Collagen Solutions plc (AIM: COS), the developer and manufacturer of biomaterials and regenerative medicines for the enhancement and extension of human life, announces its unaudited results for the six months ended 30 September 2019.
Jamal Rushdy, Chief Executive Officer of Collagen Solutions, commented: “As we previously announced, we are pleased to report the third consecutive six-month period of double-digit sales growth. We have shown particularly strong growth from our tissue business and also are continuing to bring on new customers and contracts from our global sales team. Our product development teams remain focused on development projects for customers, providing a solid platform for future contract manufacturing business. Finally, we are investing in our manufacturing capacity to ensure we can continue to support future growth and we look forward to a successful remainder of the year.”
This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.
I am pleased to present Collagen Solutions’ interim results for the six-month period ended 30 September 2019. During the period we saw the Group continue its revenue growth as we both diversify our customer base and grow with our core customers. The period saw us focused on upgrading our production capabilities, strengthening our technical excellence and organising the Company around meeting the growing demand for biomaterials product supply, development and contract manufacturing.
During the six-month period, H1 revenue grew 14.4% on the same period in the prior year, showing continued global demand for our products. Growth was limited by capacity constraints within our collagen manufacturing operation and the timing of delivery of development contract milestones. During the period the Company has made additional investments in people, capabilities and technology that will allow us to build for the future.
The continued organic growth in revenue has not been fully reflected at the earnings level as these investments have impacted our profitability for the first half but we anticipate will provide momentum for the second half and help us meet market expectations.
Where we see growing demand for our products and as we seek to increase our manufacturing capabilities and capacity, delivery of key customer projects and implementation of manufacturing capabilities will be key to deliver the year end outcome.
The Group’s results for the six months ended 30 September 2019 are set out in the Consolidated Statement of Comprehensive Income. More detailed commentary is included within the CEO’s statement.
Fundraise and use of Funds
On 5 June 2019, we completed a fundraise of £5.96m led by a strategic investor, Rosen’s Diversified Inc. Funds raised were to further our customer product development projects as well as ChondroMimetic®, expand contract manufacturing activities and capabilities, and for working capital including the repayment of the Norgine Ventures Bond Facility.
In line with the proposed use of funds in the first half we have continued investment in ChondroMimetic®, invested in development of our customers’ own proprietary products, increased production capabilities within the Glasgow facility and repaid £0.59m of debt.
While the first half saw increased investment in resources, the second half will see delivery of additional technical capacity and space to meet the demand anticipated in financial year 2020/21 from existing and new collagen supply customers, and to fulfil contract manufacturing contracts as they are realised and grow.
Proprietary Products / ChondroMimetic ®
We have reviewed our R&D projects and business environment, and refocused research and development resources from developing additional proprietary products, other than ChondroMimetic®, to investment in products developed on behalf of our customers. This shift in approach, while de-risking the business, makes the path to accessing the Scottish Enterprise large R&D grant award announced on 7 January 2019 slightly different to that originally anticipated. We are working with Scottish Enterprise to unlock funds but no income has been recognised in the first half of the year. We also continue to believe our ChondroMimetic® implant for the repair of cartilage defects represents significant untapped value for the Company, and are diligently pursuing the approval process cognisant of the regulatory challenges in Europe and resulting uncertainty in timing.
Board and Management
As part of the fundraise above, we welcomed Wade Rosen to the Board. As anticipated, Wade’s commercial experience is bringing a welcome new dimension to Board conversations and as the Company is preparing for its next stage of growth. On 13 November 2019 we announced a restructuring of the Board to a slimmer, more efficient profile, reducing the size from eight members to six. This restructuring will enable the executive team to focus on delivery of key initiatives, whilst ensuring effective and efficient governance and Board support.
The underlying trend in the business remains positive. Financially, investment in capabilities in the first half means that top line growth has not translated to bottom line performance in the first half. With the creation of additional manufacturing capacity and delivery of development contract milestones in the back half, we remain on track to deliver against our key objectives this year: Financial Performance, ChondroMimetic®, Core Business Growth, Infrastructure and Product Portfolio, and delivering market results.
Chris Brinsmead CBE
2 December 2019
I am pleased to report continued progress in the first six months of our financial year, representing the third consecutive six month period of organic double-digit sales growth and progress against all of our key initiatives for the year.
Revenue and Commercial Progress
Revenue for the first six months was £2.23 million, representing 14% growth over the prior year. Our core collagen and tissue supply business grew by 56%, led by 124% growth of our tissue business reflecting increased demand from our customers as well as early sales from new customers following our strategy to expand our offering of tissue sources and products. Our tissue business continues to perform well and whilst the customer acquisition process is a lengthy one, in-roads to new customers in new geographies is encouraging. Our core collagen supply grew 13% as well notwithstanding interim capacity constraints. We continued to make significant progress in our development and contract manufacturing projects although overall revenue in this category declined 17% reflecting timing of development contract milestone deliveries, and is expected to reverse in the back half.
Revenue from North America grew 8% in the half to £1.58 million, driven both by existing customer demand increases and new customers offset by certain product development milestone timing. Asia Pacific revenue grew 155% to £0.46 million both due to increased existing customer demand and new business in China. The EMEA region declined by 38% to £0.19 million, driven mostly by existing customer project timing. Overall new customer growth remained strong as we added four new customer contracts and began supply to 10 new customers.
Product Development and Innovation
Our product development team and resources have been largely focused on delivering customer development projects as well as being key partners to our commercial team to help bring on new customers. Not only do these customer development projects provide near-term revenue, but also provide a valuable platform of future sustainable revenue as these projects mature from development to contract manufacturing over time supporting our strategy to move up the value chain.
We are also continuing to focus on gaining CE Mark approval for ChondroMimetic®. We are in the process of answering questions from our Notified Body, inclusive of providing additional non-clinical test data where necessary. The current regulatory environment in Europe remains challenging as the impending implementation of the new EU Medical Device Regulation (MDR) have impacted the capacity of all Notified Bodies and therefore we remain cautious on timing for approval, while being diligent in our own efforts to respond quickly and completely to our Notified Body’s questions.
Operations and Financial Results
The Group’s financial results for the six months ended 30 September 2019 are set out in the Consolidated Statement of Comprehensive Income. Our financial KPIs are as follows:
|Measure||Six months to 30 September 2019||Change from Prior Year|
|Gross margin %||71.2%||-1.8%|
|Diluted loss per share||(0.25p)||+22%|
|Cash and cash equivalents||£5.01m||+96%|
Operationally, we have commenced our planned projects to deliver increased capacity in collagen supply and contract manufacturing through investment in capital equipment and the creation of additional space in our Glasgow manufacturing facility. These plans are in line with our aims at the time of the fundraise of increasing manufacturing capabilities and capacity. We believe that expansion at the existing plant provides the best opportunity for a return on investment for our shareholders.
With the mix in the first half leaning towards our tissue business, margins were slightly lower than the previous year but remain strong. In addition, investment in additional resources in the first half of the year to build the capabilities required to service the future business and the timing of development revenue milestones have impacted our profitability in the first half of the year. We believe the continued performance of the tissue business, investment in additional capabilities and capacity in the collagen business, and delivery of development milestones in the second half will allow us to deliver against market expectations.
Chief Executive Officer
2 December 2019
|Cost of sales||(641,817)||(525,812)||(1,111,399)|
|Administrative expenses (excluding separately identifiable items)||(1,746,736)||(1,699,885)||(3,499,544)|
|Separately identifiable items||4||-||-||248,775|
|Total administrative expenses||(1,746,736)||(1,699,885)||(3,250,769)|
|Total Selling and Marketing costs||(562,313)||(491,324)||(1,024,868)|
|LOSS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTISATION||(666,701)||(663,666)||(967,755)|
|Amortisation and depreciation||(352,086)||(238,981)||(562,355)|
|LOSS BEFORE TAXATION||(1,186,419)||(1,060,660)||(1,847,069)|
|LOSS FOR THE PERIOD||(977,840)||(1,047,743)||(1,666,269)|
|Owners of the parent||(977,840)||(1,047,743)||(1,666,269)|
|Currency translation difference||220,256||107,922||129,488|
|Other comprehensive income||220,256||107,922||129,488|
|TOTAL COMPREHENSIVE (LOSS)/GAIN FOR THE PERIOD||(757,584)||(939,821)||(1,536,781)|
|Owners of the parent||(757,584)||(939,821)||(1,536,781)|
|Basic and diluted loss per share - pence attributed to owners of the parent||3||(0.24p)||(0.32p)||(0.51p)|
|Property, plant and equipment||1,491,547||1,120,527||1,101,959|
|Trade and other receivables||1,596,582||760,877||1,137,758|
|Cash and cash equivalents||5,011,027||2,556,502||1,678,079|
|EQUITY AND LIABILITIES|
|Equity attributable to equity holders of the parent company|
|Share-based payment reserve||324,720||248,120||291,720|
|Shares to be issued reserve||106,581||106,581||106,581|
|Provision for other liabilities and charge||99,984||132,696||121,744|
|Trade and other payables||1,368,760||761,783||938,556|
|Provision for other liabilities and charges||37,601||105,551||38,538|
|Total liabilities and equity||23,974,273||19,646,781||19,200,551|
|Shares to be|
|As at 1 April 2018||3,290,166||14,869,909||205,820||106,581||4,531,798||675,899||(6,797,962)||16,882,211|
|Loss for the period||-||-||-||-||-||-||(1,047,743)||(1,047,743)|
|Currency translation difference||-||-||-||-||-||107,922||-||107,922|
|Loss and total comprehensive loss for the period||-||-||-||-||-||107,922||(1,047,743)||(939,821)|
|At 30 September 2018||3,290,166||14,869,909||248,120||106,581||4,531,798||783,821||(7,845,705)||15,984,690|
|Loss for the period||-||-||-||-||-||-||(618,526)||(618,526)|
|Currency translation difference||-||-||-||-||-||21,566||-||21,566|
|Loss and total comprehensive loss for the period||-||-||-||-||-||21,566||(618,526)||(596,960)|
|At 31 March 2019||3,290,166||14,869,909||291,720||106,581||4,531,798||805,387||(8,464,231)||15,431,330|
|Issue of shares||1,191,664||4,766,657||-||-||-||-||-||5,958,321|
|Share issue costs||-||(282,784)||-||-||-||-||-||(282,784)|
|Proceeds from share issue||1,191,664||4,483,873||-||-||-||-||-||5,675,537|
|Loss for the period||-||-||-||-||-||-||(977,840)||(977,840)|
|Currency translation difference||-||-||-||-||-||220,256||-||220,256|
|Loss and total comprehensive loss for the period||-||-||-||-||-||220,256||(977,840)||(757,584)|
|At 30 September 2019||4,481,830||19,353,782||324,720||106,581||4,531,798||1,025,643||(9,442,071)||20,382,283|
|CASH FLOW FROM OPERATING ACTIVITIES|
|Loss before taxation||(1,186,419)||(1,060,660)||(1,847,069)|
|Share based compensation||33,000||42,300||85,900|
|Increase / (decrease) in contingent consideration||-||-||4,744|
|Gain on sale of property, plant and equipment||-||-||(67,591)|
|Gain on sale of investment||-||-||(214,965)|
|Increase in inventories||(136,846)||(150,135)||(12,418)|
|(Increase) / decrease in trade and other receivables||(317,310)||273,297||53,442|
|(Decrease) / increase in trade and other payables||(98,070)||109,750||112,635|
|Decrease in provisions||(55,148)||(132,241)||(202,736)|
|CASH USED IN OPERATIONS||(1,242,075)||(666,639)||(1,208,744)|
|Net cash used in operations||(1,241,127)||(756,737)||(1,428,826)|
|Proceeds from sale of investment||-||-||214,965|
|Proceeds from sale of property, plant and equipment||-||-||67,591|
|Payments to acquire property, plant and equipment||(91,468)||(280,010)||(454,215)|
|Payments to acquire licensed IP, patents and intangibles||(307,210)||(413,471)||(740,045)|
|Deferred development costs||(124,363)||-||-|
|Settlement of deferred and contingent consideration||-||(562,207)||(566,951)|
|Net cash used in investing activities||(515,833)||(1,246,220)||(1,463,401)|
|Repayment of related party loan||-||(43,022)||(43,022)|
|Net proceeds on issue of ordinary shares||5,675,537||-||-|
|Repayment of Bonds||(591,927)||(420,319)||(420,325)|
|NET CASH (USED IN) / GENERATED FROM FINANCING ACTIVITIES||5,083,610||(463,341)||(463,347)|
|Net decrease in cash and cash equivalents||3,326,650||(2,466,298)||(3,355,574)|
|Effect of foreign exchange rates on the balance of cash held in foreign currencies||6,298||486||11,339|
|Net decrease in cash and cash equivalents||3,332,948||(2,465,812)||(3,344,235)|
|Cash and cash equivalents at the beginning of the financial period||1,678,079||5,022,314||5,022,314|
|Cash and cash equivalents at the end of the financial period||5,011,027||2,556,502||1,678,079|
Page last updated: 3 December 2019
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