Biome Technologies plc (LON:BIOM) has announced its audited Final Results for the year ended 31 December 2021.
· Challenging year for the Bioplastics division with continuing strength shown in the pipeline of commercial opportunities but saw a revenue decline of 3.0% as the division contended with various logistics and development issues.
· RF Technologies division revenues increased by 23.4% to £0.9m (2020: £0.8m) (after elimination of intra-group trade) as its markets started to recover. As previously announced, significant contracts from the fibre-optic, medical and food packaging industries have been secured and help underpin the Board’s expectations for the division in 2022.
· Reported Group loss before interest, depreciation, taxation and amortisation (LBITDA) of £0.6m (2020: LBITDA of £1.0m restated), in line with market expectations, with Group operating loss of £1.1m (2020: loss of £1.6m).
· Group cash position as at 31 December 2021 was £1.0m (31 December 2020: £1.7m) with no bank borrowings.
Paul Mines, Biome Technologies Chief Executive Officer said: “The Group has good opportunities for growth in 2022. In 2021, the Bioplastics division continued to develop its strong product base but sales growth was frustrated by third party delays. Towards the end of 2021, the RF Technologies division saw a strong recovery in its order book which bodes well for 2022”.
2021 was a challenging year for the Group with delays to anticipated growth as the Group had to contend with a number of third-party operating issues. Project implementation by customers for our Bioplastics’ products; shipping and other logistics issues; and with little sign of a return to furnace sales growth in our RF Technologies division, until the second half of the year. As a result, we had to reduce our expectations during the year.
An increased focus on cost and working capital management in the year ensured that the year-end cash position was better than anticipated at £1.0m with more identified improvements underway to provide for further anticipated growth.
A significant commitment was secured in March 2021 for the deployment of the Bioplastics division’s proprietary compostable filtration material, expected to support a significant portion of the Group’s expected revenue growth during 2021 and beyond. However, the ultimate potential of this commitment was not delivered in the year as the customer delayed on more machines from the two currently in use.
In our placing circular to shareholders in 2020, we laid out four growth drivers which we believed would deliver significant value for shareholders and maintain our KPI target of 40% revenue growth in the Bioplastics division through 31 December 2023. I would like to return to these growth drivers again specifically and update you on progress in each of them:
1. Continued growth from existing customers with existing products, especially flexible film in both industrial and particularly home compostable formats, in the North American market.
Growth from our existing customers and products stalled in 2021 as transatlantic shipments were delayed by up to five months and our customers struggled with material and labour shortages. We expect growth in flexible film in North America to be more pronounced in the medium term.
2. Filtration mesh: The Company envisaged growth with a second end-customer with a material that has been proven with an existing customer over the last four years.
This project, with anticipated significant and recurring revenues from H2 2021, turned into a commitment in March 2021. However, first engineering delays and then logistics issues meant that a more gradual ramp-up is now expected during 2022. Substantive discussions have begun with two further customers to deploy this material.
3. Coffee pod material: The Company launched a project for a heat stable material for coffee pods within the US at the end of 2019. Commercial sales of this product are now well embedded with a lead customer.
In addition to continued demand from the lead customer this material is now at a late stage of testing with another large end-user organisation. Following Covid related delays, commercial volumes are now expected to ramp-up in H2 2022.
4. Packaging film: The Company is working on seven new customer projects that focus on the conversion of flexible packaging to compostable formats. Six of these projects are for the North American Market.
Six of these original projects continue and whilst trials turned to commercial usage in 2021, we now expect two or three of these to become commercially meaningful during 2022.
As a separate enterprise, Biome Bioplastics has coordinated research and development funding in conjunction with leading universities, in pursuit of bringing new novel bio-based and biodegradable polyesters to market. Exciting new materials are now being produced at pilot scale on a regular basis and their technical and commercial properties assessed. We expect to undertake initial small-scale manufacturing on semi-commercial equipment in 2022.
Our tree-guard contracts, with Innovate UK, the UK’s innovation agency, and Suregreen Ltd, a leading manufacturer in the sector, to bring a biodegradable tree-guard to market, has accelerated production of the new product in 2022. There are now tens of thousands of such products being tested at various UK locations and commercial sales have begun. As both increased tree planting and environmental pressures increase, we believe we have developed an excellent material for a growing market and will seek to exploit its potential in the coming years.
Home composting, rather than industrial composting, is a trend that is coming closer to market acceptance. There has been a shift in technical requirements in the bioplastic market with more consumers and brands seeking products that can be certified for home composting as well as through industrial scale facilities. The division’s scientists have been working to deliver products that deliver this technical performance at a competitive price point and a patent for a new family of materials has been filed recently. Work to exploit this technology commercially will step-up in this financial year.
We believe that the progress described above highlights the growing reputation of our Bioplastics business for innovative materials and how it will lead to market success and penetration, particularly in the USA.
RF Technologies division
The downturn in demand for capital goods in the fibre optic cable manufacturing sector that the division first saw during 2019 continued through the first half of 2021. However, as the year progressed, we saw improvement in spares and service orders and then interest in quotations for increased capacity. Ultimately this resulted in the first substantive new order for additional capacity for the fibre optic sector since 2018.
The division’s efforts to diversify its revenue stream also gained traction in 2021. The bounce back in demand as Covid-19 restrictions were eased in some territories, saw an uplift in enquiries for new capacity. This was manifested in a substantive order for the medical sector in December 2021 and another for the food packaging sector in Continental Europe in January 2022. These are important steps for the division as it refines and demonstrates its capability on a wider stage.
The division is experiencing the disruptions to supply lines other manufacturers are having to contend with. Innovative and more costly solutions are occasionally having to be applied to this challenge to enable our contracts to be delivered in a timely fashion. We expect this situation to continue for the time being.
The Group continues to monitor the ongoing impact of the Covid-19 epidemic and places high importance on caring for its staff and customers. Some adjustments made in 2020 to commercial and manufacturing activities remain but are now being progressively eased in line with government guidance on these matters.
We have experienced substantive supply chain issues in the Bioplastics division and whilst this turbulence is expected to continue through 2022, we are improving our capability to foresee and manage such issues. We have seen and continue to see an increase in input costs, including raw material, shipping, fuel and labour. We have, in the main, been able to pass these costs on to customers and we are continually working to mitigate the effects of inflation on our business. Business development in the North American market that has been successfully managed remotely for two years is now taking place in person again.
The RF Technologies division’s ongoing activity to widen the markets that it sells to was frustrated in 2020 and early 2021 by a slowdown in capital expenditure and restrictions placed on travelling to and meeting with potential customers. However, as the pandemic has eased, more normal business development has resumed not least with three face-to-face exhibitions planned for 2022.
Whilst we expect to see a continuing limited impact from Covid-19, the business has adapted to the challenges that the pandemic has presented, and we look forward to a more normal environment in the future.
We have not experienced any further operational issues since the beginning of the Russian invasion of Ukraine.
The Group’s results were broadly in line with the revised market expectations for the year ended 31 December 2021.
Consolidated Group revenue for the year was £5.7m (2020: £5.7m) reflecting the slight decrease in Bioplastics sales offset by the modest uptick in those from the RF Technologies division. Group gross margins for the year were 33.8% (2020: 29.4%) reflecting an improved mix of sales during the year.
The Group loss before taxation reduced to £1.2m (2020: £1.7m) whilst the non-GAAP measure of loss before interest, taxation, depreciation and amortisation (LBITDA) was slightly better than market expectations at £0.6m (2020: £1.0m LBITDA restated). A Group operating loss of £1.1m for the year was incurred (2020: £1.6m loss).
The Bioplastics division saw a slight decrease in sales to £4.8m (2020: £4.9m) representing a 3.0% decline and flat loss before taxation of £0.6m (2020: £0.5m loss restated). The division recorded a slightly higher LBITDA of £0.2m (2020: £0.1m LBITDA) as sales marginally decreased.
The RF Technologies division’s revenues were up 23.4% to £0.9m (2020: £0.8m) reflecting the start of a recovery in demand for the division’s products. Loss before taxation was significantly reduced at £0.1m (2020: £0.5m). The division reported a LBITDA of £nil / breakeven for the year (2020: £0.4m LBITDA) and an operating loss of £0.1m (2020: £0.5m Loss). These results reflect the improved sales in the year and the full-year benefit of cost reductions made in 2020.
The Group’s cash balances as at 31 December 2021 were £1.0m (31 December 2020: £1.7m) reflecting trading losses for the year offset by lower working capital. The Group had no debt, other than leases in respect of right of use assets, as at 31 December 2021 (2020: £nil). Capitalised product investment in the Bioplastics division was £0.3m (2020: £0.3m).
The Group continues to execute on its strategy to be a leading player in its chosen markets. In both markets addressed by the Group our products are developed to meet our customers’ demanding requirements and incorporate a high level of technological knowhow that differentiates our offerings from the competition.
In my statement, made as part of the interim results for 2020, I updated and restated our high-level Key Performance Indicators (KPIs) to 31 December 2023 to reflect the continued growth in the Bioplastics division as well as the market headwinds facing the RF Technologies division. The revised KPIs and the progress made as at 31 December 2021 is set out below: –
40% annual revenue growth in the Bioplastics division.
During the year ended 31 December 2021, the division missed this target with a revenue decline of 3.0% as shipments in H2 were held-up and delays in the implementation of new projects occurred as customers managed their own supply chain problems. We expect growth of KPI magnitude to return in 2022.
Bioplastics division’s profitable revenue growth to achieve a 10%-12.5% EBITDA margin by the end of the KPI period.
Progress towards this KPI was reversed with the revenue decline described above.
Continued diversification of the Group’s turnover by product and market to ensure that no single product or end customer contributes more than 15% of revenues by 2023.
The Group had two customers (2020: two customers) who each accounted for more than 15% of Group revenues. In 2021, both of these customers were in the Bioplastics division. The two customers referred to are converters of material for a further number of end customers. Good progress is being made to diversify the number of end customers and the variety of products being sold.
Continued investment in the Group’s next generation of products by spending significantly more per annum on average than the £0.3m per annum average spend over the previous strategic objective cycle.
The Group met this target with £1.0m R&D investment in the year representing an increase of £0.3m on 2020.
Board and personnel changes
With the retirement of Michael Kayser, Simon Herrick joined the Board as non-executive director on 25 March 2021 and assumed the responsibilities as Chair of Audit and Remuneration Committees, member of the Nominations Committee and has recently assumed the role of senior non-executive director. Simon qualified as a Chartered Accountant with Price Waterhouse and has held several executive director roles with listed companies including Northern Foods plc, Debenhams plc and Blanco Technology Group plc.
Race to Zero
Biome Technologies signed up to the United Nations Race to Zero Climate Campaign and is committed to reducing its carbon emissions in line with publicly disclosed targets. Our reporting of actual greenhouse gas emissions and medium-term targets commences in these Statements and demonstrate good initial reductions of Scope 1 and 2 emissions (direct energy use) against the recent baseline. Plans have been developed to drive progress towards both 2030 and 2050 targets.
Our Bioplastics division’s products are already subject to individual Life Cycle Analysis (LCA) that encompass the full supply chain where appropriate, and we will look to extend our broader Group reporting to include Scope 3 emissions (those from toll manufacture, growing, extraction, manufacture, and processing of the raw materials used) as robust data becomes available.
Despite the challenging frustrations of 2021 we believe the Group has good opportunities for growth in the current year.
The Bioplastics division will continue to benefit from the move to more sustainable materials and, as it continues to broaden its product and customer portfolio and the logistics issues ease, we expect growth to return in the second half of 2022. It is also anticipated that several of the technical developments, set out in the Strategic Report, will start to be commercialised in 2022.
The RF Technologies division has been successful in winning some good contracts to underpin expectations for 2022 and we are encouraged by the improvement in its outlook. It is particularly pleasing to see the division executing on its strategy of diversification in markets served that should put the business on a more secure long-term footing, particularly in the first half of the current year.
Trading in the first quarter of 2022 has been in line with our expectations and the outlook for the year remains unchanged. We continue to manage our cash resources to ensure that we can support further growth and achieve sustainability for the Group.