Tristel Regulatory News (TSTL)

29 Oct 2007 07:01

Tristel PLC29 October 2007 TRISTEL plc ("Tristel" or "the Company") Preliminary Results for the Year Ended 30 June 2007 Another year of strong revenue and profit growth Tristel plc (AIM: TSTL), the specialist infection and contamination controlcompany, announces its preliminary results for the year ended 30 June 2007.Tristel operates through two subsidiaries: Tristel Solutions, which providesinfection control products based on chlorine dioxide chemistry to the healthcaremarketplace and Tristel Technologies, which uses chlorine dioxide chemistry forlegionella control in buildings' water systems (including those of hospitals)and contamination control in the food growing and processing industries. Financial Highlights • Turnover up 37% to £5,148,366 (2006: £3,745,680) • Gross margin increased to 62.3%, up 7.9 percentage points from 2006 • Pre-tax profit* up 49% to £1,252,721 (2006: £841,491) • Operating cashflow up 273% to £1,243,231 (2006: £333,043) • Adjusted earnings per share* up 48% to 3.66p (2006: 2.48p) • Basic earnings per share up 8.5% to 2.3p (2006: 2.12p) o Due to non-recurring costs of £349,280 • Dividend per share for the full year up 35% to 1.35p (2006: 1p) Operational Highlights • Establishment of in-house manufacturing securing: o greater control and protection over the Company's proprietary technology o continuing improvements in quality control o acceleration of new product development o capacity to meet volume growth expected in the medium term o enhanced gross margins • New products acquired and launched since flotation (June 2005) contribute 23.7% of total sales • Five-fold increase in export sales; Tristel now represented in 22 overseas markets Paul Swinney, Chief Executive of Tristel plc, said: "This has been another year of turnover, profit and earnings growth, with astrong performance in our domestic market and further progress made overseas.We continue to be totally focussed on the infection and contamination controlmarketplace, an area that is firmly on the political agenda in the UnitedKingdom and abroad. We are confident in the outlook for the coming year andbelieve that Tristel is well placed to continue its strong growth record." * Before amortisation, non-recurring charges and share based payments For further information: Tristel plc 01638 721 500Paul Swinney, Chief ExecutivePaul Barnes, Finance Director Daniel Stewart 020 7776 6550Oliver Rigby Parkgreen Communications 020 7479 7933 or 07980 541 893Paul McManus paul.mcmanus@parkgreenmedia.com Chairman's statement Tristel has had another excellent year, with growth in our core domestichealthcare business, a full year contribution from Tristel Technologies(acquired on 5 June 2006), and expansion in our export business. As a result,turnover increased by 37% to £5,148,366 (2006: £3,745,680). Pre-tax profitbefore amortisation of intangibles, share based payments and non-recurring itemsincreased by 49% to £1,252,721 (2006: £841,491) and the operating margin beforeamortisation of intangibles, share based payments and non-recurring items rosefrom 21.5% in 2006 to 24.2% in 2007. Profit before tax increased by 9.4% to£786,895 (2006: £719,579), impacted by a non-recurring charge of £349,280. Both group subsidiaries performed well during the year. Tristel Solutions,which provides infection control products based on chlorine dioxide chemistry tothe healthcare marketplace, increased turnover by 9.9% to £4,015,034 (2006:£3,651,921). Tristel Technologies, which also uses chlorine dioxide chemistrybut for legionella control in buildings' water systems (including those ofhospitals) and contamination control in the food growing and processingindustries, made a full year contribution to turnover of £1,133,332 (2006: onemonth £93,759). The Group's export sales in the year grew five-fold to £178,365(2006: £35,765). One of the most significant developments of the year has been the establishmentof an in-house manufacturing capability enabling us to take over production ofour products. This major change in our business model involved the relocationof our Newmarket headquarters to manufacturing and warehouse premises of 14,500sq. ft, the relocation of our Bolton office, a substantial investment in plant,equipment and the fit-out of these new premises, and a significant increase inheadcount. I am pleased to report that this major strategic change has beencompleted smoothly and efficiently and that we are now producing all ourchemical products and handling all logistical activities from these two newlocations. Outlook The past year has seen Tristel plc increase its scale and reach in the infectionand contamination control marketplace, with products that have been launched andacquired since the flotation in June 2005 making a significant contribution togrowth. With further innovative products to be launched in the currentfinancial year, we look forward to our future with confidence. Our basic earnings per share for the year ended 30 June 2007 were 2.3 pence(2006: 2.12 pence). The Board is recommending that the final dividend beincreased to 1 penny making a total annual dividend of 1.35 pence, an increaseof 35% over 2005-06. The final dividend represents a total payment of £244,429. Francisco A. SolerChairman29 October 2007 Chief Executive's review of activities Strategic overview Manufacturing The year ended 30 June 2007 has been transformational for Tristel. During theyear we broke with the model of outsourced production that we had used since1998. The decision to change our business model was driven by: • the expansion of the Group's intellectual property portfolio demanded we gain greater control and protection over our proprietary technology • the need to achieve continuing improvement in quality control • the need to accelerate the new product development process • the need to prepare for the volume growth that we expect to achieve in our strategic plan The transition to manufacture has involved a substantial investment. Theexpenditures incurred have been: • Plant, equipment and fit-out of manufacturing facility: £421,000 • Acquisition of manufacturing rights - cash: £300,000 • Acquisition of manufacturing rights - share issue: £300,000 We forecast that in-house manufacture will result in enhanced future grossmargins. Furthermore, we now have in place the production capacity and humanresources, supported by technical and scientific personnel recruited inconjunction with establishing production, to meet the increased demand for ourproducts that we forecast from future additions to our product portfolio andfrom our geographical expansion. Product innovation - medical Tristel is a consumable product-led business. Our product developmentphilosophy is to create single-use products with unique application features.We enjoy frequent repeat re-ordering for our products and high visibility in ourrevenue stream. The products require only limited after-sales service andsupport and we will continue with this business model. Future product development plans will entail the supply to users of equipmenthardware to enable the use of the Tristel chemistry. In all cases theunderlying revenue stream from the Tristel consumables will be of greatereconomic significance than the hardware revenue stream. During the year we launched new products targeted at ultrasound, environmentaldisinfection and laboratories and all have started to achieve significant marketpenetration. At the same time we have continued to focus upon our historicalcore business of the United Kingdom mainstream endoscopy market. In this marketwe continue to be the most widely used disinfectant chemistry in the country andin the Ear, Nose and Throat (ENT) endoscopy market our TRIO wipe system is usedin approximately 50% of all ENT departments. Product innovation - water and food chain The acquisition of Tristel Technologies has given us a significant presence inthe legionella control market (water) and the food growing and processingindustries (food chain). The Tristel Technologies products incorporate a chlorine dioxide chemistrysystem that is supplied from the United States and differs in certain importantrespects from our proprietary chlorine dioxide chemistry. Having successfullyintegrated the Tristel Technologies business during the year and havingrelocated its blending operation to our Newmarket production facility, our nearterm strategy is to integrate the best features of the two chemistry systems.As with our medical business, the legionella and food contamination controlproducts are consumables. Products that did not exist within the Group portfolio on 1st June 2005, thedate of our flotation, now account for 23.7% of total sales, validation that ourproduct development and acquisition strategy is driving future growth. Geographical expansion Tristel has a clear strategy to expand its business internationally over thenext three to five years. At present, the business model employed is to usedistribution partners. When qualifying prospective export markets we look for aregulatory framework that enables the product portfolio, or specific productswithin the portfolio, to be approved for sale within a reasonable period oftime. Furthermore, this must be achievable with an acceptable level ofinvestment, which the distributor bears. These criteria disqualify the mostheavily regulated markets such as the United States. We have been successful in identifying and appointing 22 distribution partnerswho are either selling Tristel products or are in the process of registeringthem. Whilst the level of export sales has still to make a significant contribution tototal sales, the platform for more rapid future expansion has been established. Market overview Macro influences Raising standards of hospital hygiene; controlling the risk of infection inhospitals or the threat of legionella from buildings' water supplies; avoidingthe dangers of salmonella in food produce - these are the driving forces behindour business. Their importance to our society is obvious even without the mediaattention that they attract, placing the hygiene and infection control issuefirmly on the political agenda in the United Kingdom and abroad. Whilst the general level of healthcare spending is an important determinant ofdemand for our products in all the markets in which we operate, we believe thathygiene and infection control are critical expenditures. As long as we continueto deliver products with superior efficacy, greater safety, and that are easierto use than those currently employed, our business environment will presentopportunities for continued growth. Chlorine dioxide, the active ingredient in which we have specialised, is,without doubt, a highly effective and safe biocide. Its safety pedigree hasbeen established by over ten years of widespread use in United Kingdomhospitals. Its effectiveness as a biocide is widely documented in scientificjournals. Regulatory influences The regulatory environment supports our confidence in Tristel's future. Ourproducts are either classified within the European Community as medical devicesunder the Medical Devices Directive (MDD 93/42/EC) or as biocides under theBiocidal Products Directive (BPB 98/8/EC). Simplifying a complicated set of regulations, for a disinfectant (irrespectiveof the chemistry) to be classified as a medical device it has to be used todisinfect another medical device. For the disinfectant to be approved, themanufacturer has to prove its efficacy and safety. Approval enables the productto carry the CE mark. All of our medical products carry the CE mark. For a more general purpose disinfectant, such as a surface or waterdisinfectant, it will be classified as a biocide under the Biocidal ProductsDirective (BPD). Concerned for the environmental impact of the plethora ofdisinfectant chemistries that have been used for many years, the EuropeanCommunity is in the process of limiting the number of active ingredients thatcan be used. Sodium chlorite (the main basic ingredient of our products) as theprecursor for chlorine dioxide has been approved by the EC and is beingsupported through the regulatory submission process by a group of sodiumchlorite manufacturers. The industry's consensus view is that the cost ofsubmission under the BPD will block the development and introduction of activeingredients that could be future alternatives to those already approved underthe BPD. As a supplier of chlorine dioxide products, our long term view is thatthe regulatory environment is favourable to the environmental disinfectionproducts that we market. Outside of the European Community, differing countries have their own regulatorybodies. However, in the markets in which we operate, which is worldwideexcluding North America, the CE mark is widely accepted. Competition In the arena of medical device high-level disinfectants, we believe that Tristelis the sole manufacturer of chlorine dioxide products. However, there are a fewother chemistries that can compete with chlorine dioxide, the most widely usedof which is peracetic acid. Whilst the emergence of competitor products utilising the chlorine dioxidemolecule is a future possibility and would pose a competitive threat, ourstrategy has been to present specifically packaged products for clearly targetedhospital areas. This strategy differentiates Tristel from disinfectantsuppliers who present their products as a homogenous solution for use in allhospital areas. A substantial investment both in terms of cost and time wouldbe required to catch up with Tristel's first user advantage established in themarkets in which we operate. In water disinfection (legionella control) and the food processing and growingindustries chlorine dioxide is widely used as the alternative to sodiumhypochlorite (chlorine). Results and finance Sales Tristel has enjoyed another strong year of growth. Headline sales growth of 37%included a full year contribution to Group turnover from Tristel Technologies of£1,133,332. Tristel Solutions' turnover increased by 9.9% to £4,015,034. Margins and operating profit The gross margin increased to 62.3%, up 7.9 percentage points from last year.The first in-house production of Tristel products commenced in May 2007 and madean initial contribution to improved margins from that date. Excluding the non-recurring item, amortisation of intangibles and the sharebased payments, operating profits increased by 54.6% to £1,246,332 and theoperating margin rose from 21.5% last year to 24.2% in 2007. The non-recurring cost relates to an agreement, reached in June 2007, with acompany engaged in the United Kingdom endoscopy market, to end an informalarrangement that had operated since 2002. This arrangement had assisted bothcompanies to establish market leading positions in their respective businessareas in endoscopy. We agreed to make a one-off ex-gratia settlement in theamount of £349,280 (together with associated costs) to bring it to a close. Theinformal arrangement had previously cost the Group £777,802 from the date itcommenced to the end of the financial year. Earnings The growth in basic earnings per share and diluted earnings per share was 8.5%and 8.1% respectively. Capital expenditure and investments The Group has made important investments in the business over the year, withcapital expenditures totalling £1,307,469. The main elements of this investment were:- • Acquisition of manufacturing rights and know-how at a cost of £600,000. Of the total consideration paid to the vendor, £300,000 was settled in cash and £300,000 by the issue of 606,060 ordinary shares at a price of 49.5 pence per share • Establishment of a manufacturing and warehousing facility in Newmarket and the relocation of the Bolton office • New development projects which are ongoing which include the creation of the "Stella" sterilising tray and the "Shine" washer-disinfector for the Ear, Nose and Throat market The level of investment expenditure incurred during the year will not berecurring in the current financial year. Treasury and deployment of capital The Group's working capital and capital expenditures have been financed fromoperating cash flow, utilisation of an invoice discounting facility, term loanand overdraft facilities provided by the Company's bankers, and a £100,000 shortterm loan provided by one of the Company's shareholders (which has subsequentlybeen repaid). The Group has adequate debt facilities to fund its foreseeable working capitaland capital expenditure needs. Paul SwinneyChief Executive29 October 2007 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2007 Note Year ended Year ended 30 30 June 2007 June 2006 £'000 £'000Revenue 5,148 3,746Cost of sales (1,943) (1,709)Gross profit 3,205 2,037Other operating income 20 16Administrative expenses - share based payments (IFRS2) (30) -Administrative expenses - depreciation and (206) (168)amortisationAdministrative expenses - others (1,859) (1,201)Total administrative expenses (2,095) (1,369)Operating profit before exceptional item 1,130 684Exceptional item 4 (349) -Operating profit 781 684Finance income 5 7 35Finance costs 6 (1) -Net finance costs 6 35Profit before tax 787 719Taxation 7 (236) (213)Profit for the year 551 506 Attributable to:Equity holders of the parent 551 506 Earnings per share from continuing operationsBasic - pence 9 2.30 2.12 All amounts relate to continuing operations. There are no recognised gains orlosses other than the profits shown above. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE FOR THE YEAR ENDED 30 JUNE 2007 Note 2007 2006 £'000 £'000Profit for the year 551 506 TOTAL RECOGNISED INCOME AND EXPENSE FOR THE YEAR 551 506 Attributable to:Equity holders of the parent 551 506 All amounts relate to continuing operations. There are no recognised gains orlosses other than the profits shown above. CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2007 Note 2007 2006 £'000 £'000Non-current assetsGoodwill 774 774Intangible assets 1,495 819Property, plant and equipment 734 312 3,003 1,905Current assetsInventories 488 395Trade and other receivables 1,147 931Cash and cash equivalents 38 174 1,673 1,500Total assets 4,676 3,405 Capital and reserves attributable to the company'sequity holdersShare capital 10 244 238Share premium account 10 1,750 1,456Merger reserve 10 478 478Retained earnings 10 158 (167)Equity attributable to equity holders of parent 2,630 2,005 Current liabilitiesTrade and other payables 1,369 825Bank overdraft 165 54Interest bearing loans and borrowings 100 204Current tax liabilities 230 192Total current liabilities 1,864 1,275 Non-current liabilitiesDeferred tax liabilities 182 125Total non-current liabilities 182 125Total liabilities 2,044 1,400Total equity and liabilities 4,676 3,405 The financial statements were approved by the Board of Directors on 29 October2007, and were signed on its behalf by: Paul Barnes FCCA Finance Director 29 October 2007 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2007 Note 2007 2006 £'000 £'000Cash generated from operating activities 11 1,243 333Interest paid (1) -Corporation tax paid (129) (11) 1,113 322Investing activitiesInterest received 7 35Purchases of intangible assets (462) (105)Acquisition of subsidiary undertaking (net of cash) - (1,081)Purchases of property, plant and equipment (545) (236)Proceeds from sale of property, plant and equipment - 13Net cash used in investing activities (1,000) (1,374)Financing activitiesDividends paid 8 (256) (185)Net cash used in financing activities (256) (185)Net increase/(decrease) in cash and cash equivalents (143) (1,237)Cash and cash equivalents at the beginning of the (84) 1,153periodCash and cash equivalents at the end of the period (227) (84) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007 1. PRINCIPal ACCOUNTING POLICIES Basis of Preparation The group's financial statements have been prepared in accordance withInternational Financial Reporting Standards ('IFRS') as adopted by the EuropeanCommission. These will be those International Accounting Standards,International Financial Reporting Standards and related interpretations(SIC-IFRIC interpretations), subsequent amendments to those standards andrelated interpretations, future standards and related interpretations issued oradopted by the IASB that have been endorsed by the European Commission. Thisprocess is ongoing and the Commission has yet to endorse certain standardsissued by the IASB. Segments For management purposes, the group reports its entire activities as onebusiness. Accordingly, the Directors consider there to be only one reportablesegment, being the development, manufacture and distribution of productsutilising the group's core chlorine dioxide technologies. 2. Publication of non-statutory accounts The financial information for the years ending 30 June 2007 and 2006 has beenaudited but does not constitute full financial statements within the meaning ofSection 240 of the Companies Act 1985. The financial information has been extracted from the group's 2007 statutoryfinancial statements upon which the auditors' opinion is unqualified and doesnot include any statement under section 237 of the Companies Act 1985. 3. EXPLANATION OF TRANSITION TO IFRS IFRS 1 - 'First-time adoption of International Financial Reporting Standards'sets out the procedures that must be followed when the group adopted IFRS forthe first time as the basis for preparing its consolidated financial statements.The group established its accounting policies as at 30 June 2006 and, ingeneral, applied these retrospectively to determine the IFRS opening balancesheet at its date of transition, 1 July 2005. The group had previously adoptedUK GAAP as its underlying basis of accounting. Following review of UK GAAPstandards with those required under IFRS, the Directors' consider that there areno retrospective adjustments or re-statement that need to be made to the openingbalance sheet at 1 July 2005. 4. EXCEPTIONAL ITEMS The non-recurring cost relates to an agreement, reached in June 2007, with acompany engaged in the United Kingdom endoscopy market, to end an informalarrangement that had operated since 2002. This arrangement had assisted bothcompanies to establish market leading positions in their respective businessareas in endoscopy. The company agreed to make a one-off ex-gratia settlement in the amount of£349,280 (together with associated costs) to bring the arrangement to a close.The informal arrangement had previously cost the Company £777,802 from the dateit commenced to the end of the financial year. 5. FINANCE INCOME 2007 2006 £'000 £'000On short term deposits 7 35 6. FINANCE COSTS 2007 2006 £'000 £'000On bank loans and overdrafts 1 - 7. TAX The taxation charge represents: 2007 2006 £'000 £'000Current taxationCorporation tax 189 184Adjustment in respect of earlier years (10) -Total current tax 179 184Deferred taxOrigination and reversal of temporary differences 57 29Total deferred tax 57 29Total tax charge in income statement 236 213 UK corporation tax is calculated at 30% (2006: 30%) of the estimated assessableprofit for the year. The charge for the year can be reconciled to the profit in the consolidatedincome statement as follows: 2007 2006 £'000 £'000Profit before tax 786 719 Tax at the UK corporation tax rate of 30% (2006: 30%) 236 216Effect of:Expenses not deductible for tax purposes 4 3Timing differences in capital allowances and 3 -depreciationDifferent rate tax bands and changes in tax rates 5 (2)Enhanced relief on scientific research expenditure (2) (4)Adjustment in respect of earlier years (10) -Total tax charge for the year 236 213 8. DIVIDENDS 2007 2006 £'000 £'000Amounts recognised as distributions to equity holdersin the year:Final dividend for the year ended 30 June 2006 of 173 1190.725p (2005 - 0.50p) per shareInterim dividend for the year to 30 June 2007 of 0.35p 83 66(2005 - 0.275p) per share 256 185Proposed final dividend for the year ended 30 June 2007 244 173of 1p (2006 - 0.725p) per share The proposed final dividend is subject to approval by shareholders at theforthcoming Annual General Meeting and has not been included as a liability inthe financial statements. 9. EARNINGS PER SHARE The calculation of earnings per share is based on the following profits andnumbers of shares: 2007 2006 £'000 £'000EarningsRetained profit for the financial year attributable to 551 506the equity holders of the parent Number of shares Shares Shares '000 '000 Weighted average number of ordinary shares for the 23,973 23,837purposes of basic earnings per shareEffect of dilutive potential ordinary sharesShare Options 355 359Weighted average number of ordinary shares for the 24,328 24,196purposes of diluted earnings per share Earnings per ordinary shareBasic 2.30p 2.12p Diluted 2.26p 2.09p 10. RECONCILIATION OF MOVEMENT IN TOTAL EQUITY Called up Share share premium Merger Retained capital account reserve earnings £'000 £'000 £'000 £'000 £'000Balance at 1 July 2005 238 1,456 479 (489) 1,684Total recognised income and expense - - - 506 506Dividends paid (185) (185)Balance at 30 June 2006 238 1,456 479 (168) 2,005Total recognised income and expense - - - 551 551Dividends paid (256) (256)Issue of shares 6 294 - - 300Share based payments - IFRS 2 30 30 244 1,750 479 157 2,630 In April 2007, the company acquired certain manufacturing assets for totalconsideration amounting to £600,000 (excluding associated costs). Considerationwas made by way of a cash payment of £300,000 and a share placing to the Vendorof 606,060 1p ordinary shares at an issue price of 49.5p per share. The price ofthe placing shares was calculated by reference to the market price on the dateof the Agreement 11. notes to the consolidated cash flow statement 2007 2006 £'000 £'000Cash generated from operationsProfit before tax 787 719Adjustments for:Depreciation and inpairrment 119 46Amortisation of intangible assets 87 122Share based payments - IFRS2 30 -Loss on sale of tangible fixed assets 3 5Government grants (20) (16)Finance costs 1 -Finance income (7) (35) 1,000 841Increase in inventories (93) (54)Increase in trade and other receivables (216) (205)Increase/(decrease) in trade and other payables 552 (249)Cash generated from operations 1,243 333 12. the financial information set out in this preliminary announcement, doesnot constitute statutory accounts as defined in section 240 of the Companies Act1985. The annual report and financial statements for the year ended 30 June 2007 willbe posted to the shareholders on 19 November and will be delivered tothe Registrar of Companies following the Company's Annual General Meeting. Theannual report and financial statements will also be on the company's web sitewww.tristel.com from 19 November 2007. This information is provided by RNS The company news service from the London Stock Exchange