Tristel have now released their results for the half year.
This is not a particularly pretty sight. Revenues for the largest two segments are down £764K between them, and the new contamination control segment increased by £105K but there has been quite a shift from UK revenues to those of the rest of the world. When combined with flat costs of sales this meant that the gross profit was £654K lower at £2.8M. We also see that depreciation is up £147K to £576K but the other admin expenses of £2.8M effectively cancel out the gross profit. On top of this, there are also £2M of (mostly non-cash) exceptional items. Negligible finance costs and income mean that the loss before tax is £2.7M. Due to the loss, the group received a higher tax rebate than last year to leave the loss for the year standing at £1.9M. Not altogether unexpected but disappointing nonetheless.
The exceptional items were made up of £81K in redundancies, £45K of impairment of investments, £78K in goodwill impairment,£103K in impairment of property, plant & equipment, £212K in provisions against bad debts and £385K in provisions against obsolete inventory. The bulk of the value, however, came from the impairment of other intangibles of £1.1M. At least most of these are non-cash items.
We can see the effect of the non-cash write offs here as intangible assets are down by £1.3M. The other major difference here is the reduction of cash to a tune of £705K to leave nothing left! This means that total tangible assets were £1M lower at £6.1M. In the liabilities we can see that the tax liability has reduced by £100K and the payables are down by £461K, which is slightly counteracted by a £185K increase in current bank loans. Overall the net tangible assets are £651K lower at just £4.1M.
The impairment of the intangible assets involved a charge of nearly £1M for delivery systems due to a decline in future revenues predicted and a £134K charge for products in development.
As we have seen the reduced revenues have caused the cash loss from operations (even after favourable movements in inventory and receivables) to be £450K. For some reason the group did not receive any tax rebates in this half year but did spend less on capital expenditure. There was also a total of £140K paid out in dividends that the group could ill afford. Overall, the cash outflow for the six months was £889K.
There has been a bit of progress made during the half year and the Wipe Systems have been approved for sale in China. Sales in Germany and Australia have seen big hikes, in contrast to sales in the UK and the Amistel range (vet disinfectants) has been sold to into CSV veterinary surgeries in this country, which is pleasing given that Tristel are now marketing these themselves.
The main issue this half year has been the decline in sales of the multi-channeled endoscopy products at a faster rate than was expected – this has led to both the reduction in revenues and the subsequent one-off costs. The falls can be partly attributed to new NHS guidelines that enable hospitals to use the washing machine’s own brand disinfectants, which evidently most hospitals have chosen to do. The future rests on the group’s ability to push its other, newer products which include the wipe and surface decontaminating systems which have recently been granted a licence for use in China. The other great hope is the vet infection prevention products and these actually seem to be doing OK following Tristel’s termination of the agreement with Medichem.
Overall then, this is not a good update. The most worrying issue are the collapsing revenues, but it is rather good to see diversification away from the UK. The £1.9M after tax (rebate) loss is mostly made up of exceptional items but more of an issue is the negative cash flow, which at £889K for the half year, is quite a loss for a company of Tristel’s size and puts it into a net debt position. The dividend has been cut, but after a fall in the share price the full year yield is still an unexciting 2%. Going forward, management expect the group to be cash generative in the second half but I have fallen for their hype before so I will wait and see what happens – after buying a few more since the final results, I will now hold and wait.
On the 22nd July, Tristel released a trading statement covering the whole year. The restructuring and sales growth returned them to profit in the second half after the loss making first half and the full year profit before exceptionals is now expected to be £300K. Also there was some good news regarding the cash flow. The group achieved a £500K cash in flow in the second half, compared to the £400K outflow in the first half of the year. They seem to have done particularly well in Human Healthcare where the instrument wipes and surface disinfectants gained increased acceptance both in the UK and overseas. The offices in New Zealand and Germany were profitable during the period and although the Chinese office has some way to go, the performance in the second half was encouraging. Less was said about the animal healthcare and contamination control sectors but overall this seems much better than the results in the first half.