Tristel has now released their interim results for the year ending 2019.
Revenues increased when compared to the first half of last year as a £75K reduction in animal healthcare revenue and an £18K fall in contamination control revenue was more than offset by a £1.4M growth in human healthcare revenue. Cost of sales were broadly flat so the gross profit was £1.3M higher. Share based payments increased by £32K, depreciation and amortisation was up £68K and other admin expenses grew by £885K which meant that the operating profit increased by £349K. Tax charges saw a £137K rise to give a profit for the period of £1.8M, a growth of £220K year on year.
When compared to the end point of last year, total assets increased by £4.3M, driven by a £5.8M growth in intangible assets, a £489K increase in inventories and a £318K growth in receivables, partially offset by a £2.2M decrease in cash. Total liabilities also increased during the period, mainly due to a £1.6M contingent liability. The end result was a net tangible asset level of £7.9M, a growth of £3.5M over the past six months.
Before movements in working capital, cash profits increased by £442K to £3.2M. There was a cash outflow from working capital but this was less than last time and after tax payments reduced by £372K the net cash from operations was £2.7M, a growth of £1.2M year on year. The group spent £382K on intangible assets, £316K on tangible assets and £3.1M on an investment to give a cash outflow of £1.1M before financing. They also paid out £1.3M in dividends which meant that there was a cash outflow of £2.2M during the half year and a cash level of £4.5M at the period-end.
The gross profit in the human healthcare division was £8.7M, a growth of £1.4M year on year. Sales growth in the UK was up 8% which is encouraging given that UK sales growth has been relatively flat for the past few years. The recently introduced new surface disinfectants have helped drive this uptick in sales. Overseas sales grew at a rate of 19%. Hong Kong delivered an excellent performance following the decision to establish a direct presence in that market. Only China took a step backwards. This was planned as they moved away from selling capital equipment through distributors to concentrate on selling their consumable medical device disinfectant directly to hospitals, and to limit their focus to only Shanghai and Beijing hospitals for the next year.
The gross profit in the animal healthcare division was £268K, a decline of £41K when compared to the first half of last year. The gross profit in the contamination control division was £447K, a decline of £6K when compared to the first half of 2018.
The group still seem to be some way off achieving approval in the US. They are led to believe that they should not be dismayed by the time taken or the cost, which amounted to £1.3M to date. They have not included any contribution to revenue and profit from the US in their internal budget for this year and there is also no material contribution in their forecasts for next year.
They have decided that their most prudent approach is to postpone commercialising the EPA approvals already obtained for Duo and Jet until they have greater visibility of the way ahead for the FDA project. The most recent FDA feedback was to follow a De Novo pathway rather than the Predicate pathway and the group have commenced the human factors and usability engineering evaluation and additional microbiological efficacy testing that are now required.
They have started with a pilot human factors study and will submit the data generated to the FDA for further guidance before proceeding further. They are not able to predict when they might finally achieve FDA approval. To exploit the same market opportunity in the US as the other places in the world they ideally require approvals from both agencies. They will pursue a different commercial strategy with both than they would with only one so it would be premature to push further and faster with Duo and Jet as surface disinfectants until the way forward with the FDA is clear. Many significant regulatory submissions which will open markets such as India and South Korea are close to grant, all achieved at a fraction of the cost of the USA.
In November the group acquired Ecomed in Belgium, Netherlands and France for an initial consideration of €3.4M ion cash and €1.6M from the issue of 573,860 shares with a further earn out of €1.8M which was contingent on adjusted EBITDA targets for 2018. The targets were exceeded and the maximum earn out will be settled by a cash payment of €1.4M and €384K by the issue of shares (around 135,110 shares). The board expect a solid contribution from the business in the second half of the year and for the acquisition to be materially earnings enhancing in the years ahead.
After a 28% increase in the interim dividend the shares are yielding 1.9% which is predicted to remain the same for the full year. At the current share price the shares are trading on a PE ratio of 38.3 which falls to 25 on the full year forecast.
Overall then this has been a decent period for the group. Profits were up and the operating cash flow improved, although after the investment, no free cash was generated and the net tangible asset level declined. The UK seems to be growing again, and the overseas business continues to be strong with Hong Kong particularly robust. The US approvals are dragging on and becoming rather expensive but the group doesn’t seem to be overreaching and both India and South Korea are good potential markets.
This is a quality company with good prospects but this is priced into the shares with a forward PE of 25 and yield of 1.9%, these are rather expensive I think.