Bioquell has now released their interim results for the year ending 2017.
Revenues increased when compared to the first half of last year as an £86K decline in ROW revenue was more than offset by a £1.7M growth in US revenue and a £700K increase in EU revenue with UK revenues flat. Depreciation was down £118K, amortisation fell by £70K but other cost of sales grew by £655K to give a gross profit £1.8M higher. Sales and marketing costs grew by £475K, R&D costs were up £332K and share based payments increased by £101K with other admin costs down £194K which meant the operating profit increased by £1.1M. Finance costs saw a £70K growth and tax charges were up £122K to give a profit for the period of £1.2M, a growth of £893K year on year.
When compared to the end point of last year, total assets increased by £1.3M, driven by a £3M growth in cash and a £367K increase in inventories, partially offset by a £1.5M fall in receivables, a £324K decrease in property, plant and equipment and a £340K fall in other intangible assets. Total liabilities were broadly flat as a £273K growth in current tax liabilities was mostly offset by a £198K decline in deferred tax liabilities. The end result was a net tangible asset level of £17.8M, a growth of £1.5M over the past six months.
Before movements in working capital, cash profits increased by £961K to £2.6M. There was a cash inflow from working capital with a big decrease in receivables and after interest payments increased by £70K the net cash from operations came in at £3.8M, a growth of £2.5M year on year. The group spent £379K on property, plant and equipment and £124K on development costs to give a free cash flow of £3.3M with a net £91K being spent on their own shares to give a cash flow of £3.2M and a cash level of £11.8M at the period-end.
Of the £2.2M increase in revenues, half of this was due to favourable forex movements. The profit in the BIO division was £1.9M, a growth of £1.4M year on year. System revenues, which includes equipment consumables, service and validation grew by 18% whilst revenues generated by the Rapid Bio Decontamination Service grew by 40% with recurring revenues up 14% to £5.7M.
The new fixed, wall-mounted bio-decontamination system, Bioquell Sequre, launched in Q4 2016, has demonstrated strong growth and continued interest from the pharmaceutical sector. A dedicated aeration unit will be launched early in H2 2017 to support its use in the absence of available HVAC systems. A programme of product improvements, upgrades and enhancements of the RBDS equipment fleet is underway.
QUBE revenues in the period more than doubled to £1.6M. Over time they expect the range of specialist applications for the unit to increase with an associated growth in revenues. PODs are available to purchase or rent. Revenues for the units, which are predominantly recurring, grew by 22% to £400K in the period.
The loss in the Defence division was £21K, a detrimental movement of £271K when compared to the first half of last year. The division was relaunched in December to create further awareness of their capabilities. Additional sales and marketing staff was put in place to provide better visibility of revenues and a stronger order book. There is growing evidence that this is beginning to work as the number of prospects in the pipeline has increased significantly and new customers have been added in the past six months which will generate revenue in H2 onwards.
There are a number of different drivers of growth which are positively affecting the business, including the need for customers to achieve regulatory compliance and continuing growth in research and small scale production associated with cell-based healthcare products. Going forward, the board expects revenue to be broadly similar in the second half of the year and given the momentum in the business, they believe that the group’s pre-tax profit for the current year will exceed current market expectations.
At the period-end the group had a net cash position of £11.8M compared to £7.3M at the same point of last year. At the current share price the shares are trading on a huge historical PE ratio of 117 but this falls to 29.4 on the current year consensus forecast. This is an old forecast, however, and we now know that the group is outperforming so assuming similar profitability in H2, the PE would fall to 19.
Overall then this has been a good period for the group. Profits were up, net assets increased and the operating cash flow improved with a decent amount of free cash being generated. It is true that a proportion, up to half, of the outperformance has been due to forex movements but there was a strong underlying performance too. The BIO division was strong with all products seemingly seeing growth and although the defence division saw a loss, this was due to investment in future growth. The full year should increase expectations and although a forward PE of 19 looks quite expensive, there is a lot of free cash here and there seems to be good momentum finally. I have bought in here.
On the 2nd August the group announced the disposal of its UK AirFlow service business. Since ceasing production of Airflow safety cabinets in 2013 the group has continued to support these products in the UK with dedicated service engineers, spare parts and filter manufacture. The group have agreed to transfer this business to CHTS with immediate effect. The consideration is £169K in cash on completion and a further £70K payable next January. Last year the business generated a gross profit of £350K. I am not sure if this represents great value…
On the 22nd August the group announced that company secretary Georgina Pope sold 2,500 shares at a value of £6.5K.
On the 9th January the group released a trading update for the year. They estimate that revenues will be ahead of their previous expectations at around £29.3M. Pre-exceptional earnings before tax are expected to be significantly ahead of market expectations and as previously announced an exceptional gain of £250K will be recognised on the disposal of the Airflow business. The group had a net cash position of £14.5M at the year-end.