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I forgot to add in R&D expenditure. GB said a part of the £4m loan would be to expand the business as you would expect so maybe a profit for 2022 is a little too ambitious.
Profit is one thing but we all know that cash is king and that is paramount for any small upcoming business. Cash looks stable.
We started the year with £1.8m and took £4m from the mezzanine loan. So £5.8m to play with.
I believe the business will be self funding in the FY22 accounts.
Assuming the £19m generates £11m gross deduct about £9m for admin expenses (exc D&A as non cash) and £0.6m in finance charges then we have £1.4m net cash generated within the year.
So that's £7.2m but we paid for Glanaco £0.5m. We'll also have to pay back £1m of the £4m this year so we end the year on £5.7m. We will need to pay back the other £3m of the loan by March 23 so that leaves us with £2.7m and hopefully we'll be self funding on a monthly basis by H1 2023.
This is obviously all dependant on how we can manage the working capital. Trade receivables increased massively in FY21 from £1m to £4.7m. You'd expect that as revenue grows but it's important the credit control team don't let that number become too big as a % of revenue. FY20 was 22% to FY21 52%. So with the right working capital management Dvrg may not need to dip into the mezzanine again and therefore save about £600k in finance charges.
It's looking good. Let's see what H2 has to offer.
DRB
Morning, very interesting, thanks for your insight.
ATB
Yoy we can see that revenues doubled from £4.5m to £9m. Admin costs (excluding D&A) also doubled from £2.7m to £5.4m which was primarily driven by an increase in headcount from 37 to 65. A key point is that gross margin went from 40% to 59%. That is a huge upside and one which could continue to grow as more orders come in allowing us to be more efficient with our cost of sales.
The big destroyer of the numbers for 2021 was the increase in amortization from £1.9 to £3.2m which appears to be due to the onboarding of Modern Water intangible assets. Unfortunately, this meant that rather than see a significant improvement in the bottom line yoy we came in flat.
Interestingly, the amortization was allocated to central in the segment analysis. Was this done to avoid showing Modern Water as loss making? Interesting.
It also should be noted that the doubling of revenue in 2021 was largely due to the full year effect of the acquisition of Modern Water. If you strip out the monitoring division then yoy revenue grew from £3.3m to £4.8m.
Moving in 2022, £19m revenue expected. Let's be conservative and assume the 57% gross margin is maintained (I believe it may be higher) giving a gross profit of £11m. Overheads are set to increase. I am assuming due to an increase in headcount again but also general price increases across the board and also the acquisition of Genaco that will increase depreciation charges and finally the increase in finance charges as a result of the mezzanine loan of £4m. I'd expect overheads to increase from £9m to £11m so hopefully with another R&D rebate Dvrg could be profitable in 2022.
If so then this year ebitda will be significantly below the original f/c £4.5M - break even close to latest predicted revenue?
Any thoughts on marginal profit margin over and above break even?
Not an accountant :-)
Rorkes, the uplift in amortization appears to be as a result of the incorporation of almost £14m of non current assets from Modern Water. Therefore, I suspect this will continue going forward. It may reduce depending on if the reducing balance amortization method is primarily used but i wouldn't be treating it as a one off.
Who ever this chap is on twitter..........!
I liked (with a heart) his tweet........ :)
https://twitter.com/62SW/status/1556633068298977282
All the best (looks like he knows his stuff..........! :()
The "the accelerating growth of Skin Trust Club" is probs a clue Trotsky.......!
https://polaris.brighterir.com/public/deepverge_plc/news/rns/story/w9e6kgr
All the best (#options........! :()
Agreed. Depends how they treat sales to consumers through the website. Commission handled different to margin as you say. Sounds like a question for the next investor meeting.
The annual report does provide some financials so impact of different growth rates in different divisions could explain drop in margin too.
Rorkes, Not sure that STC income is low margin. In the RNS issued on 4 July DVRG talk about "affiliate fee income" which would suggest that they are earning commission rather than retailing the products. In the latest RNS, they have reiterated STC income of over £1m (presumably this also includes plan income - either a one time fee of £99 or £75 quarterly); any commission, barring some administration costs, would be virtually 100% margin. I doubt that plan income is covering the initial start-up costs but there would appear to be considerable scope to ramp up income if they can continue to ramp up member numbers. Interestingly, not sure whether people subscribing for a single test actually constitute members and, if not, whether there remains scope to convert people who have taken the single test to quarterly subscribers. More detail needed.
Still lots of assumptions and annual report is a case of too many trees. However, it dies gives visibility on different parts.
Company seems to be in those difficult teenage years. Need to speculate etc but the investment return isn't quick. One sign its working is just the size of deals in pipeline.
P&L, balance sheet, cash flow reveals more than is written so interims and full year first 2022 are going to show if the hotch potch model is working. Company seems to be more open about specifics but skin trust club numbers will become clearer. If as exciting as we are led to believe we may see new model but worried it could get spun off to someone else to make a killing.
Rorkes ,
That seems a much better method of workings than the back of my fag packet.
Thanks
G
Gross margin was 57% last year. The lower margin STC (retail sales) will impact on that but not significantly during H1. However, if growth is as predicted it will influence more and more albeit alongside increasing revenue and total gross profit.
Overhead has gone up. We don't know by how much but workforce and marketing costs can be infered to be significant.
Last year saw significant amortisation and impairment impact on net profit due to intangible assets. Not clear whether these will be repeates but accounted for £3.2M last year.
Brokers were saying £4.5M this year on sales of £24M. If gross margin is 50% then we can fc a loss of £3m gross. If overhead is the same (in not related to sales volumes) then net profit is £1.5M. However unlikely overhead has grown at same rate as overhead so I'm going with £2.2M - applying a growing earnings model a PE of 30 gives us a company looking at market cap of close to £60-£70M
Needs growth to be maintained for three years. Big assumption. Worth the ride at these levels
So it is now clear the this year DVRG will make a profit, do we not all agree that is an amazing achievement, EBIDTA is the number to be used when valuing a business for an exit strategy.
After watching the interview today I reckon we’re going to finish nearer 20 million than 18 and my forecast is £2.5 million EBIDTA
Great performance