Tristel have now released their interim report for 2012 so let’s have a look at the income statement to start with.
So, this is quite interesting. We can see that the profit for the year of £531K is £230K up on the same period of last year but within this is a £269K net tax rebate, which is to do with an R&D tax credit, against a tax payment of last year of £132K. The profit before tax is actually £171K down on the first half of the 2011 financial year. The cause of this is increased depreciation (obviously a non cash charge) and a £559K increase in other administrative expenses. I am not sure what these are but it is clear that this is where Tristel has lost out when compared to last year. Revenue is actually up for all sectors with the diversification strategy being implemented is clearly working to some extent as we see the pharmaceutical sector show it’s first revenues.
Moving on to the asset statement:
This seems to be fairly decent – net assets are up nearly £500K and net tangible assets are up £380K. The largest increases can be seen in inventories and receivables suggesting that Tristel has been increasing its order book (or has issues with the ordering process). All liabilities have increased by small amounts to give the net increase seen in the net asset base.
We can see here that there is a small cash outflow of £43K compared to an inflow of £175K in the same period of last year. However, when considering the new share issue that raised £3.9M last year, this is actually a rather better comparison than it first appears. Increases in inventories and receivables are only partially mitigated by an increase in payables, leaving the cash from operations at £213K (compared to an outflow last year). Added onto this is the £352K tax rebate which does flatter these figures somewhat. The capital expenditure on intangibles and property, plant and equipment is much lower than in H1 2011 suggesting Tristel is scaling down investment. We can also see a much lower spend on dividends which is far more sustainable given the cash flows seen here.
Overseas sales have doubled in the first half of this year to be £775K as a result of more sales in Germany and an agreement to enable to group to make sales in China. Indeed Tristel has appointed 15 regional distributers in China and sold 35 Stella units so far – due to the huge market here I have decent hopes for this venture. Tristel have also now launched into the Australian hospital market. Although this is still small when compared to the UK, I feel this is the start of a very positive step to diversify abroad.
Last year the group invested heavily in new product areas in order to mitigate the fact that their traditional market of digestive endoscopes is a declining area. The new business area was sterilization products for the pharmaceutical and personal care industry. This capital expenditure seems to be relaxing and hopefully the group can now push on and realise more profits. The traditional niche of digestive endoscopy reduced by nearly 9% in earnings in the half but the rate of decay is less than last quarter. The products that Tristel sell are generally low cost and as such hospitals that are looking to save money should be looking more and more at these kinds of products.
Overall then, these results suggest to me that things are starting to bear fruit. I have a bit of a worry that profits are growing at a slower rate than overheads which would have dented the profit were it not for the R&D tax rebate. The net assets are tracking up slightly and the cash generation is pretty much non existent but I am excited by the new business areas and territories being explored by Tristel. I would like to think there is a lot of potential there. This is a tricky one but I think this may be a risky buy.
On 3rd April 2012, Tristel made an announcement that they had terminated their marketing agreement with Medichem. Tristel has traditionally sold £2M of products to Medichem which they will now have to market themselves. Although this is an opportunity to gain margin on the products, the fact that it was unexpected is rather worrying. In the short term, this is likely to affect deliveries and profits. Now an even more cautious buy.