23 August 2018

Byotrol plc

("Byotrol" or the "Company")

AUDITED RESULTS FOR THE YEAR

ENDED 31 MARCH 2018

Byotrol plc ('Byotrol', the 'Company' or the 'Group'), the AIM listed anti-microbial hygiene company, is pleased to announce its audited results for the year ended 31 March 2018.

Highlights of the year include:

·      EBITDA positive after R&D tax credits. Second year in a row and second year ever for Byotrol

·      Reported EBITDA significantly ahead of expectations, boosted by year end deal on Actizone IP.  Sales broadly flat year on year at £3.14m.

·      Financial strength improved by £4.6m (net) equity capital raise in September 2017.  Net cash at year end of £3.9m (versus £951k in the previous year), excluding a further £1.0m received on 3 April 2018. 

·      Company now has more than sufficient resources to pursue its growth strategy.

·      All three strategic initiatives progressing:

·      Actizone initiative restructured, generating immediate cash from IP sale and retaining substantial future upside for less resource input.

·      US EPA approval received for 24 hour surface spray, with a unique set of claims for the US consumer market.  Now under trial under the brand 'Byotrol24' in US mass merchandiser Target.  Trial now extended beyond the initial 10 week expected period.

·      Alcohol-free hand-sanitisers now being sold into NHS and adjacent markets. Substantial customer interest but resource requirements higher and sales slower than expected. 

·      Consumer and petcare segments performing to plan, with significant growth opportunities.

·      Professional segment behind plan, with new propositions now being developed and new alliance partners being sought.

·      Separate announcement today regarding highly complementary acquisition of Medimark Scientific Limited.

Commenting on the results and prospects, David Traynor, Chief Executive of Byotrol, said:

This was another year of good progress, with further-improved operations and finances and our second ever profit at EBITDA level after including R&D tax credits.

We continue with our excellent-science, technology-based strategy and are very confident in growth at home and overseas as the biocide regulatory changes bite. 

Enquiries:

David Traynor - Chief Executive, Byotrol plc                                                                         01925 742 000

David Paton - Investor Relations                                                                                          07714 190 474

finnCap Ltd                                                                                                                           020 7220 0500

(Nominated Adviser & Broker)

Geoff Nash/Kate Bannatyne- Corporate Finance

Richard Chambers - Corporate Broking

Notes to Editors:

Byotrol plc (BYOT.L), quoted on AIM, is a specialist developer of antimicrobial technologies, identifying, developing, formulating and commercialising cutting-edge antimicrobial solutions.

Our patented suite of technologies deliver powerful, broad-spectrum efficacy, optimised against commonly-occurring and industry-specific pathogens.

Founded in 2005, the Company seeks to develop and commercialise advanced antimicrobial technologies that create easier, safer and cleaner lives for everyone.

For more information, please go to www.byotrol.co.uk

CHAIRMAN'S STATEMENT

I am pleased to report another year of progress, with reported results of EBITDA break-even after accounting for R&D tax credits and our financial position much more secure following the equity raising of £4.6m in September 2017.

In my report last year I indicated the need to increase the team's focus on product propositions, profit margins and sales and marketing expertise. There has been good progress in all these areas this year, but there is still a lot to do and many challenges remain.

One such challenge is how to invest our cash wisely and generate returns sufficiently quickly to achieve our targets.  This is not an easy task for any listed company, but it is particularly difficult for SMEs where small teams generally need to align behind one large project at any time and where the downside of failure cannot then be offset against success in other areas.  We frequently debate at Board level about investments that we should be making for the longer term but then decline due to potential adverse impact on the short term.

An example is that we thought long and hard about how to best monetise the intellectual property and commercial opportunities we had established with Solvay on our Actizone project - do we wait for eventual royalty income from jointly-targeted customers, or do we restructure the deal to bring forward funds and achieve short-term targets.  In my view, the deal we closed at the year end was the right combination of near-term financial pragmatics and retention of future upside (commission/royalties), for negligible future investment and an excellent ongoing relationship with a world-class polymer company.

I believe that the team has managed the challenges well and has now hit its annual financial targets for three years in a row, all the time improving the quality of the Company behind the scenes.  They are doing so in an industry that normally requires a large resource base, in-house manufacturing and a service offer, but they continue to feel that the "excellent science" competitive positioning is going to be a long-term winner, and progress so far seems to be supporting that.

Our three strategic initiatives using separate technology platforms continue to progress although not always as fast as we would like. It remains the case though that Byotrol's risk profile is high and we are all looking forward to the time when we can confidently run several projects in parallel, with a more balanced risk / reward profile across the portfolio.  We were certainly helped in that journey with equity raising in September last year from existing and new shareholders.  We were delighted to receive such excellent support and are fully committed to using the cash wisely.

We raised the money primarily to invest in sales and marketing, to support commercialising the Company's technologies and to start to get some economies of scale and distribution into the business.  That investment is certainly now taking place, slowly and carefully.  Our eyes are also open to potential strategic opportunities arising from our changing marketplace, where we are seeing consolidation, much of it driven by regulatory change.  The right partner may well get us to critical mass at a lower risk than pure organic growth, although we would only proceed on such a path with great caution.

Whilst we are investing more resources in sales and marketing we remain committed to developing our technologies as we consider that this is what makes our business stand out from the competition.  Our challenge is to convert the interest we are generating in those technologies into acceptable returns.

We are a small business but we operate in a number of different sectors and have technologies that can apply across them all.  Investment in our traditional sectors has been low as we try to exploit larger opportunities in the US, in healthcare and with Actizone.  Our new arrangements with Solvay should mean that we need to commit less resource to the project and can focus more on the US, healthcare and our traditional businesses including petcare where we continue to see good growth opportunities.

Our strategy continues to be a technology-led company that commercialises those technologies by direct product sale, by technology sale and by licensing.

On Brexit we expect the chemical industry to continue to follow EU rules, that we believe are generally appropriate for our industry for which we are already well-positioned.  Our greatest concern is that a no-deal exit could create supply chain issues, especially on incoming raw materials, so we watch political progress with some interest and will take precautionary steps should we need to.

While many challenges remain I am grateful for the support and engagement of the Company's shareholder base.  I would also like to extend my thanks to our employees for their efforts and positivity. 

The company remains well positioned with good technologies and a sound financial position and I continue to look to our long-term future with optimism and confidence.

John Langlands, Chairman

CHIEF EXECUTIVE'S REPORT

I am pleased to report that we have again hit financial and technical targets for the year.  We remain confident that we are doing the right things in the right way and that as the biocide regulatory changes continue to bite , the hard work will pay off for shareholders, employees and other stakeholders. 

Our strategy remains in place i.e.

·      Developing and designing unique, high-performance anti-microbial technologies that are approved under national and super-national regulatory rules.

·      Monetising those technologies by way of IP sale and alliances, license agreements and finished product sale, in both business and consumer markets

·      Supporting three particular technologies, where we believe we have good competitive advantage, namely:

o  US surface sanitisation for consumer markets - federal and individual state approvals have been completed and supply chain is in place.  Target is one of the largest mass market retailers in the US and our surface sanitiser is now on trial in 10% of their stores (from July 2018) under the brand 'Byotrol24'.

o  EU surface care - this year we completed a restructure of our commercialisation partnership with Solvay to (a) monetise Actizone IP (b) secure more resources for future investment in the project (c) retain rights to sell finished product using the Actizone IP and (d) secure funds for FYE 2018 and FYE 2019, plus ongoing sales commission/royalty on future Actizone sales. 

o  Hand hygiene - increasing sales of Invirtu hand sanitisers into healthcare and other institutional markets, including via white-label with existing healthcare supplies.

We have made this progress with only 18 employees and very little cash prior to September 2017, when we raised £4.6m in new share capital from existing and new investors. Since then we have started to invest more but we continue to be cautious with cash and to run as lean an operation as we can.  We are very aware of the execution risk in hiring sales and marketing resources, but it is now a necessary spend as we switch the emphasis of investment from technology to sales and marketing (into human and animal health in business and consumer markets).  

Senior sales resources have to date been focussed on a small number of larger-ticket relationships.  With the extra investment we must now spread our efforts more broadly.  

Financial Overview

We are pleased to report EBITDA ahead of plan for the full year. As with the prior year, FYE 2018's result was partially dependent on closing one new particularly large deal (see disclosure of consumer revenue under note 1), but we now have a consistent track record of such transactions and are confident of doing more in the future. 

Financial highlights include:

·      Gross profit increased by 15% to £2,010k from £1,751k the previous year, with sales broadly flat year on year at £3,140k

·      EBITDA amounted to a loss of £84k compared to a prior year profit of £27k. 

·      We expect to secure R&D tax credits of £129k for the year (versus £65k in the previous year), which offsets costs and effectively takes the Company to report profits at EBITDA level after  R & D tax credits  for the second year in a row and for the second time in Byotrol's history

·      Cash and cash equivalents at year end of £3,852k (versus £951k in the previous year), excluding a further £1,000k that arrived into our account on 3^rd April 2018, just past the year end.  For the first time under current management the Company has sufficient resources to pursue a growth strategy.

Markets

Professional

Professional revenues totalled £917k (versus £1,181k in the previous year) and gross profit £174k (versus £330k in the previous year).

Each year we report increasing challenges in this business area for Byotrol, which is largely a legacy business for the team and is based on finished product sale, mostly via distributors.  We are still battling with (a) the extraordinary amount of regulatory change in food and in healthcare markets (and the technical resources this then absorbs) and (b) severe competition from very large competitors with deeper resources, including broader product and service offering.

We have been expecting more technical sales opportunities to arise as some existing technologies disappear (due to regulation) and as demand for innovation increases from market participants and customers. This does indeed now seem to be happening, most visibly-so in hand hygiene markets where we are getting increasing numbers of incoming customer calls for our alcohol-free product.

In food manufacturing and services, we continue to see product commoditisation and strong competition by way of service offering.  We have no intention of building a service offer to compete with the larger players and we are not engaging in the price-cutting that we regularly see in products such as surface care wipes.  We are instead concentrating in niche areas such as listeria control, where our products are very high performance and where we can secure decent margins.  We believe that regulators will eventually remove the commodity players from highly hygiene-sensitive uses as their technologies will not meet the stringent regulatory-approval standards.

In healthcare, we have been trialling direct sales of alcohol-free hand sanitisers under our brand "Invirtu" to healthcare providers, including the NHS. There is certainly demand for the product and very little competition, but the marketing and service resources required to support direct sales are greater than we expected and the sales cycle considerably longer.  This means that despite some excellent, high profile customer wins such as at Essex Partnership University Trust hospitals, we are increasingly pursuing white label and distributor deals, where the return on investment is more attractive at the moment.

Outside of food and health, we service incoming calls reactively but as efficiently as we can.  A particularly interesting area to emerge is in elite sports where we are now supplying premier league football teams, Tour de France cycling teams, Olympic athletes and international rugby teams, amongst others.  Unfortunately, we cannot name them publicly without cash sponsorship deals.

The Board recognises that this segment needs to improve in performance to remain within the portfolio. We have therefore been investing carefully in senior sales and marketing resource and in product proposition development.  This is a slow process though and carries a substantial execution risk, so we are in parallel talking to potential distribution partners/alliances, particularly where those partners are lacking innovative technical product offerings.  With the right partner, we think we should be able to accelerate results with lower risk than under the current set-up.

Petcare

Petcare revenues totalled £731k (versus £794k in the previous year) and gross profit increased by 28% to £344k (versus £269k in the previous year).

This segment continued to perform solidly in the year, with progress in gross margin and new customer acquisition, particularly overseas.

We officially launched the new and improved 'Byopet' range (pet environment and pet grooming products) at the China International Pet Show (CIPS) in Shanghai, with updated branding and optimised product range. First orders have been despatched and we are engaging with multiple new leads, especially for Asia, including China.   We are hopeful that this initiative will drive progress in the new financial year

We also made good progress in launching hand sanitisers into animal health markets, including a new agreement signed with Medimark Scientific Limited, a premier distributor of hygiene products into vet care markets.  Medimark launched the product under the Esense brand (with Byotrol as an ingredient brand), to the UK veterinary market in November at the London Vet Show.

Consumer

Consumer revenues and gross profits totalled £1,493k (versus £1,152k in the previous year).

Revenues in this segment were heavily dependent this year on a large deal near to year end on Actizone.  This deal was essentially a sale by Byotrol to Solvay of Actizone patents and intellectual property, in return for:

·      payments falling due in financial years ending March 2018 and March 2019;

·      an ongoing royalty on all Actizone sales thereafter, with minimum guarantees in years ending March 2020 and 2021;

·      a further payment in early 2022 should sales exceed certain sales targets in 2021;

·      an ongoing right to sell Actizone technologies in finished product form, which we believe will be of interest to both consumer and business markets

The Company has also made excellent progress in the US, with formal federal and individual-state approvals now in place to sell to consumers our EPA-registered, long-lasting anti-microbial surface sprays, which we are doing under the brand name "Byotrol24".  In July 2018 we were delighted to commence our first US mass market trial.in the retailer Target.

In surface care in the UK, sales in Tesco (via our license with Robert McBride plc) of Byotrol ingredient-branded surface sprays continued to increase. 

Elsewhere in consumer activities:

·      We are now starting to receive royalties in the US from a license with Advanced Hygienics LLC, which is manufacturing and distributing alcohol-free hand sanitisers under the American Red Cross brand, targeted to US consumers via retail.  We are excited about the progress being made here.

·      Boots has now transitioned across to the new formulation alcohol-free hand sanitiser and we are now back on shelf in most Boots stores in their own-brand healthcare section. 

·      We are now in discussions with other high street retailers to put our products in their stores under their or our brand.

Technology, Supply Chain and Regulatory Environment

Much attention has been given in R & D over the past 12 months on consolidating products and formulations with the imminent impact of the EU Biocidal Product Regulations. Our technologies are now well-positioned here, so efforts are now being targeted to maximising efficiencies by reducing portfolio complexity.

In R & D, we have a new and potentially highly innovative development in the field of anti-viral biocides from natural sources.  We have not completed IP protection on this yet, but it is very on-trend in our markets and good progress has been made in verifying that results are repeatable and potentially scalable. We will report more on this in due course.

Over the last 12 months our supply chain has seen a considerable level of development and change. As the Company has been improving its financial stability, it has also been seeking to establish a supply chain that whilst remaining cost conscious, would represent working with manufacturers of higher quality.  We have moved hand sanitiser and surface sanitiser manufacture and have upgraded our distribution company

In USA, the launch of Byotrol24 and supply of the 32fl.oz product into Target stores has been an exceptional achievement for a company of our size and one that has required establishing a fully operational co-packer and distribution activity in a very short period of time.  Our co-packer, based in Montreal, has helped to quickly establish supply while work continues to establish a fully effective supply chain that can make and ship products across large distances without high freight costs.

Fundraising and Convertible Loan Note redemption

As reported in our Interim results, we were very pleased to complete a £4.6m (net of expenses) fundraising on 5 September 2017 from new and existing equity investors.  The funds were raised to invest in sales and marketing and we have since been cautiously investing some of the proceeds in new, senior professionals including VP Sales and Marketing US, a Head of Sales and a Head of Marketing in the UK, all of whom come to us with excellent track records in the respective targeted markets.

In parallel with the refinancing and in response to many investors' wishes, the Company converted its outstanding £380k Convertible Loan Notes. This exercise was completed in early September and resulted in 100% conversion of the notes by investors into Byotrol share capital.

Outlook

There are some similarities in our performance this year to the previous year - steady progress across all activities, improved finances, continued benefits from large, but limited number, of corporate relationships.  The difference is that through new shareholder support we are now fully funded to achieve sustainable profitability and to grow.  After four years of battling to survive, this is a very exciting point for the team.

We have - as agreed with investors at the time of the fund-raising - been re-orienting our efforts to sales and marketing and have been hiring people and investing in marketing strategy and proposition development.  This should start to deliver returns in the new financial year, part by organic growth and part by more alliances with sales and distribution partners. 

At the same time, our belief that competitor products would start disappearing as regulations bite seems to be materialising. This has been something of a slow burn to date, but regulatory rules are now having an effect and our telephones are ringing more often from companies that were historically competitors but that are now seeking technically-oriented suppliers and partners.

David Traynor

Chief Executive

STRATEGIC REPORT

The Directors present their strategic report for Byotrol plc for the year ended 31 March 2018

REVIEW AND ANALYSIS OF THE BUSINESS DURING THE CURRENT YEAR

Business Review

The principal activity of the Group during the year was the development, patenting, licensing and sale of anti-microbial products and technologies for business and consumer use.

Key performance indicators

Management uses a range of performance measures to monitor and manage the business.  The Management consider the primary financial KPIs for each segment of the Group to be revenue and gross margin %.  These are both measured and monitored closely.  Current year revenue is £3.14M (2017: £3.13M) and gross margin for the year is 64% (2017: 56%).  In addition to the financial KPIs, the Directors measure and monitor various non-financial KPIs such as the timeliness and efficiency of the research and development team against project timelines and objectives and monitoring the OTIF (on time in full) logistics performance ensuring that customers are being delivered to on time and in full.

The Board believes these KPIs are entirely suited to the needs of a growing business. Further analysis of the Group's performance is set out in the Chief Executive's Report.

Development and financial performance during the year

The results show continued efforts to focus on higher margin business, on more efficient commercial structures, continued investment in sales & marketing initiatives and to de-emphasise many of the legacy products, businesses and initiatives from before the Company was restructured in late 2013. 

·      Gross profit increased to £2,010k on turnover of £3,140k (compared to gross profit of £1,751k on turnover of £3,127k in the previous year)

·      EBITDA loss of £84k versus a profit of £27k the previous year

·      Cash and cash equivalents of £3,853k, compared to £951k in the prior year

·      On 1 September 2017, the Convertible Loan Notes holders agreed to convert their Convertible Loan Notes into ordinary shares at a conversion price of 3.5p per new Ordinary Share

·      On 5 September 2017, the Company raised £4.6m net of expenses in equity capital from new and existing investors.

PRINCIPAL RISKS AND UNCERTAINTIES FACING THE BUSINESS

Regulatory risks

The regulatory environment within Europe's biocides industry continues to change significantly.  At the core of this are the Biocidal Products Regulations, under which the European Union is intending to harmonise the market in Europe for biocidal active substances and products containing them. This means industry participants will be required to (a) register all their formulations with the EU and (b) use only active ingredients specifically approved by the EU authorities.

The Group's management must always be pro-active in responding to any changing market conditions and see the changes as an opportunity to build market share and benefit from consolidation within the biocides industry.

Credit risks

The Group's principal financial assets comprise cash and cash equivalents and trade and other receivables. As these instruments are conventional risks, they are managed on the simple basis of credit terms, credit worthiness and cash collection or settlement.

The Group did not enter into derivative transactions during the year. It is the Group's policy that no speculative trading in financial instruments will be undertaken.

Liquidity risk

As at 31 March 2018, the Group had cash and bank balances of £3,852,446.  Funds will be used in the marketing of the group's product range, obtaining regulatory approvals and securing the intellectual property rights.  Funds surplus to the Group's short-term requirements will be deposited in an interest- bearing account with UK clearing banks.

Group cash balances are monitored on a weekly basis to ensure that the Group has sufficient funds to meet its needs.  Cash flow forecasts are generated and reviewed regularly by management.

The Directors have prepared projected cash flow information for the coming year.  The projections take into account the new business opportunities highlighted in the Chairman's and Chief Executive's Statements, the timing and quantum of which will affect the Group's cash requirements, which are continually monitored by the Board.  On the basis of these projections, the Group has sufficient working capital facilities in place.

Foreign currency risk

The majority of the Group's cash flows are denominated in Sterling or US dollars.  However, currency revenues and expenditure do not match.  During the period the Group used the spot market to balance the inflows and outflows.  The foreign currency risk is monitored on a monthly basis.

Supply chain risk

The Group's supply chain is undertaking a period of change with the Group seeking to establish relationships with higher quality manufacturers.  Agreements with new hand hygiene and surface sanitiser manufacturers have been initiated and a new distribution company is in place

Other risks

The Group's asset base is founded upon its patent and regulatory approvals.  Patent applications and approvals continue to be sought worldwide to protect the intellectual property portfolio.  As the products are based upon existing approved biocides, regulatory issues are still complex but not as complex as with a newly designed chemical compound.

David Traynor

Chief Executive