
Tristel has now released its final results for the year ended 2017.
Revenues increased when compared to last year as a £137K decline in animal healthcare and a £202K fall in contamination control revenues was more than offset by a £3.5M growth in human healthcare revenue. Cost of inventories actually declined by £146K but other cost of sales increased by £195K top give a gross profit £3.1M higher. Share based payments declined by £553K and there was no intangible asset impairment, which was £125K last tome. Depreciation was up £122K, however, and amortisation grew by £155K. There was a £173K negative swing to forex losses and research costs expensed grew by £414K. Other admin expenses were up £1.5K to give an operating profit £1.3M higher than last time. A gain on the settlement of an agreement broadly offset an increase in tax charges and the profit for the year came in at £3.4M, a growth of £1.3M year on year.
When compared to the end point of last year, total assets increased by £1.3M, driven by a £589K investment in Mobile ODT, a £398K increase in goodwill, a £717K growth in customer relationships, a £417K increase in inventories and a £229K increase in prepayments and accrued income, partially offset by a £627K reduction in cash and a £294K decrease in other receivables. Total liabilities also grew during the year as a £296K increase in current tax liabilities and a £171K growth in trade payables was partially offset by a £348K fall in social security and other tax payables. The end result was a net tangible asset level of £9.1M, a growth of £156K year on year.
Before movements in working capital, cash profits increased by £984K to £5.3M. There was a cash outflow from working capital, however, and tax payments increased by £185K to give a net cash from operations of £4.4M, a decline of £198K year on year. The group spent £419K on intangible assets, £585K on fixed assets, £994K on the acquisition of trade and assets, and £589K on the investment in Mobile ODT; all of which gave a free cash flow of £1.8M. This did not cover the £2.8M spent on dividends and the cash outflow for the year was £673K to give a cash level of £5.1M at the year-end.
The gross profit in the human healthcare division was £14.2M, a growth of £3.2M year on year. The gross profit in the animal healthcare division was £655K, a decline of £27K when compared to last year. The gross profit in the contamination control division was £794K, a decrease of £54K when compared to 2016.
In the UK, revenues increased by £309K to £10.7M. In Germany, revenues increased by £1.5M to £3.3M and in the ROW revenues increased by £1.4M to £6.3M. The acquisition of the Australian distributor accounted for 39%of the overall sales growth, and favourable forex movements 21% with the underlying like for like sales growth at 7%. The gross margin has increased from 73% to 77% as a result of the Australian subsidiary’s higher margin and manufacturing efficiencies.
The group are pursuing approvals for various products with both the EPA and the FSA in the US. They have held various review meetings with both agencies and have presented info and sought their guidance on their approach. With respect to the FDA, they are pursuing a 510(K) for two high-level disinfectant products classified as medical devices. One will be labelled for the high-level disinfection of ophthalmic medical instruments and one for the high-level disinfection of ultrasound instruments. Both products are liquid chlorine dioxide formulations dispensed in a foam format.
With respect to the EPA, they made a regulatory submission in June for their chlorine dioxide foam product branded Duo. The EPA submission is for intermediate disinfectant status on non-porous surfaces, including those of heat sensitive medical instruments. Their expectation for an EPA approval is May 2018. They also have in process submissions to Canada’s Health Protection Board.
In August 2016 the group acquired AshMed, their Australian distributor, for £1.1M which gave rise to goodwill of £465K. The business has already contributed an incremental pre-tax profit of £824K so this is looking like an excellent acquisition. The group also made a strategic investment in June of £600K in an Israeli company, Mobile ODT. The business combines smartphone technology with hand held medical devices to make diagnostics available at point of care. The board believe this investment will not only benefit the group strategically but will also produce an attractive return in time.
At the current share price the shares are trading on a PE ratio of 36.2 which falls to 14.7 on next year’s consensus forecast. After a 20% increase in the final dividend, the shares are yielding 1.4% which increases to 1.5% on next year’s forecast.
Overall then this seems to have been another year of decent progress for the group. Profits increased, net assets were up and although the operating cash flow declined, cash profits increased. The growth has all come from Human Healthcare, and mostly from exports. The main difference seems to have been the acquisition of the Australian distributor which seems to have been very successful. The US regulatory process seems to be very slow and this is no longer a value share with a forward PE of 14.7 and yield of 1.8% but I am willing to hold on for now.
On the 3rd October the group announced that the EPA has changed its approach and additional information has been requested. This additional data has largely been compiled and submitted but as a result the EPA approval is now expected in May 2018 rather than late 2017. Approval will be followed by the state by state registration process and the board’s revenue expectations are not affected by this delay. Although this is disappointing, I view this as a minor setback at the moment.
On the 12th December the group released a trading update covering the first half of the year. They expect pre-tax profit to be at least £1.9M compared to £1.7M for the same period last year, although it should be noted that this doesn’t include the dubious share based payments. They continue to perform in line with management expectations and the North American regulatory programme continues to progress in line with the plan. This all seems fine but my view is that the shares are a little expensive at the moment and there remains concerns over the director share scheme in my view.