RE: SeryBurn updated and renewed22 Sep 2024 10:49
Wellsite,
When the Half year report was published, it showed a reported loss of £267K for the period based on sales of £388K. That figure in itself was significantly higher than any 6 month trading losses in the last 3 years. However, at that time, I also gave my opinion that we were actually trading profitably already if you discounted two of the reported expenses, being:
RESEARCH & DEVELOPMENT COSTS (£140K) - I argued that this was necessary to maintain the value of the IP and that the IP itself had an inherent value of 3-4pence. I argued that these costs could be considered as disjointed from the P&L of the Trading Part of the Company.
DSM ROYALTY PAYMENTS - I estimated that these also amounted to £140K and this had been included within the "Cost of Sales" expense. I am happy to share the analysis behind my estimate if anyone is interested but I still stand by my figures. These royalty payments are levied on direct sales of SD II that are made to previous customers of DSM whilst the Alliance Agreement was in place and the percentage of these sales is due to diminish over the 4 year period of the new Agreement with DSM. It will presumably reduce to Zero on 1/1/2027.
My argument is that theses expenses could be discounted if we want to judge the true trading position of the Company. Indeed, if you discount them from the half yearly loss of £267K, you see that we actually made a TRUE trading profit of £13K.
We know that the Company have reported, as at 31/12/2024, that second half sales to that date were £590K. Who knows what the final quarter of the year brought BUT we have already estimated that total sales for the whole year will be between £1.2M and £1.4M.
The factor that will be absolutely critical in terms of the final results for the year will be the proportion of the new sales that are made to previous DSM Clients and which therefore are assessed for Royalty Payments. As I said in my original Post, I am really hoping that the Total Income is broken down into the 5 separate streams as this will enable me to estimate the Royalty Payments made in H2.
My best estimates for H2 are that, if you include the Royalty Payments, we will be "Breakeven" - BUT that will still result in a paper loss of £267K when you include the loss in H1.
My worst estimates for H2 are that, if you include the Royalty Payments, we will make an additional loss for H2 of £120K and, when you include the loss for H1 our total loss for the year will be approx £387K.
In either case these losses can be described as significant BUT in both cases it can be argued that the losses are entirely a result of the Royalty Payments. Without those Royalty Payments, I am certain that we are now trading profitably, and that the actual results, when issued, will identify the direction of travel and will allow us to assess when we will actually report a full Profit situation.
I suspect that this will be sooner rather than later.
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