COS.L Regulatory News (COS)

10 March 2015

Collagen Solutions plc (COS)

Update on Southern Lights Biomaterials Acquisition and Current Trading

Since completion of the acquisition of Southern Lights Biomaterials (SLB) on the 10 December 2014 the management team have made good progress in the execution of its 100 day plan, taking significant steps towards securing and expanding the revenue-generating potential of the COS Group.

The commercial advantages of this transaction perceived at the time of acquiring SLB are beginning to bear fruit. That is, the group now has:-

· Greater coverage, experience and customer base in Asia

· Enhanced product offering including its Pericardium raw materials, which is a distinct, additive revenue stream separate from the existing collagen supply business.

· Strengthened management with Geoff Bennett joining the board as Chief Business Officer.

There is still work to be done regarding the integration of systems and processes but it is clear that the pipeline is robust as evidenced both by today's NovaBone announcement and the feedback obtained from numerous customer visits in the US and Asia since the acquisition. Investment will be required both in Scotland and New Zealand to cope with this demand.

However, in the year to 31 March 2015 there has been some slippage in revenue, which is anticipated at this time to be approximately £360k. The affected revenue has not been lost, but is delayed, due to a number of customer specific issues which are not wholly within the control of Collagen Solutions. Two customers experienced delayed regulatory approvals / audits - £127k; another customer selected a new commercialisation partner which delayed the commencement date of clinical trials, however we now have commenced production of a significant order with £50k delayed; prolonged supply agreement negotiations with three customers, one now signed -£53k and two in final stages - £70k, and lastly a customer where we have a signed a development agreement but they are currently re-assessing the product specification before initial engineering runs can be manufactured - delayed £60k.

In view of these issues it is likely that FY 2015 revenues are expected to be around £1 million (market consensus - £1.358m) and underlying EBITDA (before separately identifiable items) is expected to be around £(0.75)m (market consensus - £(0.653)m).

David Evans commented, "I am pleased with the progress we have made since acquiring SLB. The strength of the combined offering and enhanced financial stability is enabling existing and potential customers to engage with ourselves more fully. Whilst the slippage in revenue would have preferably been avoided, the vast bulk of this is due to timing differences and we expect this revenue to fall into the next financial year. The fact that we are investing in new capacity is a clear indication of the direction of travel. Collagen Solutions is building a rapidly expanding business which naturally faces uncertainties in terms of the periodicity of revenues and the nature of its derived demand.

The company's recent announcements demonstrate our strong and developing pipeline. As we continue to grow we anticipate greater predictability as we move from initial engagement revenues to those which are recurring and reflect the successful commercialisation of our customers' products. I am looking forward to financial year 2015/16 with confidence."

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