that the forward PE ratio of 21.8 more than adequately accounts for this. Having said that, however, with the net cash being accounted for perhaps the price is a bit better than I though. Tricky, not sure about this one as it seems a bit of a punt.
On the 26th April the group released a brief trading update where they stated that trading in the year to date had been encouraging and the outlook for the rest of the year remained favourable. There was a reduction in the cost base and greater focus on the opportunities in the life sciences market. They had net cash of £12M at the end of March.