Bioquell PLC – 2017 interim results

Bioquell PLC (“Bioquell”) (LSE symbol: BQE) - provider of bio-decontamination products and services for the Life Sciences, Pharmaceutical and Healthcare markets today announces its interim results for the six month period ended 30 June, 2017.

Financial highlights

  • Total revenues including defence sales increased by 19% to £14.3 million (2016: £12.1 million); up 10% at constant currency rates.
  • Bio-decontamination revenues increased by 27% to £14.0 million (2016: £11.1 million); up 17% at constant currency rates.
  • Non-UK revenues amounted to £11.3 million (2016: £9.0 million) – 79% of total revenues (2016: 75%)
  • Gross margin increased to 52% (2016: 46%)
  • EBITDA increased 56% to £2.5 million (2016: £1.6 million)
  • Profit before tax more than trebled to £1.4 million (2016: £0.4 million)
  • Basic earnings per share were 5.5p (2016: 0.8p)
  • Net cash of £11.8 million at 30 June 2017 (2016: £7.3 million)

Operational activities

  • US organisation restructured and additional sales resource recruited for Life Sciences
  • Management focused on simplifying the Group and further developing and improving the bio-decontamination business
  • Strong focus on generating recurring revenues from service activities and consumables sales

Ian Johnson, Chairman of Bioquell PLC, said:

“I am pleased to report that after a number of years of little growth, total revenues increased by 19% in the half year and that our core bio-decontamination division produced strong revenue growth of 27%. Profitability improved as a result of a significant improvement in margins coupled with tight cost control. Management continues to seek ways to simplify and focus the business around the core bio-decontamination products and services driving higher margin sales and yielding higher quality earnings. Given the momentum in the business the Board believes that the Company’s profit before taxation for the current financial year will exceed current market expectations”

Enquiries:
Ian Johnson            Executive Chairman             Bioquell PLC          01264 835900

Michael Roller         Finance Director

 
Notes to Editors:
 
Bioquell is a UK-headquartered, international technology company (www.bioquell.com) which sells specialist biological contamination control products and services into the Life Sciences, pharmaceutical and healthcare sectors, with most of its revenues generated from overseas customers.
 
  • Bioquell’s bio-decontamination technology uses hydrogen peroxide vapour which is highly effective at eradicating micro-organisms such as bacteria and viruses at room temperature – and is subsequently broken down at the end of the bio-decontamination process into water vapour and oxygen (hence an extremely ‘green’ technology). Bioquell has a number of patents associated with this technology.
  • Bioquell has also developed a number of products which complement its core hydrogen peroxide vapour technology. The recently introduced Bioquell Sequre, an ergonomic fixed, wall-mounted bio-decontamination system for small rooms and pass through chambers; the Bioquell Qube, a novel, modular aseptic work-station; and the Bioquell POD, a fast-to-deploy single patient room primarily for infection control in hospitals, are all the result of the customer focused, solutions based approach to development that has been employed.
  • Bioquell’s products and services are sold by wholly-owned Bioquell organisations in the UK, USA, France, Germany, Ireland, Singapore, China and through a network of international distributors.
Bioquell also develops, manufactures and sells environmental control equipment into the defence industry, including chemical, biological, radiological and nuclear filtration systems.
Further information for investors can be found at www.bioquellplc.com.
 
CHAIRMAN’S STATEMENT
 
INTRODUCTION
The Company achieved total revenues in the half year of £14.3 million and continues to generate the large majority of its revenues from its core bio-decontamination division.
For the six months ended 30 June 2017, the split of revenues between these Divisions was:
  • Bio-decontamination: £14.0 million (2016: £11.1 million) – 98% of H1 revenues and a 27% increase over prior year H1 revenues;
  • MDH Defence: £0.3 million (2016: £1.0 million) – 2% of H1 revenues and a 68% decrease over prior year H1 revenues.

BUSINESS ACTIVITIES

Bio-decontamination Division
 
Bioquell’s patented ‘Hydrogen Peroxide Vapour’ technology has been adopted around the world as the ‘gold standard’ for bio-decontamination. It is used in pharmaceutical manufacturing and life science research laboratories to eradicate contamination and in critical care facilities in hospitals to control the spread of infection. The Company is well placed to grow revenues from the life sciences, pharmaceutical and healthcare markets and has recently restructured its sales and marketing organisation to better address these markets.
 
There are an increasing number of regulations affecting these markets. Typically we find more onerous regulation tends to help increase demand for Bioquell’s highly effective bio-decontamination systems and services as our clients remain focussed on attaining - and retaining - regulatory compliance.
 
The Company provides two options to customers requiring regular or ad hoc bio-decontamination of their facilities. They can either purchase a ‘system’ and carryout the bio-decontamination process using in-house staff or request our Rapid Bio Decontamination Service (RBDS), in which case we will carry out the required work using our own systems and highly trained staff.

 

In the first half of 2017 ‘system’ revenues, which includes equipment, consumables, service and validation grew by 18% to £10.1 million (2016: £8.5 million) whilst revenues generated from RBDS grew by 40% to £3.5 million (2016: £2.5 million). Recurring revenues increased 14% to £5.7 million (2016: £5.0 million).
 
The new ergonomic fixed, wall-mounted bio-decontamination system – Bioquell Sequre, launched in the fourth quarter of 2016 has demonstrated strong growth and continued interest from the pharmaceutical sector. A dedicated aeration unit will be launched early in the second half of 2017 to support its use in the absence of available HVAC systems. A programme of product improvements, upgrades and enhancement of the RBDS equipment fleet is underway.
 
Bioquell also delivers technologies that incorporate Hydrogen Peroxide Vapour bio-decontamination technology into complementary product and service offerings. For example:
  • the Bioquell QUBE comprises a novel, modular aseptic work-station incorporating Hydrogen Peroxide Vapour technology. The QUBE is used to provide an aseptic environment for a range of applications including: sterility testing; the production of toxic, intravenous oncology drugs; and the production of small-scale cell-based healthcare products.

QUBE revenues in the first half of 2017 more than doubled to £1.6 million (2016: £0.7 million)

Over time we expect the range of specialist applications for the QUBE to increase, with an associated growth in revenues.

  • The Bioquell POD enables hospitals to convert multi-bed, open-plan units at high risk of the spread of hospital acquired infection into single-occupancy rooms. PODs can be installed within a day and decontaminated using Bioquell’s Hydrogen Peroxide Vapour technology. PODs are available to purchase or rent. POD revenues, which are predominantly recurring, grew by 22% in the first half of the year to £0.4 million (2016: £0.3 million)
The Group has direct sales operations in UK, Ireland, France, Germany, USA, China and Singapore and a network of distributors around the world.
 
Defence Division - MDH
 
MDH has served the defence industry for over 50 years and supplied bespoke solutions for environmental control including chemical, biological, radiological and nuclear filtration systems and air conditioning for military vehicles and shelters. It continues to supply major defence contractors with these systems and spares as part of long term contracts.
 
In December 2016, MDH Defence was re-launched as a separate division of the Group to create further awareness of its capabilities. Additional sales and marketing resource was put in place to provide better visibility of revenues and to establish a strong order book. There is growing evidence that this is beginning to work as the number of prospects in the pipeline has increased significantly and new customers have been added in the last six months which will generate revenues in the second half onwards.
 
FINANCIAL RESULTS
 
Revenues from non-UK sales were £11.3m (2016: £9.0m) and represented 79% (2016:75%) of total sales.
 
Average exchange rates in the first half saw Sterling markedly weaker than in the first half of 2016 against both the US$ and the Euro. As a UK based exporter, Bioquell is a beneficiary of this weakness. Even in constant currency terms, however, revenue growth in the bio-decontamination business in the first half was 17% (2016:4%).
 
Gross margin in the period rose 6% to 52%. This was partly attributable to the impact of more favourable exchange rates, partly to stronger results from the RBDS and service businesses with associated improved utilisation and partly due to cost reductions and manufacturing efficiencies achieved in the production process.
 
Research & development costs
 
As is set out in the table below, the accounting charge for Research & Development (“R&D”) costs in the period increased by 40% to £1,139k (2016: £807k). Cash R&D costs were £808k in the first half (2016: £673k), representing a 20% increase over the prior year period.
 

R&D costs(£000)

 

H1 2017

H1 2016

Amount of R&D expensed in period

 

(690)

(308)

Amortisation of previously capitalised development costs

 

(449)

(499)

Total R&D charge under IFRS

 

(1,139)

(807)

 

 

 

 

Total R&D cash expenditure

 

(808)

(673)

Amount of development costs capitalised

 

(118)

(365)

EBITDA (Earnings before interest, tax, depreciation and amortisation) increased by 56% in the period to £2.5 million (2016: £1.6 million). 

EBITDA (£m)

H1 2017

H1 2016

 

Revenue

EBITDA

Revenue

EBITDA

Bio-decontamination

14.0

3.0

11.1

1.9

MDH Defence

0.3

(0.1)

1.0

0.2

PLC – central costs

 

(0.4)

 

(0.5)

Total

14.3

2.5

12.1

1.6

Profit before taxation increased to £1.4 million (2016: £0.3 million) and basic earnings per share were 5.5p (2016: 0.8p).

Capital expenditure was £0.4 million (2016: £0.5 million), compared to a depreciation charge of £0.7m (2016: £0.8m).

Net cash from operating activities more than trebled to £3.8 million (2016: £1.3 million).

Balance sheet

The Group retains a very strong balance sheet.  Net cash at 30 June 2017 was £11.8 million (30 June 2016: £7.3 million).

The Group spent £0.3 million buying back 190,000 of its own shares in the period.

OUTLOOK AND PROSPECTS

As we continue to focus on simplifying the Group and concentrating resource on developing the core bio-decontamination business further improvements in financial performance are anticipated. There are a number of different drivers of growth which are positively affecting this business, including the need for customers to achieve regulatory compliance and continuing growth in research and small scale production associated with cell-based healthcare products.

The first half of the year has seen strong growth both at the top line and particularly in profitability. The Board expects revenue to be broadly similar in the second half of the year and the Company’s full year profit before taxation for the financial year ending 31 December 2017 is therefore likely to exceed current market expectations.

The Board intends to continue with share repurchases, pursuant to the general authority given to it at the Company’s General Meeting held on 26 April 2017, during the second half of the year.

Prior to publication, the information contained within this announcement was deemed to constitute inside information under the Market Abuse Regulations (EU) No. 596/2104 (“MAR”).

Ian Johnson               

Executive Chairman              

Bioquell PLC

26 July 2017

Consolidated income statement
Unaudited results for the six months ended 30 June 2017

Continuing operations

Notes

6 months to

30 June 2017 £’000

6 months to

30 June 2016 £’000

12 months to

31 December 2016

 £’000

Revenue

1

14,336

12,063

26,485

Cost of sales

 

(6,940)

(6,473)

(13,740)

Gross profit

 

7,396

5,590

12,745

Gross profit margin

 

52%

46%

48%

Operating expenses:

 

 

 

 

Sales and marketing costs

 

(2,842)

(2,367)

(5,154)

Administration costs

 

(2,036)

(2,129)

(4,191)

R&D and engineering costs

 

(1,139)

(807)

(1,826)

Profit from operations before adjusted items

 

1,379

287

1,574

Impairment of intangible assets

 

(662)

Costs associated with Board restructuring

 

(858)

Profit from operations

 

1,379

287

54

Investment revenues

 

111

118

132

Finance costs

 

(97)

(27)

(110)

Profit before tax

 

1,393

378

76

Tax (charge)/credit on profit on ordinary activities

 

(169)

(47)

321

Profit for the period attributable to equity holders of the parent

 

1,224

331

397

Earnings per share attributable to the owners of the parent   - basic

 

5.5p

0.8p

1.3p

                                                                                                - diluted

 

5.0p

0.8p

1.2p

 

Supplementary notes

1. The financial information for the six months ended 30 June 2017 and the comparative figures for the six months ended 30 June 2016 have not been reviewed or audited by the Group’s auditors and have been prepared on the basis of the accounting policies adopted by the Group under IFRS. The same accounting policies and methods of computation are followed in the interim financial report as were published by the Company on 7 March 2017 in its annual financial statements, which are available on the Company’s website at www.bioquellplc.com.

2. The comparative figures for the twelve months to 31 December 2016 have been prepared under IFRS. They do not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The unqualified audited accounts for the twelve months ended 31 December 2016 have been filed with the Registrar of Companies and they did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

3. The tax charge shown on the income statement represents a combined corporation tax charge and deferred tax credit. The charge is based on the Group’s anticipated effective tax rate for the full year of 12.1% (2016: 12.5%).

4. Earnings per share for the half year have been calculated on the profit on ordinary activities on continuing operations after taxation and the total earnings attributable to the owners of the parent divided by the weighted average number of ordinary shares in issue during the period. The Group’s diluted earnings per share are calculated by including dilutive share options in the denominator.

5. There have been no related party transactions during the first six months of the financial year that have materially affected the financial position or performance of the Group during that period and there have been no changes in the related party transactions described in the last Annual Report that could do so.

6. Copies of this statement will be available to members of the public at the Company’s registered office: 52 Royce Close, West Portway, Andover, Hampshire SP10 3TS and on the Group’s website at http://www.bioquellplc.com.

Principal risks and uncertainties

The Board believes that the principal risks and uncertainties facing the Group have not changed materially from those described in the 2016 Annual Report, including the summary of risks and uncertainties set out on pages 5 and 6 therein. The Group provides complex equipment and specialist services to a large number of clients in the UK and internationally. Accordingly the Group is subject to a broad range of strategic, operational and financial risks and uncertainties, including the following principal risks:

·         Regulatory Risk

The Group operates in a number of countries and sectors which are highly regulated.  There is a risk that the relevant authorities or their interpretation could be changed and such change could significantly adversely affect the Group’s business in that country or sector

·         Technological Risk

The Group is dependent on its technology, and on its products and services, continuing to be efficacious, cost effective and attractive to the marketplace.  There is the risk that new technologies, products or services are developed by competitors which perform better, are easier to use or are more cost effective than those of the Group

·         Uncertain adoption rate of new products or services

The Group is constantly developing new products and services.  There is inherent uncertainty as to how quickly new products or services will be adopted by the market.

Going concern

The Group has sufficient financial resources to cover budgeted future cash flows, together with contracts with a number of customers and suppliers across different geographic areas and industries. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook. The Directors confirm that they have a reasonable expectation that the Group has adequate financial resources to continue to trade for the foreseeable future. Thus, they continue to adopt the going concern basis in preparing the financial statements.

Responsibility statement

We confirm that to the best of our knowledge: (i) the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting; (ii) the financial statements give a true and fair view of the assets, liabilities, financial position and profit of the undertakings included in the consolidation as a whole as required by DTR 4.2.4R; (iii) the Interim Management Report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and a description of principal risks and uncertainties for the remaining six months of the year); and (iv) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties’ transactions and changes therein). 

 

IAN JOHNSON                                    MICHAEL ROLLER

Executive Chairman                          Group Finance Director

26 July 2017

 

Consolidated statement of comprehensive income
Unaudited results for the six months ended 30 June 2017

 

6 months to

30 June 2017 £’000

6 months to

30 June 2016 £’000

12 months to
31 December 2016
£’000

Profit for the period

1,224

331

397

Exchange differences on translation of foreign operations *

(111)

422

510

Total recognised income for the period

1,113

753

907

* May be reclassified subsequently to profit or loss in accordance with IFRS

 

 

 

Consolidated statement of changes in equity

Unaudited results for the six months ended 30 June 2017

 

Notes

6 months to

30 June 2017 £’000

6 months to

30 June 2016 £’000

12 months to
31 December 2016
£’000

Profit for the period

 

1,224

331

397

Exchange differences on the translation of foreign operations

 

(111)

422

510

Total comprehensive income in the period

 

1,113

753

907

Other movements in the period:

 

 

 

 

Issued share capital

 

26

68

68

Issued share premium

 

187

574

577

Acquisition of own shares for cancellation

5

(41,336)

(41,396)

Acquisition of own shares to be held in Treasury

 

(304)

(1,269)

Credit/(charge) to equity reserve for share-based payments

 

78

(23)

35

Deferred tax credit to equity for share-based payments

 

94

Charge to equity on exercise of share options under the SARS scheme

 

 

(20)

 

(6)

 

Net increase/(decrease) in equity shareholders’ funds

 

1,194

(39,984)

 

 

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