Byotrol Share Discussion Threads

[1gw] 04/10/2019 15:16

sikhthetech, it is disappointing to see you bring the same tactics of misinformation and distortion to this board that have so spoilt other boards you participate in.

[1gw] 04/10/2019 15:08

While it is frustrating to read that the structure of the Medimark earn-out appears to be delaying the achievement of synergies, that could be considered a small price to pay for not ending up where Totally ended up earlier this year:

"On 18 February 2019, the Company received a letter of claim alleging that Totally has breached certain provisions in a share purchase agreement to which it is party such that the claimant has not become entitled to receive earn-out payments provided for in the agreement. The claimant asserts his loss to be approximately £2.2 million which assumes that he would otherwise have been entitled to receive full payment of the earn-out. The value of the alleged shortfall on payments under the share purchase agreement is stated to be up to £5.2 million in total."

While Totally refutes the claim and states that it regards it as spurious, it must have been a distraction for both Totally management and any of the sellers who stayed with the business after acquisition. Has this situation arisen because Totally did not sufficiently ring-fence the acquired business during the earn-out period? So they could get after synergies more quickly, and bring company policies to bear, but at the cost of muddying the waters when it came to assessing how well the acquired company had performed against the earn-out targets?

[sikhthetech] 04/10/2019 15:00

1gw,

Thank you for confirming that Medimark are trading below expectations...

Not surprisingly, you're struggling to use the words 'below expectations' here...
;-)

[1gw] 04/10/2019 14:54

Incidentally, a fuller finnCap note has now been published. A couple of quotes:

"Discussions with management suggest that the deal pipeline is strong and that many of these will be executed in the current year..."

"...we view Byotrol as a self-sustaining, technology-rich, profitable company."

[1gw] 04/10/2019 14:51

You wouldn't normally expect to hit the maximum payout though would you? Otherwise where's the stretch and the motivation to do better?

So it's quite possible expectations of ebitda were below the level which triggered maximum earnout.

At the Totally shareholder evening I quizzed Bob Holt (chairman) on the apparent failure of a series of their acquisitions. These had been structured similarly to the Medimark deal with contingent payouts dependent on EBITDA or profit - basically they were paying 7x (ebitda or profit) and so long as the metric increased year-on-year an earn-out payment was made reflecting incremental EBITDA (or profit). The problem for Totally was that some (if not all 3) of the acquisitions structured like this had one good year where the earn-out paid out, but then dropped in the following year so that no payout was earned and then didn't even recover enough in the third year to trigger a further payout. Bob Holt's response was that the earn-out was just a mechanism to keep the seller happy, given the seller's inflated expectations, and he appeared to me to be suggesting that Totally really didn't expect their acquisitions to payout anything like the maximum in earn-out.

So as I said, the encouraging thing about the Medimark deal is that they appear to be still in growth - so they are expecting FY20 EBITDA to exceed FY19, so that would suggest growth is sustainable (whereas it appears not to have been with Totally's acquisitions). And they also appear to be relatively close to the max earnout targets ($500k and $650k EBITDA for FY19 and FY20) - when you have these multipliers on EBITDA a small miss on the maximum payout level causes a much greater miss in the earn-out payment.

[sikhthetech] 04/10/2019 14:24

1gw

"But that still leaves a £0.6m reduction, suggesting that Byotrol is expecting to pay £1.2m contingent instead of the max of £1.8m. That's reflected in the finnCap note which talks about "a further £1.2m (£0.8-1.2m range) to be paid to the vendors in FY2020", "


It doesn't matter how you spin it....From the results, the fact is the reason they are expected to pay less for Medimark is because they are trading below expectations, which was my point and also my only question in previous post.

From the fy results:

"In August 2018 we acquired Medimark, a leading provider of biocide-based infection control products into the animal and human healthcare markets for an enterprise value of up to GBP4.5 million (including borrowings assumed and earnout payments). The business continues to trade well but we now expect total consideration payable to be around GBP3.5 million."

[mudbath] 02/10/2019 22:33

Thanks 1gw for your analysis.

I hold a significant number of Byotrol shares and thus welcome other posters observations as to the merits(or otherwise) of this investment.

[1gw] 02/10/2019 22:22

If you stand back from the detail and consider whether financially it was a good deal, it seems to me we have the following metrics to play with.

£3.5m expected consideration (£2.3m up front incl debt + £1.2m contingent)
£0.31m profit contribution in 7 months of FY19 (that's profit after tax not EBITDA)
£0.6m EBITDA contribution expected in FY20 (i.e. this FY)
Synergies to be delivered from FY21 (April onwards)

Those seem pretty reasonable metrics to me.

[Errors again excepted. If anyone has better insight into this, please share!]

[1gw] 02/10/2019 22:15

It's actually quite complicated to work out what's happening with the Medimark consideration. At first read it appears that there must be a £1m reduction in expected contingent consideration. However, there has actually been a £0.4m reduction in initial consideration as far as I can see, caused by debt taken on being lower than budgeted (£0.23m instead of £0.40m) and by the share consideration being valued at £0.88m instead of £1.15m. The reduction in share consideration is because shares were issued at a premium, valued at 4.1p for the acquisition, when they were trading below that at the time.

But that still leaves a £0.6m reduction, suggesting that Byotrol is expecting to pay £1.2m contingent instead of the max of £1.8m. That's reflected in the finnCap note which talks about "a further £1.2m (£0.8-1.2m range) to be paid to the vendors in FY2020", although presumably the FY20 consideration won't be paid until FY21.

We know Medimark has contributed £311k of profit after tax to Byotrol's results in FY19 and would have contributed £391k of profit after tax had it been there for the whole year. So add back D&A (and any I and T) to get the EBITDA.

Finncap is forecasting £0.6m EBITDA from Medimark in FY20 as I read their note.

So my guess is that they are expecting to pay:
£0.8m contingent for FY19 (i.e. the bottom of the finnCap range)
£0.4m contingent for FY20

...and that EBITDA performance is now expected to be something like:

£0.45m-£0.5m in FY19 (£0.5m needed for max contingent consideration)
£0.6m in FY20 (£0.65m needed for max contingent consideration)

That's not hugely off the target (for max contingent consideration) of £0.5m EBITDA in FY19 and £0.65m in FY20 and may well not be below "expected" performance. An important thing is that FY20 EBITDA is still expected to show growth on FY19 EBITDA, if those numbers are right.

That sort of performance is also probably consistent with total contingent consideration being £0.6m below the max, assuming there's some sort of fairly significant gearing between EBITDA and contingent consideration.

Errors excepted!

[sikhthetech] 02/10/2019 11:42

1gw,

Interesting comments..
MediMark has performed below expectations, haven't they? Hence why the total consideration is now expected to be around £3.5m instead of the original £4.5m.

Do you agree they have performed 'below expectations'?

[mudbath] 02/10/2019 09:13

supernumerary
Regarding SC Johnson,I was only musing rather than suggesting.
With the recent BOD changes at SCJ it is possible though that they are considering new horizons.
Whatever might happen,I think that the significance of the newly signed supply contract and of the TRISTEL joint development have not received sufficient positive weighting in recent discussions regarding Byotrol's prospects.

[slicethepie] 02/10/2019 08:37

Hi mudbath sc Johnson is one of the worlds largest consumer products company and is v proud of being private. It is v interesting however that they are helping us get into the nhs which we know is extremely difficult. Our tech must have impressed them, who knows whether our extremely hard to achieve approval in the US is of interest. For me it is another tick for our tech alongside solvay and tristel.

[nobbygnome] 02/10/2019 07:58

>> 1gw

Thanks for your reply. However, I wouldn't touch BYOT with a barge pole. It looks to me to be in an incredibly vulnerable position and management are not to be trusted. But each to their own....

[supernumerary] 01/10/2019 23:21

mudbath - are you suggesting there might be a takeout by SCJ? It sounds like it could be quite a good deal if SCJ reversed into BYOT, but I guess that if they'd received an approach they would have had to RNS it...

[maxk] 01/10/2019 22:57

The minute the "brexit" excuse is offered, get out the tin hats.

[microscope] 01/10/2019 22:30

I think what it does do is highlight a massive hole in accounting systems generally, not in any way Byotrol specific, that two different standards can produce two such apparently polar results.What are you and I to think? Investors like ourselves never had it so tough.

[1gw] 01/10/2019 21:35

So you'll be pleased to see they reported an (unaudited) profit in FY19, then, thanks to IFRS 15. Not sure they can rely on that level of IP sales every year though.

[microscope] 01/10/2019 21:24

I'm genuinely looking for a reason to invest here 1gw, and that's a fair reply (3719). Like yourself for a time, I have had doubts. In my case, they have thus far stopped me and events in recent months have darkened my view somewhat. I see the potential, absolutely, but I'd be lying if i didn't say the risk profile has increased imho and frankly even scared me a bit.

It's really frustrating the second American store chain hasn't com through, and I still recall one of the posts I did see on this thread, when someone asked in the last year or so when they were forecasting a profit, and someone else answered '2013' (I think it was). But you get the drift.

[1gw] 01/10/2019 21:21

microscope - on a placing, it all depends how the business goes don't you think? All small companies are likely to be vulnerable to unexpected headwinds, and I don't think byotrol is an exception. A bad Brexit, or an unexpected regulatory change, or even some sort of falling out with the Medimark team could hit them meaningfully.

But if they are "sustainably cashflow positive" as the finnCap note suggests (or even if that status is in sight), there's no reason a placing should be a base case in the near-term. If the licensing deal with Solvay starts producing royalty cashflow, that could help hugely, as could any cash generative partnership deal in the US for byotrol24.

And if the market opportunity really is there to be a consolidator as weaker technologies and players fall away, then a placing to fund acquisition might also not be a bad thing for shareholders, although hopefully not until the share price has recovered meaningfully.

[1gw] 01/10/2019 21:12

microscope (and indeed all 3 "visitors") - I have followed this for some time and the origin of my investment in it is the same as that of my investment in TLY. Just as STT talked to me at some length about the attractions of tly when I met him, another RTHM poster talked to me about byotrol. So I started following both companies and invested in both some time after they each did a placing which I felt improved the odds of them making it. The post below is from shortly after I first invested in byot.

But I am (and was) under no illusions. They were both high-risk investments. I've sold most of my holding in tly for reasons I have shared on that board. At the moment I see no reason to sell my byotrol holding, although clearly I'm not happy that the price has been going down and the shares have been suspended because they can't organise an audit properly (and hopefully not for any other reason). But as far as the actual business and quality of management are concerned, I really like the odds. If either Solvay Actizone takes off or a good US partnership works out then the company will be transformed I think. And in the meantime, they seem to have a nice little business-as-usual, well-positioned from a technology point of view and apparently with a decent sales team now onboard.

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22 Nov '17 - 18:59 - 3010 of 3717 Edit 0 2 0
I followed this company for a long time before buying in. I always felt it was a bit vulnerable given the cash position (e.g. looking back at my notes I felt the comments in the 2015 AR about the "going concern" basis were a bit of a red flag at the time) and the uncertainty and likely cost associated with regulatory approvals.

But post-EPA approval/registration (and apparently also sure of EU biocides regulation compliance) and with the latest placing behind it, that covers most of those concerns for the time being. I like the look of the Solvay Actizone venture.

So for me it is now a very different investment proposition from say 12 or 24 months ago, particularly when I can build a position at less than the placing price.

[microscope] 01/10/2019 21:09

Do you agree with my view that a placing is likely, 1gw? What would be your hoped for price, if so?

[1gw] 01/10/2019 20:56

stt - the strategic drive for the Medimark acquisition was as much about acquiring a sales force as anything else I think. Having got their EU and EPA approvals through, how were they going to sell the new approved product with only 3 sales staff and 2 exec directors? Byotrol have had (and apparently do still have) a bandwidth problem, particularly at the top, which means they can't follow nearly all the opportunities that they can see.

They could have recruited a sales force from scratch, but Medimark was a company they knew and respected as I understand it. So rather than gamble on taking on sales staff who were good at selling their own capabilities, instead of being genuinely good at selling technical product, they had the opportunity to pick up the Medimark team. There should be material synergies to be had from getting the Medimark team selling byotrol product (and vv), and it is frustrating if this is being delayed by the earn-out structure. But even before synergies have been realised, they are talking about Medimark having delivered £1.8m of revenue and £311,000 of profit after tax in the 7 months since acquisition, with an expected total acquisition cost now of £3.5m. That doesn't sound too bad, if meaningful synergies are still there to be had. And from the comments on weaker technologies disappearing, it sounds like they could really use experienced technical sales staff to deliver the opportunities that will be created by competitors floundering.

[the ghost who walks] 01/10/2019 20:50

Comments on consolidation also interesting if you ask me

[1gw] 01/10/2019 20:39

I don't mind having a go at some of those points.

Nobby - have you ever done business development? I have, and in a much bigger company than Byotrol, and it still felt not much better than a "one man and his dog" operation. I was there to suss out the market and see if there was an opportunity to develop something in a market that was opening up - was it, for example, sufficiently similar to other markets we were in for us to have some sort of sustainable business there? The objective was to learn how it worked and how it was changing, who the players were, how the supply chains might work, how we might get started etc with the objective of not burning too much cash before we had some revenue to show for it. The dilemma was: spend too much (or commit too much) too soon and your sponsors (head office or whatever) pull the plug; don't spend enough and you can't move quickly enough to secure a sustainable future before the competition shuts you out.

Do you know how big byotrol is? Their average number of employees in FY18, according to yesterday's results was 18 made up as follows:
2 exec directors
8 R&D staff
5 admin staff
3 sales staff

Their revenue in FY18, as originally reported, was £3.1m, of which £1.5m was in the consumer segment. But most of this consumer revenue was actually a sale of Actizone IP by byotrol to Solvay. At end-FY18 they had £3.9m cash and equivalents.

So with that as background, how much resource do you think is appropriate to throw at the US market? This was essentially a tiny technology company that had got by on licensing deals and selling IP. It's not Tesco looking to launch Fresh & Easy.

They could have tried just to license byotrol24 to a US partner and taken a small royalty, or sell the ip outright and take a lump sum. But how much realistically could they have got for a product with some interesting claims on the (EPA-approved) label but no actual sales track record in country? They've ended up spending £385k in the US (again according to the report) in FY19. But they've proved the product will sell (very small volumes, but then minimal marketing spend) and will have sales data to go with the consumer research and other marketing data they have collected. That's got to make the product more valuable in the eyes of potential partners.

It would have been nice if they could have landed a second retail trial, or increased volumes more with Target, but it feels to me as though they've achieved a very impressive result given the limited resource they had available.