Biome Technologies current trading continues in line with the Board’s expectations (LON:BIOM)

Biome Technologies plc

Biome Technologies plc (LON:BIOM) Chief Executive Officer Paul Mines caught up with DirectorsTalk for an exclusive interview to discuss the highlights from the interim results, updates on the delay on the coffee filter material, shipping issues, growth in the Bioplastics division, tree-guards and the positive leading demand indicators for the fibreoptic division.

Biome Technologies is a growth orientated commercially-driven technology group. The strategy is founded on building market leading positions based on patented technology and serving international customers in invaluable market sectors. Earlier, the company published interim results for the six months ended 30 June 2021 and with me to discuss the update is CEO Paul Mines.

Q1: First off, can you just tell us what the highlights from the results were?

A1: The highlights were the Biome Bioplastics division was the principal revenue generator for the Group, with growth of 7.3% this first half versus 2020 and that was despite the logistics disruptions we were hampered by ongoing issues in the global shipping industry. Also, importantly, a key new customer for our compostable coffee filter is debottlenecking their facility and is expected to underpin our growth for H2 so that was Bioplastics.

In the Stanelco RF division, we saw tendering activity increase, contract wins in induction heating and an improvement in the leading demand indicators of the cyclical fibreoptic market.

Overall, for the Group, our cash position as at the mid-year point was £1.4 million with no external bank borrowings and current trading continues in line with the Board’s expectations as we set out in our updates of the 1st and 29th July.

Q2: You touched on this earlier, you announced a contractual commitment with a customer for your coffee filter material earlier in the year and you announced a subsequent delay in July – can you tell us what’s going on there?

A2: We manufacture a compostable coffee filter mesh that goes into coffee pods and back in Q1, we began an implementation with a second customer in the US, a large customer and it was underpinned by a contractual commitment at that time.

During this implementation, the customer hit a hurdle and found that some of the utilities supplying its factory limited the deployment of our materials. Whilst the customer has continued to use reasonable quantities of our mesh, it’s really limited large scale deployment whilst they did the design and engineering to overcome that constraint.

The good news is they’re well through that programme and we expect that scale up to continue and the acceleration of offtake of our material to happen now through Q4 of 2021.

Q3: You mentioned shipping issues, can you explain how these are impacting you and when they are likely to end?

A3: I think this is well known from the press etc. that there are issues moving goods across oceans and indeed locally due to transportation and lorry haulage issues. That’s partly out of earlier in the year the jam in Suez Canal but I think more profoundly due to uptick of all global economies after COVID.

If I can give an example, some of the containers we’ve sent from Europe to the US have taken 3 months to get there rather than the normal 2-3 weeks so there’s real congestion in shipping.

I think the view of the shipping market is that it’s not going to end soon and we’re adapting with more stock, more focus on logistics but we expect it to be a continued part of business life for foreseeable future but believe our measures will mitigate many of those effects as we progress through the second half.

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Q4: Just going back, what’s driving the growth in Bioplastics more generally?

A4: Bioplastics is a fast growing business, it’s at the heart of a transformation that’s going on in plastics industry as there’s a quest to reduce reliance on oil and gas, to move to a bio-based input and to have some compostable materials, particularly in conjunction with food waste.

As a result we are achieving growth in four areas:

We’re seeing continued growth from our existing North American customers, particularly around flexible film for upmarket packaging.

Our sales of filtration mesh are doing well and, as I’ve said before, are expected to accelerate in Q4 with one large customer in the US but we have another couple of customers trialling our materials.

We launched a product for coffee pods in the US in 2019 and that’s gaining momentum with continued demand from the lead customer plus trials of customers.

Finally, we’re working with a dozen new customers for the conversion of flexible packaging to compostable formats, again mainly in the US, and we expect those to be commercially meaningful in the second half of this year.

Q5: You’ve not mentioned the biodegradable tree-guards which we talked to you about earlier in the year?

A5: Yes, we talked about those in the context of them being a development project but we’ve had such positive feedback from the market on the prototype tree-guards that we’ve made, that we’re looking to accelerate the commercial deployment in the UK. We’re not quite commercial yet but we’re looking to see what we can do to bring forward that commercial launch, maybe to this planting season, this winter, whereas we had expected it to be next year.

So, we’ll see how we get on with that but we’re doing our best to bring that trial forward.

Q6: Now, you mentioned positive leading demand indicators for RF divisions for the fibre optic market, what do you mean by this?

A6: For Stanelco RF division, one of its core markets is for making fibreoptic cable and this market has periodic investment cycles and it’s been in a low part of the cycle since 2018 which was also compounded by the pandemic. For a periods of time, our customers stopped ordering anything, spares, service, support or indeed equipment orders.

After a very quiet time in 2020, we are now seeing signs of recovery in spares ordering,  the price of fibre in the end markets going up and we’ve begun to receive requests for quotations for quite a few pieces of new equipment, across a number of our regular customers.

We believe it’s only a matter of time before this transitions from requests for quote into ordering itself.

Meanwhile, the business is getting on with other work, we’ve been diversifying its offering to the wider industrial sector and we’re making good progress winning contracts to underpin the performance in the balance of the year.

Biome Technologies plc is a United Kingdom-based company engaged in the development of its business in bioplastics. The Group comprises two divisions: Biome Bioplastics and Stanelco RF Technologies.

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